ANTECEDENT OUTCOMES STUDY ON GREEN VALUE CHAIN

INITIATIVES: A PERSPECTIVE FROM SUSTAINABLE

DEVELOPMENT AND SUSTAINABLE

COMPETITIVE ADVANTAGE

TAN TEONG JIN

Research report in partial fulfillment of the

requirements for the degree of MBA

UNIVERSITI SAINS MALAYSIA

2010
 ACKNOWLEDEMENTS

First and foremost, I would like to convey my heartfelt gratitude to my beloved wife

for her unwavering moral supports throughout the entire period of my MBA study,

and for her willingness to be always at my sides be it during a joyous moment or be it

during the most toughest, stressful, yet challenging occasions strained by both the

examination or project tensions. Indeed, all obstacles would appear insurmountable

without this kind of family motivated forces.

Then, I would like to express my whole hearted gratitude to all respondents from

various responding firms who have voluntarily taken their valuable time off their very

hectic business schedule in providing me with the actual industrial feedbacks with

regard to the topic of my research. Indeed, this project will not succeed without inputs

from these highly committed stakeholders who can be deemed as one of the core

components of green value chain initiatives.

Last but not the least, I would like to extend my cordial gratitude to my supervisor,

Assoc. Prof. Dr. Suhaiza Hanim for her very professional guidance accorded me

during the entire stage of the MBA research. Indeed, the knowledge and exposure

which I gained during this period of time are marvelous, irreplaceable, and will stay,

grow, and flourish for the remaining of my life.

May God bless and shower you all with mercy, love and good health. Thank you.

ii
 TABLE OF CONTENTS
Page
Acknowledgement ii
List of Tables viii
List of Figures ix
Abstrak x
Abstract xi

CHAPTER 1 INTRODUCTION 1
1.0 Introduction 1
1.1 Research Background 3
1.2 Evolution of Green Value Chain 6
1.3 Problem Statement 8
1.4 Research Objectives 9
1.5 Research Questions 10
1.6 Significance of the Study 10
1.7 Research Contributions 10
17.1 Theoretical Contributions 11
17.2 Practical Contributions 12
1.8 Definition of Key Terms 13
1.9 Organization of Remaining Chapters 16

CHAPTER 2 LITERATURE REVIEW 18

2.0 Introduction 18
2.1 Value Chain Theory 19
2.2 Resource-Based View Framework 20
2.3 Value Chain Versus Supply Chain 22
2.4 Sustainable Development 27
2.4.1 Sustainable Development External Factors 29
[Link] Legal Dimension 30
[Link] Social Dimension 31
[Link] Environmental Dimension 32
2.4.2 Sustainable Development Internal Factors 33
[Link] Cost Dimension 33
[Link] Risk Management Dimension 34

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 [Link] Corporate Social Responsibility Dimension 36
2.5 Green Value Chain Initiatives 39
2.5.1 Green Primary Activities 41
2.5.2 Green Resource Management 42
2.5.3 Environmental, Safety and Health (ESH) Activities 44
2.6 Sustainable Competitive Advantage (SCA) 45
2.6.1 Financial Performance 48
2.6.2 Social Performance 49
2.6.3 Environmental Performance 50
2.7 Interrelation between Sustainable Development and Green Value Chain 51
Initiatives
2.8 Interrelation between Green Value Chain Initiatives and Sustainable 52
Competitive Advantage
2.9 Summary of the Literature Review 58
2.10 Theoretical Framework 63
2.10.1 Antecedent Outcomes 64
2.11 Hypothesis Development 66
2.11.1 Sustainable Development and Green Value Chain Initiatives 66
2.11.2 Green Value Chain Initiatives and Sustainable Competitive 68
Advantage
2.12 Control Variables 69
2.13 Summary of the Chapter 70

CHAPTER 3 METHODOLOGY 72
3.0 Introduction 72
3.1 Research Design 72
3.2 Population and Sample Size 72
3.3 Procedure 74
3.4 Measurement of Variables 74
3.4.1 Instruments of Sustainable Development 75
3.4.2 Instruments of Green Value Chain 77
3.4.3 Instruments of Sustainable Competitive Advantage 78
3.4.4 Control Variables 80
3.5 Development of Questionnaires 81
3.6 Expected Findings 82
3.7 Proposed Statistical Analysis 82

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3.8 Summary of the Chapter 83

CHAPTER 4 RESULTS 85
4.0 Introduction 85
4.1 Profiles of Respondents and Responding Firms 85
4.2 Goodness of Measure 90
4.2.1 Factor Analysis of Sustainable Development Factors 90
4.2.2 Factor Analysis of Green Value Chain Initiatives 94
4.2.3 Factor Analysis of Sustainable Competitive Advantage 97
4.3 Reliability Analysis 98
4.4 Revised Framework 100
4.5 Restated Hypotheses 100
4.6 Descriptive Analysis 101
4.7 Correlation Analysis 103
4.8 Hypotheses Testing 105
4.8.1 Effects of Sustainable Development Factors on Green Primary 105
Activities
4.8.2 Effects of Sustainable Development Factors on Green Resource and 108
Capability Management
4.8.3 Effects of Green Value Chain Initiatives on Financial Performance 111
4.8.4 Effects of Green Value Chain Initiatives on Socio Environmental 112
Performance
4.9 Summary of Results 115

