Understanding the Drivers of
Supply Chain Sustainability:
Pressures of Institutional
Isomorphism
Dennis Hesling
s1892444
University of Groningen
Faculty of Economics and Business
MSc International Business Management
ABSTRACT
As Multinational Corporations (MNC) outsource larger part of their value creation, their supply chains become increasingly fragmented and geographically dispersed. At the same time, this creates a strong need for MNCs to implement sustainability standards and practices beyond the level of their own firm to the level of their suppliers. This study investigates the drivers of extending sustainability strategies from the firm level to the supply chain level. Drivers are derived from new institutional theory (i.e., institutional isomorphism framework of DiMaggio and Powell, 1983) and will be linked to sustainability performance of companies in their supply chain. This research will, therefore, contribute to the novel field of
sustainability in global supply chains. As there is only limited quantifiable data in this field, researchers have called for the development of new constructs and associated measurement scales. By providing an integrated approach to examine institutional drivers of supply chain sustainability this research aims to fill both gaps. This research will be conceptual in nature as it will develop constructs relating to the three dimensions of DiMaggio and Powell’s (1983) framework and will propose a complete methodology for conducting such research. Lastly, it will also provide limitations and addresses opportunities for future research.
TABLE OF CONTENT
1. Introduction ... p. 4
2. Theoretical background ... p. 7 2.1. Supply chain sustainability ... p. 7 2.2. Institutional theory ... p. 9 2.3. Empirical applications of the institutional isomorphism framework ... p. 10
3. Theory and propositions ... p. 12 3.1. Coercive isomorphism ... p. 12 3.2. Mimetic isomorphism ... p. 19 3.3. Normative isomorphism ... p. 21 4. Proposed methodology ... p. 24 4.1. Sample ... p. 24 4.2. Measures ... p. 26 4.2.1. Dependent variable ... p. 26 4.2.2. Independent variables ... p. 29 4.2.3. Control variables ... p. 33 4.3. Methods ... p. 34 4.3.1. Factor analysis ... p. 35 4.3.2. Regression analysis ... p. 35 5. Discussion ... p. 37 5.1. Theoretical limitations ... p. 38 5.2. Methodological limitations ... p. 39 5.3. Opportunities for future research ... p. 40
6. Conclusion ... p. 42
References ... p. 43
1. INTRODUCTION
The business world of today is characterized by a trend of ever increasing complexity. Managers start to realize that their company’s accountabilities are becoming harder to control with more involvement of outsiders. Firms feel the pressure of globalisation, which has created highly complex supply chains (Varma, Wadhwa and Deshmukh, 2006). When considering past history, various scandals have affected the world’s leading companies (Parmigiani, Klassen and Russo, 2011), such as the use of child labour at Nike suppliers and bad working conditions at Apple’s suppliers, which have led to cases of employee suicide. These examples have helped to increase the awareness of companies that multiple entities across the supply chain must be involved to efficiently and effectively fulfil their corporate responsibilities (Winter and Knemeyer, 2013). As a consequence, the design, organization, interactions, competences, capabilities and management of these supply chains have become key issues (Gold, Seuring and Beske, 2009). According to Reuter, Foerstl, Hartmann and Blome (2010) sustainability has to be implemented beyond the boundaries of the focal firm, as they will be held responsible for non-sustainable actions in their supply chain. This topic has recently attracted attention of researchers, who increasingly seek to comprehend the concept of sustainability in supply chains. This is supported by Winter and Knemeyer (2013), who argue that the field of supply chain management has an inherent connection to sustainability. They mention that the concept of sustainability extends to both operational drivers of profitability and their relationship to the environment we all live in. As the current economic recession creates uncertainty about the prices and availability of raw materials, it is more important than ever to integrate sustainability in the supply chain. In this way, an efficient and committed supply chain can be created in the long term. By examining several factors that are driving sustainability in the supply chain, this paper will provide a new opportunity to explore for future research.
sustainability in the supply chain, this paper will propose its own definition of supply chain sustainability. Several definitions of supply chain management and sustainability have been combined (Campbell, 2007; Lambert, 2008 and WCED, 1987), to create the following definition of supply chain sustainability:
The integration of key business processes from end-user through original suppliers that provides products, services, and information that add value for customers and other stakeholders in a way that none of their stakeholders are harmed and the ability of future generations to meet their needs is not to be compromised.
