ENVIRONMENTAL PERFORMANCE, COMPETITIVENESS AND MANAGEMENT OF SMALL BUSINESSES IN EUROPE DAVID HITCHENS*, SAMARTHIA THANKAPPAN**,1, MARY TRAINOR*, JENS CLAUSEN*** & BRUNA DE MARCHI**** *School of Management and Economics, Queens University of Belfast, BT 7 1NN, United Kingdom. E-mail:
[email protected],
[email protected] **Centre for Business Relationships, Accountability, Sustainability and Society, 55, Park Place, Cardiff University, CF10 3AT, United Kingdom. E-mail:
[email protected] ***Borderstep Institute for Innovation and Sustainability, Hausmannstrasse 9–10, 30159 Hannover, Germany. E-mail:
[email protected] ****Institute of International Sociology of Gorizia (ISIG), Via Mazzini 13, 34170 Gorizia, Italy. E-mail:
[email protected] Received: June 2004; revised June 2005 ABSTRACT Is it the case that more competitive SMEs have greater capacity to adopt environmental initiatives? The answer is no, according to this study which tried to link small firm environmental performance to factors such as profitability, growth, skills and research and development. This study focuses on three interrelated propositions that are concerned with the impact of environmental initiatives on firm competitiveness; the relevance of management’s awareness to environment: the availability of external information and expertise to aid management, and the competitiveness of the firm. The firm’s competitive strengths measured variously as above average profitability, firm growth and R&D, skills and modernity of plant and equipment, there was only scattered evidence to suggest any of these was importantly associated with the firm’s environmental performance. The study showed that firms with an average economic performance were just as likely to adopt environmental initiatives as their high-performing competitors. Moreover, regardless of managers voicing personal concerns about the environment, most small firms do relatively little about the environment in practice and are reluctant to seek advice about it. Key words: Environmental performance, environmental initiatives, competitiveness, compliance firms, compliance plus firms, excellence firms
SMEs AND THE ENVIRONMENT Small and medium-sized enterprises (SMEs) are important to all European economies. They create jobs (Birch 1979), build effective networks and make a positive contribution towards social inclusion. They are a source of innovation and competition, create a dynamic, healthy
market economy and preserve a stable economic base (Gray 2000; Morris & Brennan 2000). Their work is strongly customer-oriented and they are a source of innovation and entrepreneurial spirit, as they create competition and are the seed for future businesses (Hillary 2000, p. 140). SMEs represent a significant part of the European industrial landscape, accounting for
Tijdschrift voor Economische en Sociale Geografie – 2005, Vol. 96, No. 5, pp. 541–557. © 2005 by the Royal Dutch Geographical Society KNAG Published by Blackwell Publishing Ltd., 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden MA 02148, USA
542 99.8 per cent of the total number of companies in the European Union; two thirds of employment; and 60 per cent of value added. SMEs are considered to be the backbone of the business economy, accounting for more than 99 per cent of all enterprises, two thirds of employment and more than half the value added generated in both the EU and the 10 acceding countries (Eurostat 2004). The relative contribution of SMEs to the total industrial environment impact though is unknown, but their sheer numbers and contribution to value added may mean that their impact on the ecosystem, in many sectors, could be substantial. The Marshall Report (1998), which originally endorsed proposals for a climate change levy, estimated that as much as 60 per cent carbon dioxide emissions from businesses result from the activities of the SMEs. The Environment Agency (2003), estimates that 60 per cent of the commercial waste and 80 per cent of the pollution accidents result from SMEs in the United Kingdom. Most research in this area though has focused on the large firms and their impact on the environment, the impact of small firms continues to be an under-researched area (Noci & Verganti 1999; Hillary 2000, p. 141). Though some SMEs have taken the lead in managing their own environmental and social impacts in a well structured way, a majority of SMEs are still characterised by their lack of awareness of their environmental and social impacts and the management of such issues (Biondi et al. 2000; de Bruijn & Hofman 2000; Freidman et al. 2000; Kassinis 2001). Gibbs (1996) and Gibbs & Healey (1997) argue that more research is needed into the sustainability implications. For the benefit of the environment and the wider societal context, SMEs still need to be involved in the drive towards sustainability. They are an essential contributor to attaining reduction targets set by the ‘Kyoto Protocol to the United Nations Framework Convention on Climate Change’ (see for example Oberthur & Ott 1999); or to reaching policy targets like ‘Factor 4/10’ (Weizsacker et al. 1997, p. 132). Despite considerable government efforts to inform SMEs of the potential economic benefits from positively managing their environmental performance and investing in clean technologies, most SMEs see no reason to address the © 2005 by the Royal Dutch Geographical Society KNAG