CHAPTER 5 DISCUSSIONS AND CONCLUSIONS 117

5.0 Introduction 117
5.1 Recapitulation of the Study Findings 117
5.2 Discussion 119
5.2.1 Sustainable Development Factors that Drive Green Value Chain 119
Initiatives among Manufacturing Firms in Malaysia
5.2.2 Correlation between Sustainable Development Factors and Green 121
Value Chain initiatives
5.2.3 Correlation between Green Value Chain initiatives and Sustainable 123
Competitive Advantage
5.2.4 Effects of Firm Size and Type of Product on Correlation between 124
Corporate Social Responsibility Dimension and Green Primary
Activities

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 5.2.5 Effects of Firm’s Ownership Status on Correlation between Risk 125
Management Dimension and Green Resource and Capability
management
5.2.6 Major Results of This Study 127
5.3 Implications 128
5.3.1 Theoretical Contributions 128
5.3.2 Practical Contributions 129
5.4 Limitations 130
5.5 Future Research 131
5.6 Conclusion 131

REFERENCES 134
APPENDICES
Appendix A QUESTIONNAIRES 150
Appendix A1 Questionnaire Design 151
Appendix A2 Covering Letter for the Questionnaire 159
Appendix B SPSS OUTPUT 160
Appendix B1 Profile of Respondents 161
Appendix B2 Profile of Responding Firms 163
Appendix B3 Factor Analysis 166
Appendix B3.1: Factor Analysis for Sustainable 166
Development Factors
Appendix B3.2: Factor Analysis for Green Value 169
Chain Initiatives
Appendix B3.3: Factor Analysis for Sustainable 174
Competitive Advantage Indicators
Appendix B4 Reliability and Descriptive Statistics 177
Appendix B5 Pearson Correlations between All Variables 179
Appendix B6 Regression Analysis (RA) 181
Appendix B6.1: RA for Sustainable Development 181
Factors and Green Primary
Activities
Appendix B6.2: RA for Sustainable Development 184
Factors and Green Resource and
Capability Management

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 Appendix B6.3: RA for Green Value Chain 187
Initiatives and Financial
Performance
Appendix B6.4: RA for Green Value Chain 190
Initiatives and Socio Environmental
Performance
Appendix B7 Green Value Chain in the Context of Sustainable 193
Development and Sustainable Competitive
Advantage: A Conceptual Framework

vii
 LIST OF TABLES
Page
Table 2.1 Value Chain Versus Supply Chain 26
Table 2.2 Summary of Researches 59
Table 3.1 Instruments of Sustainable Development 76
Table 3.2 Instruments of Green Value Chain Initiatives 78
Table 3.3 Instruments of Sustainable Competitive Advantage 80
Table 3.4 Instruments of Control Variables 81
Table 4.1 Profiles of Respondents 87
Table 4.2 Profiles of Responding Firms 88
Table 4.3 Purposes and Expectation of ISO14001 among Manufacturing Firms 90
in Malaysia
Table 4.4 Rotated Factor Loadings for Sustainable Development Factors 92
Table 4.5 Rotated Factor Loadings for Green Value Chain initiatives 94
Table 4.6 Rotated Factor Loadings for Sustainable Competitive Advantage 98
Indicators
Table 4.7 Cronbach’s Alpha of Study Variables 99
Table 4.8 Descriptive Statistics for Main Variables 102
Table 4.9 Mean, Deviation, and Pearson Correlation Coefficients of All 104
Variables
Table 4.10 Multiple Regression: Effects of Control Variables and Sustainable 107
Development Factors on Green Primary Activities
Table 4.11 Multiple Regression: Effects of Control Variables and Sustainable 109
Development Factors on Green Resource and Capability Management
Table 4.12 Multiple Regression: Effects of Control Variables and Green Value 112
Chain Initiatives on Financial Performance
Table 4.13 Multiple Regression: Effects of Control Variables and Green Value 113
Chain Initiatives on Socio Environmental Performance
Table 4.14 Summary of Hypotheses Test Results 114

viii
 LIST OF FIGURES
Page
Figure 1.1 Value Chain Model by Michael Porter 5
Figure 1.2 Evolution of Green Value Chain 7
Figure 2.1 Value Chain Versus Supply Chain 25
Figure 2.2 Research Design Framework 66
Figure 3.1 ISO 14001 Certified Firms in Malaysia as at 31 August 2009 73
Figure 4.1 Revised Framework after Conducting an Exploratory Factor 100
Analysis
Figure 4.2 Effect of Firm Size and Type of Product on the Correlation 107
between Corporate Social Responsibility and Green Primary
Initiatives
Figure 4.3 Effect of Firm’s Ownership Status on the Correlation between 110
Risk Management, and Green Resource and Capability
Management

ix
 ABSTRAK

Kemunculan rantaian nilai hijau atas kesedaran tentang kepentingan alam sekitar

akibat daripada daya pembangunan lestari demi memastikan pencapaian keunggulan

kompetitif lestari di pasaran merupakan polar perniagaan yang tidak dapat dielakkan

sejak kebelakangan ini. Hasrat muktamadnya adalah untuk mencapai suasana sosial

dan alam sekitar yang harmoni, di samping mengecapi matlamat kewangan firma.