The fact that the field of supply chain sustainability is developing can also be seen when examining extant literature. With regard to the aim of this paper, which investigates what drives companies to engage in sustainable supply chain initiatives, a variety of perspectives have been applied. Research by Walker, Di Sisto and McBain (2008) has uncovered two broad types of research on drivers of sustainable supply chain management: internal and external drivers. Regarding the first, drivers are mainly organization-related. These include, for example, company policies, efforts to reduce costs, improvements of product quality, the values of the owner and managers, and investor pressures. However, in literature relatively more attention is paid to the external drivers. Perspectives taken are, for example, regulatory drivers, customer pressures, competitive influences and pressure from society (Walker et al., 2008). It is worth noting that almost none of the research currently available focusses on developing an integrated framework to assess the drivers of supply chain sustainability. Most research focusses on one or just a few drivers.
converge globally in search of legitimacy, which are coercive, mimetic and normative influences. With regard to the supply chain, companies are becoming more aware of having to legitimize their conduct and are, hence, converging globally by responding to the various pressures for sustainability. This framework provides an interesting insight as it examines all three pressures together. In this way, it is possible not only to measure the impact of the various drivers, but it also creates an opportunity to compare the strength of them. It is argued in this paper that all three of these pressures could potentially have a strong effect on supply chain sustainability around the world. According to DiMaggio and Powell (1983) these pressures together will amount to so-called institutional isomorphism.
When taking a closer look at the existing literature in the field, a second contribution of this paper can be noted. As Seuring (2004) concludes, most literature in the field of supply chains is of exploratory nature and a large percentage are either theoretical/conceptual or are case studies. This is further supported by Ashby, Leat and Hudson-Smith (2012), Burgess, Singh and Koroglu (2006), and Winter and Knemeyer (2013), who uncover a large void of quantitative research in the area of supply chain management and supply chain sustainability. This paper will make a proposal to fill this second gap by developing a complete theoretical framework and methodology for conducting a quantitative research within the scope of sustainable supply chains. Moreover, it will be one of the first to operationalize supply chain sustainability in a quantifiable way by designing a survey. By operationalizing this concept for a wide variety of firms, it will create an opportunity for other researchers to gather this data in order to make statistical proven contributions to the field.
2. THEORETICAL BACKGROUND 2.1 Supply Chain Sustainability
In recent years there has been a growing interest in research on sustainable supply chains. As Seuring and Müller (2008a,b) mention, the field of sustainable supply chain management is expanding, attracting interest from both the sustainability as well as the supply chain management areas. Several authors have studied sustainable and green supply chains (e.g. Carter and Jennings, 2004; Corbett and Klassen, 2006; Klassen and Whybark, 1999; Linton, Klassen and Jayaraman, 2007; Mollenkopf, Stolze, Tate and Ueltschy, 2010; Parmigiani et al., 2011; Pullman, Maloni and Carter, 2009; Srivastava, 2007; Vermeulen and Kok, 2012; Wu et al., 2013; Zsidisin and Siferd, 2001; Zhu and Sarkis, 2004).
Many of the above mentioned researchers highlight that firms are increasingly considering sustainability initiatives in their supply chain. By implementing such initiatives in their supply chains, firms are effectively engaging in supply chain governance. According to Hoetker and Mellewigt (2009, p. 1027), supply chain governance can be defined as the “underlying and concrete management and control activities, which describe in detail how the required behaviour of the partner will become motivated, influenced, and established”.