DAVID HITCHENS ET AL. environmental aspects of their businesses. Any action taken is often a response to legislative and regulatory pressures rather than positively seeking new opportunities from environmental management (Gerstenfeld & Roberts 2000, p. 112; Hutchinson & Hutchinson 1997, p. 16). This can partly be explained by the fact that SMEs are unreceptive or unable to interpret the relevance of the legislation to their business (Hutchinson & Chaston 1994; Hillary 1995; Gerstenfeld & Roberts 2000, p. 113). SMEs perceive that legislative compliance is expensive (Petts et al. 1999) and therefore regulation is resisted due to its impact on profits; moreover, owners of small businesses tend to favour economic interests over social or environmental considerations (Tilley 2000). SME owners feel limited responsibility towards the environment, due to their belief that their contribution towards environmental impact is negligible (Hillary 1995; Holland & Gibbon 1997; Rutherford & Spence 1998; Smith & Kemp 1998). Furthermore, small businesses lack the time and money to investigate their environmental performance or access the high cost consultancy support network (Hillary 2000, p. 140). Research conducted by Tilley (2000) and Ludevid (2000, p. 56) shows that SMEs resist voluntary initiatives that promote selfregulation due to fears of ‘free riders’ and a lack of a ‘level playing field’. While this may describe the average position of the environmental performance of SMEs, there are nevertheless cases where the use of clean technologies and the environmental performance of firms are above the average of SMEs in each industry (Gerrans & Hutchinson 1998; Merritt 1998; Ludevid 2000, p. 58). A large number of researchers have noted the adoption of environmentally conscious manufacturing practices (Porter & Vander Linde 1995a, b; Florida 1996), similarly few other researchers have examined the factors associated with the adoption of these practices (Florida 1996; Atlas & Florida 1997, pp. 13, 87; Hayter & Le Heron 2002, p. 433). This research, relevant to Agenda 21 especially in the recognition that governments alone cannot achieve the underlying principles, provides useful policy implications and emphasises that commitment of relevant groups and people is necessary in order to bring about the objective of an integration of sustainability and
ENVIRONMENTAL PERFORMANCE, COMPETITIVENESS AND MANAGEMENT growth. Central to the research is the testing of a set of hypotheses, which among other things; relate the adoption of cleaner technologies to competitiveness, management culture and the importance of the provision of information. The study focuses on three interrelated hypotheses which recur in the literature, affecting the adoption of clean technologies; these are concerned with: • Competitiveness: The relationship between investment in environmental initiatives and firm competitiveness is likely to involve positive feedback in both directions. (Porter & Van der Linde 1995a; Hitchens 1999; Xepapadeas & De Zeeuw 1999; Hitchens et al. 2000, p. 15; Rennings et al. 2003; Triebswetter & Hitchens 2005.) • Management environmental awareness/culture : The role of management and the culture of the business organisation are important to the take up of environmental initiatives. (See for example, Hutchinson & Chaston 1994; Winter & Ledgerwood 1994; Christie et al. 1995; SinclairDesgagné & Gabel 1997; Annandale 2000; González-Benito & González-Benito 2005.) • External information sources and relationships and linkages to the firm: Imperfect information is inherent to the process of technological change and markets for information are notorious for being imperfect. (See for example, Stoneman 2001, p. 82; Rowe & Hollingworth 1996; Rowe & Enticott 1998; Angel et al. 1999; Turok & Raco 1999; Hooper et al., 2000; Schulz 2002, p. 135.) The research, more specifically focused on European SMEs (In this study, taken as employing less than 500 persons2). Variations within the EU with respect to environmental regulation are exemplified by a study of firms across four member states: Germany, Italy, Republic of Ireland and the United Kingdom. The justification for this set of sample countries is provided by the extent to which they vary with respect to both environmental performance and competitiveness (Hitchens et al. 2000, p. 4, Triebswetter & Hitchens 2005). Simultaneously these countries represented variations in environmental regulatory stringency and enforcement, (Hitchens et al. 2001) and economic performance of the sectors studied. The UK (including Northern Ireland) and Irish data (UK/ROI) were aggre-
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gated since there was insufficient variation in economic and environmental requirements to justify treating them as separate jurisdictions (Hitchens 1999). SMEs commonly dominate resource and emission intensive trades such as metal finishing, textile manufacturing, printing and dyeing, food processing and chemical production, etc. (Hobbs 2000, p. 152). The three manufacturing sectors considered in this study (furniture, textile finishing and fruit and vegetable processing), have environmental characteristics that cut across the majority of areas where environmental protection is relevant. They were also industries where SMEs are important and industries which have a significant EU presence in each of the chosen countries. It is worthwhile considering the environmental performance and competitiveness relationship, particularly across a range of countries and industrial sectors can be used to illustrate a variety of regulatory regimes and contrasts in the industrial competitive performance (see for example Hitchens et al. 2000, p. 3). The sampled countries do not just have varying environmental standards, but the relative size and comparative productivity performance of the sample sectors and hence the importance of considering environmental performance/ competitiveness relationship in these sectors. Moreover, in the EU, around 80,000 companies, mostly SMEs operate in the furniture industry. These firms employ 850,000 people and have a turnover in excess of $80 billion. The EU furniture industry accounts for about half of the worlds furniture production. Germany is the largest producing country in the EU followed by Italy, France and the UK. The Textile sector is an important part of European manufacturing industry with a turnover in 2002 of over $200 billion produced in roughly 177,000 enterprises employing more than 2 million people – a figure which increases to 2.7 million after EU enlargement in May 2004. Textiles and clothing account for around four per cent of total manufacturing value added and seven per cent of manufacturing employment in the EU15. The food sector accounts for 12 per cent of EU25 manufacturing value added. The manufacture of food, beverages and tobacco is the second largest manufacturing sector in the EU economy after the manufacture of metal © 2005 by the Royal Dutch Geographical Society KNAG