Dalam projek ini, kajian keperluan keputusan rantaian nilai hijau dalam hubungannya

terhadap pembangunan lestari serta keunggulan kompetitif lestari telah dijalankan ke

atas 300 firma bersijil ISO 14001 di Malaysia melalui soal selidik yang dihantar

menerusi pos. Keputusan berdasarkan kepada kadar pembalasan 30.0% menunjukkan

bahawa pengurusan risiko, tanggungjawab sosial syarikat, dan tanggapan tentang

sosio alam sekitar merupakan tiga keperluan yang paling utama sekali bagi

pencapaian inisiatif rantaian nilai hijau yang lazimnya dilaksanakan menerusi aktiviti-

aktiviti prima hijau serta pengurusan sumber dan kamampuan hijau. Pencapaian

tersebut akan membawa kepada pencapaian keunggulan kompetitif lestari dalam

bentuk prestasi kewangan serta prestasi sosio alam sekitar. Hubungan inisiatif

rantaian nilai hijau yang dikaji dalam projek ini dapat menambahkan lagi ilmu

pengetahuan baru ke arah pemanjangan serta memperkayakan lagi model Rantaian

Nilai Michael Porter terutamanya dari segi menghubungkannya kepada daya desakan

pembangunan lestari di bahagian masukan dan mencipta keunggulan kompetitif

lestari di bahagian keluaran, di samping menerangkan keuntungan yang boleh

dikecapi daripadanya.

x
 ABSTRACT

Green value chain in the wake of environmental conscious due to sustainable

development forces to ensure achievement of sustainable competitive advantage in

market place has been perceived as an inevitable global business trends in recent

years. The ultimate intention of which is to attain a harmonized social and

environmental ambient besides fulfillment of financial goal of firms. In this study, the

antecedent outcomes study of green value chain initiatives in relation to sustainable

development and sustainable competitive advantage has been carried out by

conducting a survey on 300 ISO 14001 certified manufacturing firms in Malaysia via

mailed questionnaires. Results based on 30.0% response rate showed that risk

management, corporate social responsibility, and socio environmental considerations

stand out to be the three utmost important antecedents of green value chain initiatives,

which are being executed through green initiatives, and green resource and capability

management. These in turn, lead to achievement of sustainable competitive advantage

in terms of financial performance and socio environmental performances. The

antecedents and outcomes relationship in respect to green primary activities, and

green resource and capability management as being established in this study can add

considerably novel knowledge towards extension and enrichment of Michael Porter’s

Value Chain Model especially in terms of linking it to the sustainable development

driven forces at the input and creating sustainable competitive advantage at the output

besides uncover the practical benefits that can be gained thereof.

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 CHAPTER 1

INTRODUCTION

1.0 Introduction

Towards the inception of new millennium, the world has quickly taken an entire new

look against the evolution of novel manufacturing practices in the wake of growing

environmental conscious (Zhu & Dou, 2007), whereby firms attempt to out-perform

each other through creation of a nexus of Sustainability Development strategies via

implementation of various environmental initiatives along the value chains (Handfield

et al., 1997; Arifin et al., 2009) which span across the entire customer order cycle,

start right from the beginning of raw material procurement, systematically treading

through the designing, manufacturing, assembling, packaging, and logistics stages,

and finally deliver to the hands of customers via distribution networks (Grunert &

Hildebrandt, 2004).

The roll-out of the ISO 14001 Environmental Management System (EMS) is

in fact driving this type of transition towards a time where environmental friendly

practices are no longer be an optional business practice, but rather a competitive

necessity for survival (Handfield et al., 1997). Grunert and Hildebrandt (2004)

ascribed the changes that firms undertake toward development of special skills for

adaptability and innovativeness to the environmental dynamics forces. These green

trends of conserving the Earth’s resources and protecting the environment are thereby

exerting irresistible pressures on corporate manufacturing practices, and hence anew

the entire manufacturing culture through rapid globalization influences, especially

with the advancement of the information technology system (Chien & Shih, 2007).

1
 In the process of evaluating the environmental consideration, firms need to

shift its paradigm from the conventional departmental time-static worldview to a more

holistic perspective which can effectively enable the observers to envision the

interconnection between economic growth, environmental and social responsibility

(Setthasakko, 2009). Such efforts will eventually result in cleaner, safer operations,

reduced usage and acceptable substitutions for hazardous substances, increased

product recyclability and recovery, and improved transparency of information

available to all stakeholders (Dawes, 2009). Currently, whenever sustainable is the

topic of discussion among industry partners, such as in the electronics and chemical

industries, the focus is strongly influenced and determined by regulatory

requirements, in particular related to end-of-life or reverse logistics management of

products. In this light, future developments related to sustainable that might become

more real to industry in years to come is expected to widen to encompass green

marketing, communication, change management, and green value chain management

(Takata & Umeda, 2007).

This study, however, will only address the issue of green value chain

initiatives as a focus of this study. It is believed that a green value chain is a

promising area of study that has the potential to provide significant benefits to firms

and the society. Accordingly, the study starts with this introductory chapter which

gives general idea about the research topic and problem of the study. The chapter

starts with providing background of the study. The background includes also

discussions on the evolution of green value chain. The chapter then followed by the

problem of the study, the research questions and objectives. Next, the chapter portrays

the significance of the study, expected contributions and its focus. The chapter ends

with defining the key terms of the study and organization of the thesis.

2
1.1 Research Background

Conventional practices of manufacturing firms often perceive pollution as an

inevitable by-product give rise due to economic activities, and habitually utilize

natural environment as a sink to dispose of this pollution. This has led to the pollution

of three main geo-chemical reservoirs i.e. atmosphere, biosphere and hydrosphere on

which mankind depend on for survival (Gandhi et al., 2006). Reciprocating to these

irresponsible actions which invariably cause pollution to the eco system,

manufacturing firms have, over the last decades, gradually been moving toward

achieving greater environmental awareness mainly attributable to two sets of

pressures, namely public concerns and green consumer movement. The former often

result in establishment of environmental legislation, while the latter has exerted great

influences on the manufacturing practices (Sarkis & Rasheed, 1995). These emerging

pressures hold manufacturing firms as one of the responsible parties for contributing

towards the environmental pollution (Tan et al., 2002). Advancement of information

technology has also enabled environmental pressure in one region to be spread rapidly

to other parts of the world and these environmental concerns are expected to cause

significant fundamental changes in products design and technologies employed

(Green et al., 1998). If an organization has environmental liabilities, stakeholders may

often hold the lead firm in a particular supply chain responsible for the adverse

environmental impacts of all organizations within a specific supply chain for a

particular product (Rao & Holt, 2005).

Most often, environmental issues are being viewed as a partnership effort

between the industry and the public community in general, whereby effective

environmental management is truly perceived as a potential factor in not only enables

manufacturing firms enhancing its financial performance but also in creating

3
sustainable competitive advantage (Rao & Holt, 2005). Proactive firms, which

consider environmental concerns as part of the quality management via internalization

of the environmental challenges and optimization of the resources in meeting its

customer needs and handle environmental issues (Handfield et al., 1997), will

integrate eco-design considerations as early as possible into product realization

process as this will introduce flexibility in making changes and improvements to

products (Donnelly et al., 2006). By adhering to this, firms perceive that they will be

rewarded by gaining entry into the global market (Tan, 2005).

The ways by which one company can differentiate itself and gain market share

over another can be analysed by using the Value Chain model (Schatzberg et al.,

1997). The value chain approach was developed by Michael Porter in 1980s in his

book “Competitive Advantage: Creating and Sustaining Superior Performance”

(Porter, 1985). Value chain can be seen as a collection of activities that a firm

undertakes in order to provide the offering to the market; with the attributes that the

market wants, and with the price that the market is willing to pay. The concept of

value added, in the form of the value chain, can be utilized to develop an

organization’s sustainable competitive advantage in the business arena of the 21st

century. All organizations consist of activities that link together to develop the value

of the business, and together these activities form the organization’s value chain. As

depicted in Figure 1.1, such activities may include purchasing activities,

manufacturing the products, distribution and marketing of the company’s products

and activities (Lynch, 2003). Since then, the value chain framework has been used as

a powerful analysis tool for the strategic planning of an organization for nearly two

decades. The aim of the value chain framework is to maximize value creation while

minimizing costs.

4
(Source: Adopted from Creating and Sustaining Superior Performance, Michael E.
Porter, 1985)
Figure 1.1. Value Chain Model by Michael Porter.

In conjunction to the Value Chain, corporate and operational managers strive

to create more value by optimizing the supply-chain activities. Optimization of supply

chain activities means competition from other firms, primarily on cost-efficiency

(Takata & Umeda, 2007). They argued that the optimization of supply chain activities

alone cannot always yield a source of competitive advantage. This is for the simple

reason that value chain not only seeks to do away with the activities that do not add

value, but establishes the importance of other support activities, including

infrastructure, technology, and so on, that play a vital role in providing the foundation

for competitive advantage (Lynch, 2003). Value chain's primary activities are similar

to the primary functions of the supply chain. Where supply chain focuses on

efficiency of every function, value chain focuses on the functions that are critical to

be effective. Although efficiency can be termed as the hygiene factor, it is this

effectiveness that has the potential to provide a scope for competitive advantage. The

primary and secondary elements of the value chain and their interrelationships make

5
the value chain behave as a complex system, where the system mostly remains in a

seemingly critical state of instability (Ahmed & Sharma, 2006). They suggested that

instability can be seen as the opportunity for the strategic managers to provide a basis

for competitive advantage. Such instability, which is mainly attributable to the ever

changing customer perceived value, can best be depicted by the evolution of green

value chain as elaborated in subsequent section 1.2.

1.2 Evolution of Green Value Chain

The concept of a value chain has assumed a dominant position in the strategic analysis

of industries over the past decades (Peppard & Rylander, 2006). Following a wave of

change termed as Business Process Reengineering (BPR), that began in 1990s (Figure

1.2), manufacturing firms worldwide started to give due emphasis on the crucial

importance of processes in value creation and management by adopting TQM and JIT

management tools (Hammer, 1990). The subsequent impetus which further stressed

the need for firms to develop technology-based and organizational competencies that

could not be easily imitated by their business rivals was boosted under the second

wave of change which was termed as Core Competency Movement (CCM) (Hamel &

Prahalad, 1994). The confluence of the Business Process Reengineering and Core

Competency movement had eventually engendered in unbundling of value chains,

outsourcing, and innovations in contracting and supply chains. The trends which was

centered on the supply chain has inspired similar trends at the corporate level as firms

evolved from lean operations to lean enterprises and then to lean consumption

(Kleindorfer et al, 2005).

6
(Source: Adapted from Value Chain to Value Network: Insights for Mobile Operators
by Peppard & Rylander, 2006)

Figure 1.2. Evolution of Green Value Chain.

As the new economic order unfolded, and concurrently, there has been

increasing public attention placed on the overall condition of the natural environment.

Manufacturing firms started to realize and recognize that the long-term success of

firms actually lies not only on the profitability of business, but also the future of

people and the future of the planet Earth. Waste generation and depletion of natural

resources are said have outstripped the earth’s ability to recuperate (Beamon, 1999).

These new legitimacy concerns, which are being captured in the concept of 3P namely

People, Profit and Plane, are well aligned with the concept of sustainable development.