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products. Food generated around $185 billion in 2001, or 12 per cent of total EU25 manufacturing value added. It was also the second largest employer in manufacturing, with around 4.5 million persons employed (Eurostat 2003). This paper focuses on the characteristics and experience of those above average environmental performers, in comparison with the average performers in the industry, and more specifically it seeks to test the above hypotheses to explain an above average take up of environmental initiatives. METHODOLOGY There were four focal points that the empirical work examined: 1. A short postal questionnaire3 (PQ) was sent to firms in each sector that consisted of a series of questions on economic characteristics and performance of the firm, the environmental strategy and environmental initiatives4 adopted. For the environmental initiatives firms were asked to record the drivers, economic effects, obstacles and facilitators to adoption. See Table 1 for survey responses. 2. With the managers of the manufacturing firms, face-to-face (FTF) interviews were held using a semi-structured questionnaire. In each country and each sector 33 firms were Table 1. Survey responses by country and sector. Method/sector
Face-to-face Furniture Textile Fruit and vegetables Total Postal Furniture Textile Fruit and vegetables Total Advisory Furniture Textile Fruit and vegetables General Total
UK/ Germany Italy Total ROI
32 33 33 98
33 33 34 100
33 33 30 96
98 99 97 294
105 78 87 270
93 73 108 274
100 100 100 300
298 251 295 844
22 18 22 38 100
36 44 21 11 112
24 32 52 – 108
82 94 95 49 320
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targeted (see Table 1 for survey responses). The questionnaire sought information on economic characteristics and performance of the firm and on the adoption of environmental initiatives. This aspect was covered in some detail and included questions on environmental management, the use of environmental management systems and the take up of a range of environmental initiatives including investment and running costs required, environmental impacts, effects on labour skills, etc. Constraints on the take up of initiatives and the importance of different sources of advice as well as cultural attitudes were also addressed. 3. Interviews were held with providers of advice including consultants, suppliers, customers and public institutions. Advisors interviewed were either specialists in the particular industry or generalists serving a range of industrial sectors. Advisors were asked to consider a typical advisory input and the impact on the client firm of this input, how well the firm collaborated, the drivers for use of the service, barriers to adoption of service and so on. 4. Managers of the companies that participated in the face-to-face interviews were asked to complete a culture questionnaire, which included a series of questions to evaluate management’s attitude to issues such as environmental concerns, government policy towards the environment and the effect of environmental policy on the individual firm.5 Standard sources of information such as trade and telephone directories, business information publications and the Internet were used to identify the samples in each sector for the distribution of the postal questionnaire. The selection of firms for the face-to-face interviews was made by careful consideration of the type of product manufactured, the number of employees and the extent to which, on the basis of information available, the firm could be categorised as compliance only or beyond compliance in terms of its environmental performance. Firms were then matched between compliance only, compliance plus and excellence. Compliance only firms strictly carried out initiatives that was a legal minimum (all firms were compliant), Compliance plus firms carried out
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Table 2. Example of different approaches to environmental initiatives by firms. Compliance Widespread use of end of pipe technology High awareness of regulatory demands
Compliance plus
Excellence
Increasing focus on waste minimisation and process changes High use of energy management systems Increasing use of eco audit tools within the firm
Some very well developed eco management strategies Some examples of corporate commitment to long term shift in values and activities Some examples of company wide strategies for eco awareness at all levels and across all function.
Awareness of cost savings and benefit for company image Limited use of eco audit tools beyond boundary of the firm Awareness training of managers widespread Awareness of long term benefits Source : Roome (1994) reproduced from Christie et al. (1995) p. 214.
more technical initiatives in addition to those that were a legal requirement, while Excellence carried out more activities that required more technical expertise and finally reached a level where management initiatives were considered to be as important as the basic activities. So for example they had installed clean technology ahead of regulation or had developed environmental management systems that were not legally required. The key variables used to measure the competitive performance of firms included output measures of performance: profitability, productivity, labour growth; destination of sales both exports and national penetration; and input measures of performance corresponding to the input side of efficiency and competitiveness, for example, physical and human capital, R&D capability and age of machinery.6 There are various approaches to measuring environmental performance (Welford 1994; Ditz & Ranganathan 1997; Bennett & James 1998; Wehrmeyer & Tyteca 1998) and in this study it was initially intended to base the measurement of firm environmental performance on both input and output indicators. However, it proved difficult for the respondents to quantify these output indicators thus the environmental performance measures used are based on environmental inputs and environmental management and procedures.