Another relatively new concept which is well in line with the green value chain

concept is termed as Environmental Responsible Manufacturing (ERM). Fundamental

to ERM rests on the recognition that pollution, irrespective of its type and form, is all

waste. By minimizing waste, firms can reduce disposal costs, and permit requirements,

avoid environmental fines, boost profits, discover new morale, protect and improve

the state of the environment (Curkovic, 2003).

The inception of 21st century sees the emergence of another imperative

modern manufacturing strategy namely Green Manufacturing, which integrates all

issues related to manufacturing with ultimate goal to reduce and minimize

7
environmental impact and resources consumption during a product life cycle inclusive

of designing, synthesis, processing, packaging, transportation, and the use of products

in continuous or discrete manufacturing industries. Pursuing the Green Manufacturing

strategy would enable manufacturing firms to effectively allay the environment

burdens (Tan et al., 2002).

1.3 Problem Statement

In view of the increasingly wide-spread adoption of the ISO 14001 standards, it is

expected that there will be reaching such a time where emphasis on green value chain

(GVC) via implementation of the Environmental Management System will sooner or

later become a norm among the manufacturing firms in Malaysia, whereby benefits of

which are evidently clear, such as increasing in overall operating efficiency; reduction

in energy usage; cost saving through recycling of product inputs; improved product

and service quality; less rejects and reworks; reduced packaging cost etc. (Tan, 2005).

Extensive literatures review indicated that most of the research studies carried

out thus far is in fact merely concentrated on Green Supply Chain management per se

(Beamon, 1999; Ofori, 2000; Hervani et al., 2005; Zhu et al., 2005 Ferretti et al.,

2007; Chien & Shih, 2007; Zhu & Dou, 2007; Simpson et al., 2007; Zhu et al., 2008)

and in most of the circumstances, these researches tend to focus on single aspect such

as Green Purchasing (Green et al., 1998; Geng & Doberstein, 2006; Eltayeb & Zailani,

2009), Green Design (Madu et al., 2002; Pujari et al., 2003; Knight et al., 2009;

Eltayeb & Zailani, 2009), Green Production (Tan et al., 2002; Taylor, 2005), Green

Consumption (Spaargaren & Mol, 2008), Reverse Logistics (Eltayeb & Zailani, 2009)

etc., as oppose to investigate from the perspective of green value chain (Sarkis &

8
Rasheed, 1995; Caldwell & Smallman, 1996; Handfield et al., 1997; Solvang et al.,

2006; Dahlstrom & Ekins, 2006).

Even if such studies may have been carried out, majority of them covered only

the ostensible aspects of green value chain and the linkages with its antecedent such

as sustainable development (Callens & Tyteca, 1999; Bond et al., 2001; Mog, 2004;

Gandhi et al., 2006), and rarely they covered the linkage between green value chain

and sustainable competitive advantage (Rao & Holt, 2005).

From the aforementioned findings, it can be inferred that albeit more and more

management theorists have begun to consider ecological and green sustainability as a

study framework for organization, little prior theories exist to ground testable

hypotheses concerning the antecedent and outcome effects in creating the green value

chain from the perspective of sustainable development, and the contribution of green

value chain in leading towards creation of the sustainable competitive advantage.

Lacking understanding of which may culminate in underestimating the important and

crucial roles lead by these very important dimensions in the efforts of creating

effective future sustainable strategies for the manufacturing firms. With these

arguments in mind, questions arise about as to what extent does sustainable

development contribute towards creation of green value chain for the manufacturing

firms in Malaysia and to what extent does green value chain contribute towards

creation of sustainable competitive advantage for the manufacturing firms in Malaysia?

1.4 Research Objectives

The primary objectives of this research paper are:

i. to examine the effects of antecedents of green value chain initiatives adoption

from the perspective of sustainable development, and

9
 ii. to investigate the outcomes of green value chain initiatives in relation to

sustainable competitive advantage.

1.5 Research Questions

This study will be conducted to answer the following research questions:

i. To what extent does sustainable development contribute towards creation of

green value chain initiatives for the manufacturing firms in Malaysia? and

ii. To what extent do green value chain initiatives contribute towards creation of

sustainable competitive advantage for the manufacturing firms in Malaysia?

1.6 Significance of the Study

This research study, which is intended to cover the gaps identified through the

subsequent literature review as elaborated in problem statement, aims to give due

contributions in providing an insightful explanation as to how and to what extent the

causal relationship between green value chain initiatives and its antecedent i.e.

sustainable development, and between green value chain initiatives and its outcome

i.e. sustainable competitive advantage in creating sustainable long-term strategies for

the manufacturing firms in Malaysia.

1.7 Research Contributions

This study attempts to enrich the extant published literatures by identifying types of

antecedents that significantly drive manufacturing firms towards implementing green

initiatives along the value chains, and at the same time, to evaluate the outcomes

benefited therefrom. More precisely, the study contributes in terms of theoretical and

practical as enumerated and elaborated follows:

10
1.7.1 Theoretical Contributions

A prior study conducted by Wisner et al. (2003) shows that firms with an alignment

of management, strategic planning, and proactive managerial actions toward

environment performance are the firms that achieve the best environmental

performance. Better environmental performance, in turn, is significantly and

positively related to measures of return on investment and earnings growth. The study

however did not elaborate as to what way the firm resources can be put at optimal use.

Clemens and Douglas (2006), however, pointed out that although voluntary green

initiatives is positively related and driven by both the external coercion forces and

internal firm resources forces, this relationship is however contextual in nature. As the

internal firm resources become superior, it dampens the relationship between external

coercion and voluntary green initiatives. These findings seem to be interesting as in

real industrial practices, the synergistic effect of the coexistence of compliances to

legislative requirements and establishment of superior firm resources are in fact basic

necessities that completely out-weighed the dampening effect. This implies that there

must be other reasons that why their consistent is important.

Given that existing knowledge on green value chain is still lacking, this study

intends to add considerable knowledge towards extension and enrichment of Michael

Porter’s Value Chain Model in creating sustainable competitive advantage according

to the needs of 21st century which give due emphasis and focus on achieving

sustainable resource consumption in maintaining harmonic living environment.

Furthermore, the study also aims to identify the outcomes benefited thereof, which

can add to the knowledge about the value and importance of implementing green

value chain to organizations and the society at large. Besides these, the knowledge

11
can also enrich theories as how optimization of the usage of firm resources can be

gained through green value chain initiatives which flow outside-in from customers.

1.7.2 Practical Contributions

Al-Mudimigh et al. (2004) had pointed out that it is important to focus on processes

and identifying core critical activities within organizations that have high leverage

abilities, which can enable organizations to define their value propositions. It is also

equally important to have a clearly defined value chain strategy, that is deployable

and that can be monitored on a regular basis that can deliver the wished and levels of

ambitions of any organization concerned. Nevertheless, their study did not outline the

ultimate benefits that can be derived thereof. This is important as knowing the

benefits can serve as important drivers for firms to pursue green initiatives within the

organization.

Arifin et al. (2009) had, based on their research conducted on manufacturing

firms in Malaysia found out that, albeit an Integrated Management System which

encompasses quality, environmental, safety and health acts as a far better and more

dynamic model in management today, organizations are more likely to adopt the

novel concept if they are furnished with more information on the benefits of the

system. Such information can normally be obtained through participation in eco-

network (Stormer, 2008). For example, Eltayeb and Zailani (2009) had found out that

firms that participate in green-interested associations have significantly higher level of

adoptions of green initiatives than firms that do not participate; firms with large

supplier base are found to be significantly higher in green purchasing and eco-design

than firms with lower supplier base. Therefore, this study is intended to uncover the

12
benefits that can be gained from green value chain, especially in achieving long term

sustainable competitive advantage.

1.8 Definition of Key Terms

In order to clarify the language used in this study, the following definitions have been

chosen:

Sustainable development (SD) is being defined as development that meets the needs

of the present without compromising the ability of future generations to meet their

own needs (World Commission on Environment and Development, 1987).

Legal dimension encompasses identification and compliance to legal requirement that

are applicable to the environmental aspects of an organization, inclusive of (i)

national and international legal requirements; (ii) state / provincial / departmental

legal requirements; and local governmental legal requirements (International

Organization for Standardization, 2004).

Social dimension, within the context of this study, is defined as initiatives toward

meeting the expectation of persons or group whom are concerned with or affected by

the environmental performance of an organization (International Organization for

Standardization, 2004).

Environmental dimension, within the context of this study, is defined as initiatives

towards identifying, control, and monitoring of environmental aspects and impacts, as

well as to maintain a properly executed Environmental Management System within

the organization (International Organization for Standardization, 2004).

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The fundamental concept of Triple bottom line was built under the premise that the

overall performance of a company should be measured based on its combined

contribution to economic prosperity, environmental quality and social capital

(Commission of The European Communities, 2001).

Cost dimension, within the context of this study, is defined as initiatives towards lean

manufacturing as part of a manufacturing survival strategy with the intention of

mitigating business risk through gaining of benefits derived from effective cost

management (Groth & Kinney, 1994; [Link], 2006).

Corporate social responsibility (CSR) is a concept whereby firms decide voluntarily

to contribute to a better society and a cleaner environment by integrating social and

environmental concerns in their business operations and in their interaction with their

stakeholders (Commission of The European Communities, 2001).

Risk concerns the probability and consequences of the failure of a strategy (Johnson

et al., 2008). Within the context of this study, risk management, which can be deemed

as one of the central part of the organization’s strategic management, is the process

whereby organizations methodically address the risks attaching to their activities with

the goal of achieving sustainable benefit within each activity and across the portfolio

of all activities. The focus of good risk management is to identify and minimize these

risks with the objective to add maximum sustainable value to all the activities of the

organization. (The Institute of Risk Management, 2002).

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A value chain can be defined as the set of activities spanning the entire customer

order cycle, including design, procurement, manufacturing and assembly, packaging,

logistics, and distribution (Handfield et al., 1997). A green value chain (GVC)

incorporates a new dimension of value into the traditional value chain, namely,

environment (Solvang et al., 2006).

Primary Activities are those activities that are directly concerned with the creation or

delivery of a product or service. Green primary activities are defined as primary

activities which are incorporated with dimension of environment (Johnson et al.,

2008).

Resources are the physical capital, human capital, and organizational capital owned or

controlled by a firm that can be used to conceive of and implement strategies.

Capabilities reflect a firm’s ability to combine resources that the organization can

muster in ways that promote superior performance in spite of the opposition stemming

from the competition and circumstances. Green resource and capability management

is defined as ways to control the underlying resources and capabilities available

within a firm to ensure meeting of its strategic objectives by taking into consideration

dimension of environment (Dehning & Stratopoulos, 2003; Solvang et al., 2006).

Environmental, Safety and Health (ESH) Training is defined as training which is

intended to ensure that persons performing tasks that have the potential to cause a

significant environmental impact are competent on the basis of appropriate education,

training, or experience (Madsen & Ulhoi, 2001; International Organization for

Standardization, 2004).

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Sustainable competitive advantage (SCA) is competitive advantage that resists

erosion by competitor behavior (Bharadwaj et al., 1993).