Taking into account that controlling procedures in SMEs are rarely sophisticated and environmental performance indicators such as those proposed by ISO 14031 (environmental performance evaluation) cannot be expected to be readily available in the average SME, a set of questions was identified which revealed comprehensive and comparable responses in most of the interviews (see for example Hitchens 1999; Hitchens et al. 2000, p. 21; Hitchens et al. 2003, p. 12). The aim of constructing a set of environmental performance measures was first, to evaluate the effort behind environmental management systems; second, to evaluate the number and quality of process-oriented environmental protection activities and to take into account, to what degree the firm is aware of their success; and third to evaluate the range and quality of product-oriented environmental protection activities and the related activities of marketing and market communication. Firms were divided according to their environmental performance, between those which: (a) comply with regulation, (b) go beyond compliance (compliance +), and (c) achieve excellence (Roome 1994, see Table 2). Roome (1994) characterises a compliance+ strategy as a move towards the establishment of integrated systems for environmental management with environmental techniques embedded. It involves a management information system to inform © 2005 by the Royal Dutch Geographical Society KNAG
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Table 3. Environmental management measurement. Initiative
Allocated points 1
2
/3
Environmental officer Environmental policy Environmental improvement programmea Environmental team Evaluation of environmental performance of suppliers Data collection for controlling environmental improvementb EMAS or ISO14001 implemented or planned in the next 3 years EMS certified externally Environmental communication instruments a b
Idea discussed Idea discussed
/3
Draft version Draft version
1
2
Yes Official version Official version
1 meeting per year 2 meetings per year 3+ meetings per year Yes, for few Yes, for many Protocols for all suppliers suppliers suppliers Rarely Quite often Systematically
Yes
Yes One
2 or more
Excluding textile finishing. Excluding furniture.
management. He stresses the shift from compliance to compliance+ as involving a need to reform ‘the culture of the organisation’. Excellence takes this a stage further and Roome likens the difference between compliance+ and excellence as between quality assurance and the achievement of total quality. Each of these environmental performance levels was defined at an initial stage of the research (this involved a number of dimensions including reading each company’s environmental statement). Researches conducted since, have evolved and have considered environmental performance levels of businesses in a much greater continuum, for example, Hunt & Auster (1990); Carpenter & Meehan (2002). Responses to the three main environmental activities questions, were used to allocate scores (eco-points) by counting and weighting the initiatives undertaken by the firms. Eco-points were obtained for environmental management activities (9–10 eco-points), environmental process control (12–15 eco-points) and activities concerning environmental raw material and products (6 –8 eco-points), see Tables 3 –6 for more details. For the FTF survey, on the basis of the sum of eco-points, three environmental performance groups were established: ‘compliance only’, ‘compliance plus’ and ‘excellent’. In © 2005 by the Royal Dutch Geographical Society KNAG
the postal survey the measure of environmental performance, was carried out by asking the SMEs to select from a list of 11 industry specific initiatives that they undertook. Using a simple count of the number of initiatives undertaken three performance groups were formed: compliance only for firms that undertook 0–2 initiatives; compliance plus for firms that undertook 3–5 initiatives; and excellence for firms that undertook 6 or more initiatives. All firms sampled complied. Hence compliance firms, compliance plus firms and excellence firms were defined from the distribution of the number of initiatives (for more details see Hitchens et al. 2003, p. 15). KEY FINDINGS Environmental performance – With the exception of Italian furniture firms, which showed on average the best environmental performance, German firms were ahead in the other two industries (textile and finishing sector; fruit and vegetable processing sector), the UK/ROI and Italy followed with less differentiation between them. In Germany and the UK/ROI there was a relationship between size of firm and the number of initiatives adopted but this was less evident for Italy (Table 7). In Italy, this may
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ENVIRONMENTAL PERFORMANCE, COMPETITIVENESS AND MANAGEMENT Table 4. Environmental process control measurement. Initiative
Allocated points 1
Solvent reduction initiativesa Environmental effect of solvent reduction a Waste separationb Environmental effect of waste separation Energy saving initiatives Environmental effect of energy saving Environmentally friendly packaging Environmental effect of environmentally friendly pack Water use and protectionc Environmental effect of water protection c a b c
2
One Known 3 –5 streams Known One Known One Known One Known
2 or more 6 or more streams 2 or more 2 or more 2 or more
Excluding fruit and vegetable processing. Zero points for fewer than three separate waste streams. Excluding furniture.
Table 5. Ecological raw materials and products measurement. Initiative
Allocated points 1
2
Furniture Ecological marketing strategy Natural/ecological materials Toxic use reduction in raw materials Eco-design scheme Design award
Yes One One substance Yes Yes
Textile finishing Co-operation in environmental projects Toxic use reduction in raw materials Natural/ecological materials Eco-Tex standard 100 certification
One One substance One Yes
2 or more 2 or more
Some requirements of organic farming applied to supplies Up to 30% One substance Yes Yes
100% certified organic raw material Over 30% 2 or more
Fruit and vegetable processing Raw materials from organic farming Percentage of organic raw material processed Avoidance of artifical ingredients Organic products sold Regional sourcing
reflect the smaller average size of firm sampled and the less differentiated driver. Regulation predominated in Italy, for example, while the market was especially important for German firms. Analysis of the hypothesis on firm competitiveness (Hypothesis 1) involved a set of four
2 or more 2 or more
tests to relate firm competitiveness with firm environmental performance. (i) Environmental performance and measures of firm performance – The key competitiveness variables included: size (economies of scale); productivity; employment growth; destination © 2005 by the Royal Dutch Geographical Society KNAG
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Table 6. Maximum score possible.