Financial performance refers to the importance of the pecuniary outcomes derived

from business activity. Measures of financial performance can be based on accounting

data or market value (Benito & Benito, 2003).

Social performance is defined as an organization’s configuration of principles of

social responsibility, processes of social responsiveness, and policies, programs, and

observable outcomes as they relate to the firm’s societal relationship (Orlitzky, 2000).

Environmental performances are measurable results of an environmental management

system related to the control of its environmental aspects. Assessment of

environmental performance is based on environmental policy, environmental

objectives and environmental targets (International Organization for Standardization,

2004).

1.9 Organization of Remaining Chapters

In order to enable the research to be conducted in a much more systematic and well

organized manners, Chapter 2 will be started with extensive and detailed literature

review which is to cover theories, findings, knowledge, and ideas that had been

established by previous scholars and researchers in this particular topic. In Chapter 3,

a theoretical research design framework and hypotheses will be formed and relevant

research methodology will be proposed. Research data collected thereafter will be

duly analyzed by using SPSS technique and results inferred thereof will be presented

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in Chapter 4. This will be followed by detailed discussions in Chapter 5, which are to

be supported by established literatures’ findings. Final conclusions will be made and

due recommendations will also be suggested for future research.

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 CHAPTER 2

LITERATURE REVIEW

2.0 Introduction

Increasing awareness of environmental protection worldwide, and the pressure

accompanying globalization has prompted manufacturing firms to improve their

environmental performance (Chien & Shih, 2007), and to address all environmental

related issues in order to maintain customers, exist, and thrive in an ever more critical

global economy (Chavan, 2005). This environmental preoccupation appeared to

become part of sustainable development (Callens & Tyteca, 1999). Sustainable

development often been cited as one of the main mechanism for changing the

economic growth. Nevertheless, one of the main barriers to sustainable industrial

development rests on how to implement these sustainable strategies, or more

importantly, how to introduce them into the existing practices whilst ideally

improving competitiveness (Baldwin et al., 2005). Accordingly, this chapter contains

the literature review on the differences of value chain versus supply chain, green

value chain initiatives, the sustainable development and the sustainable competitive

advantage.

Two underlying fundamental theories, i.e. Value Chain Theory and Resource

Based Theory, will be cited to support the findings and discussion of this research

study. Effective value chain management often provides organizations with the

opportunity to develop value proposition via identification of their core competencies

as well as to develop synergy levels and seamlessness between various activities in

converting customer needs into outputs. By doing these, it will enable organization to

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position themselves in the market place (Al-Mudimigh et al., 2004). This Value Chain

concept, which is also the staple idea in the management and research literature

nowadays, has in fact become the focus for evolving strategies, enterprise models, and

numerous efforts at improving business performance (Feller et al., 2006). The

Resource Based Theory, on the other hand, articulates that the very basis of

sustainable competitive advantage of an organization stems from its capabilities such

as value, rareness, inimitability and organization. Successful firms use their

capabilities to add value by using these capabilities in a proactive way and by

demonstrating appropriability, or the ability to realize the benefits of a distinctive

capability for the benefit of the organization itself (Matthews & Shulman, 2005).

2.1 Value Chain Theory

The term “Value Chain” was first been introduced by Michael Porter (1985) in his

book “Competitive Advantage: Creating and Sustaining Superior Performance” as a

tool for identifying ways to create more customer value. Porter articulated that the

source of superior performance in competitive markets is the competitive advantage

of the firm. According to the value chain model, the competitive position of an

organization is closely related to the activities that an organization performs in

creating value and cost in a specific business. These nine value creating activities

consist of five primary activities and four support activities. The primary activities

cover the sequence of inbound logistics, operations, outbound logistics, marketing and

sales, and service. The support activities, on the other hand, comprised of

procurement, technology development, human resource management, and firm

infrastructure. The terms “Margin” implies that an organization can realize the desired

profit margin depending on their ability to manage the linkages between all activities

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in the value chain. In order words, the organization is able to deliver a product or

service for which the customer is willing to pay more than the costs of all activities in

the value chain (Kotler & Keller, 2006). In this study, the value chain is driven by

customer and organizations are perceived can create sustainable competitive

advantage by greening all relevant activities along the value chain.

2.2 Resource-Based View Framework

There are to-date exist two most extensively applied complementary models with

respect to the research of competitive advantage, both of which are simultaneously

grounded in economic theory. The first model, which is a typical market-based model,

focuses on achieving competitive advantage through Porter’s three generic strategies

i.e. (i) Overall cost leadership; (ii) Differentiation; and (iii) Focus. This theory of

competitive advantage is mainly driven by external factors. Conversely, the second

model, which centers on the firm’s resources and is driven by factors that are internal

to the organization, mainly focuses attention both on the resources endowments of

firms and on the characteristics of resources that cause asymmetries to persist (Reed

et al., 2000; Fahy, 2002).

According to the Resource-based View framework, the firm is viewed as a

nexus of resources and capabilities that are not freely bought and sold in the spot

market. These resources encompass all input factors such as tangible and intangible,

human and nonhuman, that are owned and controlled by the firm and that enter into

the production of goods and services to satisfy customers’ needs. A fundamental

premise of the resource-based view is that organizational competencies that are

heterogeneous and immobile form the basis of sustained competitive advantage (Lado

& Wilson, 1994).