Environmental management Environmental process control Ecological raw material and products Total
Furniture
Textiles
Fruit and vegetables
9 12 7 28
9 15 6 30
10 12 8 30
Table 7. Environmental performance by country and sectors ( face to face interviews). Performance groups
UK/ROI No. of firms
Furniture Sample size 32 Compliance only 17 Compliance plus 15 Excellence – Textile and finishing Sample size 33 Compliance only 16 Compliance plus 17 Excellence – Fruit and vegetable processing Sample size 33 Compliance only 16 Compliance plus 17 Excellence –
Germany
Average eco-points
No. of firms
4.68 8.08 –
9 12 11
5.25 11.36 –
6 11 13
7.73 14.37 –
5 18 11
Italy
Average eco-points
No. of firms
9.84 14.48 22.37
32 1 –
10.00 16.06 21.90
6 20 7
8.40 14.70 21.42
11 16 3
32
33
30
(ii) Individual environmental initiatives and firm performance – In this analysis, consideration was given to (a) the pattern of adoption of environmental initiatives as environmental per© 2005 by the Royal Dutch Geographical Society KNAG
5.63 13.33 – 33
34
of sales; R&D; age of machinery; labour force qualifications, reflecting both input and output definitions of competitiveness (see Hitchens 1999; Hitchens et al. 2000, p. 13; Hitchens et al. 2003 for more details). There was clearly no convincing evidence that firms with a better economic performance adopt more environmental initiatives.7 The evidence was also too weak to draw distinctions between industries and countries. However, it was noted that the firm’s competitive position is not a hindrance to environmental performance or that the take up of environmental initiatives weakens the competitive performance of firms.
Average eco-points
1.50 4.10 8.00 30 8.51 14.08 19.65
formance rises, and hence the overall economic impact; and (b) drivers (e.g. cost, regulation, market, etc.) and the economic impact (on cost, profits, employment, etc.) of individual environmental initiatives. For all three sectors there was evidence of a hierarchy of initiatives performed by firms when comparisons were made between compliance only, compliance plus and excellence environmental performers. In the furniture and textiles sector, this implied a rise in the technical complexity of the adopted initiative and the driver (regulation for compliance only firms). In the case of the fruit and vegetable processing sector, for the UK/ROI, there were initiatives that were adopted by compliance only firms, which were market driven, in Germany and Italy the type of initiative was less differentiated from those of compliance only firms in the other two industries. Excellence performers in all three
ENVIRONMENTAL PERFORMANCE, COMPETITIVENESS AND MANAGEMENT sectors were distinguished by the extent they undertook management initiatives. The ability to take on these initiatives was not related systematically to R&D capacity or skills. There was some indication of a size effect on initiatives adopted, for example management initiatives were adopted above the very small firm size threshold. In the German fruit and vegetable processing sector, as size increased more firms were involved in market initiatives. Drivers for the adoption of initiatives were similar, for the same initiatives across the three industries, but there were differences across countries. In Italy regulation predominated, in UK/ROI regulation and cost were important, in Germany market pressures were much more important in bringing forth environmental initiatives. Analysis of the economic impact of initiatives indicated variability between positive and negative effects for the same initiative between firms. Comparing across the environmental performance groups, the furniture sector showed a marginal economic payoff reported by those firms which had moved above compliance only status, in the cases of textiles and fruit and vegetable processing the data clearly showed that economic benefits rise through the performance groups. In all three industries there were small positive effects on employment. (iii) Obstacles to the adoption of environmental initiatives – A set of economic factors which may inhibit the adoption of environmental initiatives were considered, namely difficulties in raising capital, risk, regulatory uncertainty, pay back periods and so forth. These obstacles are those stated by respondents and not measured by the research. First, there was no relationship between size of firm and type of constraint for any of the sectors. Second, capital constraint was most important in all sectors. The opportunity cost of undertaking the initiatives, i.e. management priorities was a further common constraint, as was having the correct skills and expertise or advice. Third, there was little to distinguish the constraints reported by any of the environmental performance groups. This may imply that these factors are always a constraint on environmental performance independent of the level of performance achieved.
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(iv) Relationship between the environmental strategy and the economic/competitiveness strategy adopted by the firm and the firm’s environmental performance – With environmental strategy, regulation was an important strategy irrespective of the environmental performance of the firm. German firms showed evidence in furniture and fruit and vegetables for their environmental strategies becoming more proactive as they moved along the environmental performance groups, to incorporate eco-practices eco-products and markets. There was some indication of a similar finding for the UK/ROI and Italy respectively, in furniture and fruit and vegetable processing. Other than this, although there was a representation of different environmental strategies, in different proportions, in each sector, there was little evidence of an association between environmental performance and environmental strategy. The latter may reflect the mix of environmental drivers that all firms face. Table 8 shows the environmental strategy of firms across countries and sectors. In the UK/ROI and Italian furniture firms, cost leadership (firms with an emphasis on low cost) was the competitive strategy approach adopted by almost half of the compliance only firms compared with about one-quarter of the compliance plus firms (Table 9). For firms following a differentiation strategy (the emphasis was on uniqueness), these proportions were reversed, and reduced for compliance only firms. In Germany the situation was somewhat different with no firms pursuing a low-cost competitive strategy and a high proportion implementing a niche strategy (focus on a particular segment of the market), irrespective of environmental performance. In the UK/ROI and Italian textile finishing sector, almost half of firms interviewed adopted a differentiation strategy with roughly equal proportions following either a cost or niche competitive strategy. In Germany only one firm pursued a low cost competitive strategy and equal proportions adopting differentiation or niche strategies. As regards the fruit and vegetable processing sector, almost half of the firms followed a cost leadership strategy with about one-third adopting a differentiation strategy and the remainder a niche strategy in the UK/ROI. In Italy about half of the firms had a differentiation strategy, onethird niche and the remaining one-sixth a cost © 2005 by the Royal Dutch Geographical Society KNAG
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Table 8. Environmental strategy, number and percentge (in brackets) of firms, ( face to face interviews). Furniture
Textile finishing
Fruit and vegetable processing
15 (46.9) 5 (15.6) 7 (21.9) 5 (15.6) 32
14 (43.8) 14 (43.8) 3 (9.4) 1 (3.1) 32
10 (32.3) 14 (45.2) 5 (16.1) 2 (6.5) 31
9 (36.0) 8 (32.0) 2 (8.0) 5 (20.0) 1 (4.0) 25
9 (31.0) 10 (34.5) 6 (20.7) 4 (13.8) – 29
7 (23.3) 9 (30.0) 2 (6.7) 10 (33.3) 2 (6.7) 30
– – – – – –
19 (63.3) 5 (16.7) 3 (10.0) 1 (3.3) 2 (6.7) 30
7 (24.1) 7 (24.1) – 3 (10.3) 12 (41.4) 29
UK/ROI Regulation Cost saving Eco-practices Eco-products Total firms Germany Regulation Cost saving Eco-practices Eco-products New markets for eco-products Total firms Italy Regulation Cost saving Eco-practices Eco-products New markets for eco-products Total firms
Table 9. Competitive strategy adopted by firms, number and percentage (in brackets), ( face to face interviews).
UK/ROI Cost leadership Differentiation Niche All firms Germany Cost leadership Differentiation Niche All firms Italy Cost leadership Differentiation Niche All firms
Furniture
Textile finishing
Fruit and vegetable processing
12 (37.5) 10 (31.3) 10 (31.3) 32 (100.0)
9 (28.1) 15 (46.8) 8 (25.0) 32 (100.0)
15 (45.5) 11 (33.3) 7 (21.2) 33 (100.0)
– 10 (31.2) 22 (68.8) 32
1 (3.3) 14 (46.7) 15 (50.0) 30 (100.0)
4 (11.8) 11 (32.4) 19 (55.9) 34 (100.0)
13 (41.9) 6 (19.4) 12 (38.7) 31 (100.0)
6 (19.4) 18 (58.1) 7 (22.6) 31 (100.0)
5 (16.7) 15 (50.0) 10 (33.3) 30 (100.0)
strategy. In Germany the situation was again different with niche strategies dominating followed by differentiation and less than 12 per cent of firms pursuing a low cost competitive strategy. Compliance plus firms were more likely to be pursuing a non-cost based competitive strategy. This may be because, their ability to charge a price premium allows them the flexibility to © 2005 by the Royal Dutch Geographical Society KNAG
adopt environmental initiatives or it may be that they consider that undertaking environmental initiatives reflects a form of differentiation/ quality. Thus, there was an expectation that firms following a cost leadership strategy would undertake fewer initiatives than those with a differentiation or niche strategy. However, the data did not support this assumption.