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 Two key features appear to be germane, i.e. the resources must enable the

creation of value and must also resist the imitation efforts of competitors (Barney,

1991). Idiosyncratic resources that provide operational superiority or help create a

superior market position allow the firm to earn above normal returns. In this

Resources-based View theory model, sustainability of advantage relies heavily upon

those inimitable resources, that are inclusive of assets, capabilities, organizational

processes, firm attributes, information, and knowledge. These inimitable resources

can then be further classified in terms of physical, human, or organizational capital.

Unlike the physical capital, human and organizational capitals are being perceived as

the real main drivers of competitive advantage as they are not as easily acquired in

factor markets (Reed et al., 2000). Intangible resources, which encompass intellectual

property rights of patents, trademarks, copyright and registered design; contracts;

trade secrets; knowledge; subjective resources of know-how; networks; organizational

culture; and the reputation of product and firm; employees’ ability to manage change

etc. are all key determining resources of sustainable competitive advantage (Hall,

1993). The properties of resources that generate asymmetries and inimitable in the

short run include regulatory protection (Hall, 1992), scale (Collins & Montgomery,

1995), and causal ambiguity generated by high levels of tacitness, complexity and

specificity (Reed & DeFillipi, 1990).

In contrast to explicit knowledge, which is conscious and can be put into

words, tacit knowledge entails information that is difficult to express, formalize, or

share. Tacit knowledge develops when unconscious, inductive mental processes

create a presentation of the structure of the environment showing the relationship

between important variables. Because tacit knowledge is much harder for competitors

to copy than explicit knowledge, the ability to capture and transfer tacit knowledge is

21
the key to developing sustainable competitive advantage (Lubit, 2001). Hence, as

being pointed by Lado and Wilson (1994), the Resource-based View, by nature, is

more appropriate to handle issues pertaining to strategy process. Gavronski et al.

(2008) argued that the main objective of formulating a resource utilization strategy is

to maximize the revenues generated by these resources.

In this study, effective resource and capability management is an essential

factor toward achieving sustainable competitive advantage. Most often, experience

that firms gained from green value chain exercises are unique to firms, ambiguous in

context, and may develop into organizational culture and core competency of the

firms which is hard to imitate by their competitors.

2.3 Value Chain versus Supply Chain

The Value Chain concept, which was epitomized by Porter (1985), defined “value

chain” as the combination of nine generic value added activities that work together

and are being practising within a firm to provide value to customers. Value, within the

context of Michael Porter’s Competitive Advantage framework, is being perceived as

the amount buyers are willing to pay in return for what a firm provides. According to

Houlihan (1987), the value created is then managed through what has been referred to

as the supply chain. Al-Mudimigh et al. (2004) and Feller et al. (2006) had later

extended the definition of value to a broader extend:

i. Value is perceived by the customers rather than objectively determined

by the seller;

ii. Value is a subjective experience that is dependent on context and

varies in the eyes of the beholder;

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 iii. Value occurs when needs are met through the provision of products,

resources, or services;

iv. Value is an experience, and it flows from the customers; and

v. Value typically involves a trade-off between what the customers

receive and what they give up to acquire and use a product or service.

Dekker (2003) defined value chain as the horizontal linked set of value-

creating activities all the way from basic raw material sources for component

suppliers through the ultimate end-use product delivered into the hands of final

customers. The primary focus in value chains is downstream-pivoted, mainly on the

benefits that accrue to customers, the interdependent processes that generate value,

and the resulting demand and funds flows that are thereof created. Because value is

derived from customer needs, activities that do not contribute to meeting these needs

are being considered as “non value-added” waste which deserved attention and

actions (Feller et al.,2006). By continuously improving material transformation

process, a manufacturing system aims to constantly reduce costs and increase value-

added to its products and services. (Solvang et al. 2006). Hence, effective value

chains will eventually lead to top line improvement or profit generation. In additional

to these underpinning traditional dimensions, the connotation of value chain has been

evolved, further refined and extended to embed environmental aspects. The newly

transformed concept is emerged as green value chain. In order to be successful with

the environmentally-friendly practices, environmental strategies must be integrated

into all stages of the value chain (Feller et al., 2006).

Rabelo et al. (2007) defines supply chains as life cycle processes to support

the physical, information, financial, and knowledge aspects for moving products and

services from suppliers to customers. Ketchen et al. (2008), on the other hand, defines

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supply chain as a system of people, activities, information, and resources involved in

creating a product and then moving it to the customer. As the name implies, the

primary focus in supply chains is upstream-pivoted, mainly on integrating supplier

and producer processes, reducing waste and costs, improving efficiencies of supply,

and the flow of materials from their various sources to their final destinations. The

goal of managing the supply chain is the creation of value for both customers; in the

form of high quality products, and the supply chain partners; in the form of increased

profits. Thus, efficient supply chain management will lead to bottom line

improvement or costs reduction (Feller et al., 2006; Rabelo et al. 2007). An integrated

supply chains flowing from supplier, to manufacturer, to customer and reverse

logistics, which is closing the loop is termed as Green Supply Chain Management

(GSCM) (Zhu et al., 2005). Similarly, when green purchasing, green manufacturing,

green distribution, green marketing and reverse logistics are being combined together,

they form what is termed as Green Supply Chain Management (GSCM) (Chien &

Shih, 2007).

According to Al-Midimigh et al. (2004), value chain management is

concerned primarily, with the customer from start to finish whereby supply chain

becomes only a subset to value chain. Feller et al. (2006) summarized the relationship

between a value chain and a supply chain as complementary views of an extended

enterprise with integrated business processes, which enable the flows of products and

services in one direction, while value as represented in terms of demand and cash

flow in other direction (Figure 2.1).

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