ENVIRONMENTAL PERFORMANCE, COMPETITIVENESS AND MANAGEMENT With an environmental and competitive strategy, there was some limited evidence to suggest a link between environmental and competitive strategy, namely that product differentiation and the pursuit of niche markets facilitated environmental performance. As expected there were many reasons why a firm will adopt alternative competitive strategies independent of their environmental performance, but there was slight evidence that strong environmental performance can be associated with differentiated and niche strategies. The important conclusion that follows from this is that cost leadership strategies are not a constraint on environmental performance. The research hypothesised (Hypothesis 2) that the internal ‘culture’ of the firm was important in effecting environmental decisionmaking and environmental performance. It was clear that attitudes towards the environment were on average positive. A greater number of respondents in the sample countries voiced their concern about environment. However, there is little relationship between these attitudes and environmentally responsible behaviour of the firms who were interviewed. In most of the small businesses, while recognition of the importance of the environment was high, the capacity to act was low because there has been no sustained pressure to improve. Pieters et al. (1998) state that although many people view themselves as ‘environmentalists’, they do not translate their attitudes into pro-environmental behaviour. One reason may be that the choice between acting in a pro-environmental way and not doing so often involves a conflict between immediate individual and long-term collective interests. The third key area of interest was the importance and influence of information and advisory sources (Hypothesis 3), in enabling the take up of clean technologies. The investigation revealed that there was an abundance of easily accessible and cheap information, indeed no manufacturing firm complained of a lack of advice as an obstacle to the adoption of clean technology or environmental initiatives (except in the case of UK/ROI’s furniture sector). However, most SMEs remained unaware of the environmental impacts associated with their business activities and had a low awareness of environmental programmes or resources
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available to them. As environment was not regarded as important, many SMEs did not feel the need for any advisory services. Moreover SMEs were isolated, they did not have the networks to understand and evaluate technology. Drivers were important especially in environmental regulation. Low responses and poor interest in free advisory services were notable in the UK/ROI. This was compounded because the quality of advice was stated to be problematic in both the public and private sectors. In Germany firms felt there was not much difference in the quality of service offered by public and private sectors, and in Italy, firms observed that public sector services were more reliable and efficient than those of the private sector. Obstacles to the take up of advice by firms (as identified by sources of advice) – The people resource constraint was more important than any financial constraints (though lack of capital could also be important). The smaller the firm the more tasks fall to one particular person. The resource constraint was combined with the culture within the firm, namely the view that environmental concerns were a necessary evil, and dealt with through compliance. The result was that environmental responsibility was often combined with health and safety and not viewed as a separate issue. This reinforced the low priority, and often led to environmental improvements being treated as ‘interruptible processes’, that take second place to production related activities. Management attitude was conceived to play an emphatic role in the environmental performance of firms across all the countries. This was contrary to the findings (except for the Italian fruit and vegetable processing sector) of the measured relationship between environmental attitudes and environmental performance. Schaper (2002) points out that key external variables, for example amount of time available for owners to undertake discretionary business activity and the level of environmental information available to business owners shows a significant positive relation to a firm’s ‘green’ activities. In this research it did emerge that lack of management time was a constraint on the part of small businesses in the take up of cleaner technologies, however enough research could © 2005 by the Royal Dutch Geographical Society KNAG
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DAVID HITCHENS ET AL. CONCLUSIONS: IMPLICATIONS FOR POLICY
Figure 1. Technological problems faced by SMEs in the UK/ROI.
Figure 2. Organisational problems faced by SMEs in the UK/ROI.
not be carried out to link this constraint with the firm’s pro-environmental attitude. While in both Germany and Italy there was a poor response from the advisors on the major technological and organisational problems faced by the SMEs in the adoption of environmental initiatives; the UK/ROI SMEs experienced a range of problems (Figures 1 and 2). To summarise, sources of information and advice were important. The diversity was important and the main difficulty was with their under use. © 2005 by the Royal Dutch Geographical Society KNAG
Despite competitive advantages which may variously take the form of above average profitability, growth and associated R&D, skills and modernity, there was only scattered evidence to suggest any of these was importantly correlated with the environmental performance of the firm. The policy implication follows that strong environmental performance is not constrained by the competitive status of the firm. This finding was further underlined by the evidence shown that firm constraints on the adoption of environmental initiatives did not differ according to environmental performance groups. Capital or skills were a constraint irrespective of the level of environmental performance already achieved. However, there was evidence that environmental performance can be a function of the size of the firm, and that was demonstrated for a number of environmental initiatives, notably environmental management, but also some technical initiatives. At the aggregate level, the finding that firm competitiveness was generally unrelated to environmental performance implied that strong environmental performance was not associated with a weakening of competitive performance. It also means that the most economically competitive firms are not the necessarily strong environmental performers. Increasing environmental standards can affect productivity either positively or negatively. High standards can push firms on to a higher growth path by forcing them to make product and process changes which yield higher competitiveness – representing partly the so-called ‘double dividend’ effect. While on the other hand high standards could also lead to negative competitive effect due to certain inherent production or market factors. As regards competitiveness and economic effects, in general the majority of economic impacts were positive. Moreover the ratio of positive economic benefits arising from any initiative rose as the firm moved up the environmental performance ladder. This supports the finding that improved environmental performance is not associated with a worsening of economic performance.
ENVIRONMENTAL PERFORMANCE, COMPETITIVENESS AND MANAGEMENT However this analysis has an important policy implication. It indicates that across countries, sectors and within sectors, there are a variety of positive and negative economic experiences from adopting environmental initiatives. On average the experience was positive but for any single firm there was a probability that the experience could be negative compared with their current techniques and performance. It does not therefore follow that all firms can improve their environmental performance with, uniformly, positive economic outcomes. This variability in experience is likely to be an important barrier to movement up the environmental improvement ladder in response to any given driver, with the exception of regulation. The obstacles noted by the firms themselves and those stated by firm advisors were broadly similar. The advisors also highlighted the lack of demand for their services (as indicated by the low take up of even free services). They emphasised the need for external expertise, especially where the technicalities of the environmental initiative were outside the scope of the business of the SME. Hence the hypothesis that information about environmental initiatives is likely to be a critical determinant of diffusion is supported particularly in the context of the provision of relevant skills and firm specific advice. As Schaper (2002) rightly points out that increasing small firm’s knowledge of environmental issues would enable small firms to improve their performance and encourage them to act in an environmentally responsible way. Investigation of the hypothesis on management culture indicated that positive environmental attitudes were quite common, and were positively held irrespective of the firm’s own environmental performance, or environmental strategy. This positive view was independent of the size of the firm. Moreover most respondents (with the exception of many German counterparts with already good environmental performance) did not believe that environmental improvement had a deleterious effect on the economic performance of the firm. See for example Braun (2002, p. 196). Research conducted by Corraliza & Berenguer (2000) shows that a significant number of people perceive a conflict between their disposition at a personal level to carry out pro-environmental
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behaviour and the situational conditions they perceive that affect that performance of such behaviour. It has been demonstrated that strong feelings of moral obligation for carrying out a pro-environmental behaviour are only determinants for that behaviour when favourable attitudes towards the realisation of responsible behaviours do not enter into conflict with high situational inhibition. Similarly, low feelings of moral obligation do not necessarily imply an absence of pro-environmental behaviour, because the physical conditions influencing such behaviour may be perceived as facilitatory. Therefore to stimulate people’s pro-environmental behaviour, a better understanding of psychological factors that influence their willingness to act in a pro-environmental manner is important. Further, a more detailed analysis at the microeconomic level is therefore required to explain these patterns of behaviour. This dichotomy in attitudes and performance also further suggests a need at least to enhance the knowledge base of the management to recognise the benefits that can be derived from improving environmental performance and where it can in cases lead to negative competitive effects. Schaltegger & Synnestvedt (2002) argue that the relationship between the environmental effort and the benefits may vary according to the legislative practices in the country, the size of the business, the culture, customer behaviour, the type of industry and the time span. They argue that the best environmental practices are moderated by managerial qualities resulting in not so specific economic performances. They also cite Christmann (2000) and Kanagozoghu & Lindell (2000) to argue that superiority in performance does not lead to competitive advantage. It therefore sums up the fact that, policy should not be constrained by the expected impact on competitiveness of pressure to improve the environmental performance of firms. If all firms were forced to rise to excellence then some would be uncompetitive. However it must be recognised that similar pressures can lead to different economic impacts on what look like identical firms. Firms need more expert help than they seek or realise they need to adopt environmental initiatives. Finally, poor environmental performance is not the outcome of a negative attitude to the environment. © 2005 by the Royal Dutch Geographical Society KNAG
554 Acknowledgements The authors would like to thank the European Commission for funding this study, under the Human Dimensions of Environmental Change work programme of DG Research, and all those industries, environmental associations, universities and government departments, who willingly completed the questionnaires and agreed to long interviews to fulfil the objectives of this study. Due thanks are accorded to those regulators, industrialists, academic and trade association members and environmentalists who contributed to the focus groups. Notes 1. Corresponding author. 2. According to the EU definition – the category of small and medium-sized enterprises (SMEs) is made up of enterprises which have fewer than 250 occupied persons and which have either an annual turnover not exceeding $50 million, or an annual balance sheet total not exceeding $43 million. 3. The postal survey yielded a total of 844 responses, which represents a response rate of 14 per cent in the UK/ROI and 15 per cent in Germany. Italian interviews were conducted by telephone and achieved a substantially higher response rate of 50 per cent. 4. The choice of environmental initiatives which were included in the research was based on an analysis of: Reference documents on best available techniques from the European IPPC Bureau for the respective sectors; The Pollution Prevention and Abatement Handbook of the World Bank; Environmental regulation focus in the participating countries; and environmental statements from firms, within the sectors, that applied EMAS. Taking into consideration these sources, eight initiatives were chosen which were of high environmental importance as well as being reasonably commonplace in the three sectors. 5. For example, the following question provided an insight into the attitude of the firms as regards environmental legislation and its implementation. Q: What in your opinion was the main impact of environmental legislation? a. An incentive to improvement for the good of society. b. A hindrance to market competitiveness. c. Encourages increased efficiency of production. © 2005 by the Royal Dutch Geographical Society KNAG
DAVID HITCHENS ET AL. 6. The precise definitions of the variables are shown in the questionnaires, which are available from the authors on request. 7. Competitiveness variables included size, productivity, employment growth, destination of sales, R&D, age of machinery and labour force qualifications. For furniture there was limited evidence to support the hypothesis that the more competitive the firm the more initiatives it would undertake, though there were inconsistencies between surveys (face to face, postal), countries, there was some relationship for productivity age of machinery and employment growth in Britain and Ireland, none in Germany, and in Italy a small correlation with exports only. In textile finishing there was no relationship for Ireland, Britain or Italy. In Germany there was some relationship with exports in the survey data and age of machinery and R&D in the face to face data. Finally in fruit and vegetable processing there was no relationship, in the face to face data save for some relationship with age of machinery for Germany. In the survey data there was no relationship in the UK/ROI data. In the German and Italian survey data there was some relationship with exports.
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