The concept of global sustainable supply chain governance has emerged over the years and started with a group of small enlightened entrepreneurs that bypassed the dominant supply chains in the 1970s and 80s (Vermeulen and Kok, 2012, Vermeulen and Seuring, 2009). During this period, new and shorter supply chains were created by fair trade initiatives, relating small producers in developing countries directly to Western consumers (Roberts, 2003; Tallontire, 2009). Vermeulen and Kok (2012) state that Western governments are, for the large part, unable to prevent the shift of environmental impacts to the third world. As a consequence, the rise of supply chain governance systems is a strong form of self-regulation as governments are lacking to effectively enforce sustainability in the supply chain. The creation of such systems is hence propagated by actors in the market or civil society (Vermeulen and Kok, 2012).
in the field take a strategic angle toward supply chain governance (e.g. Harland, Lamming and Cousins, 1999; Cousins and Spekman, 2003) while others take a more operational approach (e.g. Corbett and Klassen, 2006; Klassen and Whybark, 1999).
In order to provide a better overview of the field of sustainable supply chain literature, Seuring and Müller (2008a) have considered the triple-bottom line approach as proposed by Elkington (1998). According to this approach, the notion of sustainability has three components, which are environmental, social and economic performance. Carter and Rogers (2008) add to this framework by stating that at the intersection of these three components, there are activities for businesses which not only benefit the natural and societal environment, but will also lead to long-term economic profits and a competitive advantage over other firms. Seuring and Müller (2008a) have analysed 191 papers in the field of sustainable supply chains according to the triple-bottom line and have found that almost all papers take an economic angle. This is mainly prevalent in management related publications and journals. Of these publications, the great majority (141) has taken an environmental perspective. These researches mainly take a perspective of greening the supply chain (e.g. Bowen, Cousins, Lamming and Faruk, 2001; Gavronski, Klassen, Vachon and Machado do Nascimento, 2011; Srivastava, 2007). In contrast, only 20 papers consider the social aspect and a mere 31 consider all factors of the triple bottom line (Seuring and Müller, 2008a). An interesting aspect of this study is that it also assesses what type of external pressures the articles highlight that lead to a more sustainably supply chain. For example, 99 of the analysed papers consider legal pressures, 186 papers mention stakeholder pressures including customers and 71 consider pressures based on gaining a competitive advantage (Seuring and Müller, 2008a). Although the idea of supply chain pressures is not new, not many of the analysed articles seem to take an integrated approach at understanding pressures that drive supply chain sustainability and how companies respond to these.
2.2 Institutional Theory
When examining institutional theory, it should be noted that different streams of institutionalism exists. Early institutional theory is often referred to as old institutionalism, which emphasizes the enabling and constraining qualities of institutions. This type of institutionalism mainly focusses on describing the effectiveness of politics in measuring up to democratic ideals (Rhodes, 1995). It describes political institutions in terms of their legal roles and their formal competencies and displays little attention to the impact of institutions on public policies and the broader social behaviour. Moreover, old institutional theory does not provide insights into the driving forces of institutional change. New institutionalism, on the other hand, focusses on legitimacy as a sustained driving force among organizational actors. According to new institutional theory, formal structures must be seen as adaptively responding to environmental influences as they are institutionalized both from within as from the outside (Selznick, 1996).
With regard to new institutional theory, this field started attracting attention from the mid-seventies, with the works of Meyer and Rowan (1977) and Pfeffer and Salancik (1978). Not surprisingly, these two articles serve as the basis for DiMaggio and Powell (1983) to build their theory of institutional isomorphism on. The basis of new institutional theory is that firms are argued to adaptively institutionalize particular structures that improve the legitimacy of the firm. This leads to firms converging to a common template in their own fields or markets (Lee and Pennings, 2002). According to Meyer and Rowan (1977), managers of the firm not only seek to enhance internal efficiency, but also to maintain institutional legitimacy by adapting to the environment. Pfeffer and Salancik (1978) add a resource-dependency based perspective to this notion by arguing that managers also adopt similar structures to gain and maintain access to valuable resources. Additionally, Scott (1987) argues that when decision-makers are faced by institutional pressures, they might attempt to model structures that are deemed to be more appropriate, professional and modern. According to both Meyer and Rowan (1977) and DiMaggio and Powell (1983), the fact that firms and countries have the tendency to adopt similar practices can be best captured by the notion of institutional isomorphism. Meyer and Rowan (1977) even state that organizational success greatly depends on becoming isomorphic with the institutional environment in order to gain the legitimacy and resources which are important to organizational survival.
considering past institutional contributions to the field of supply chain research, a variety of perspectives are taken. For example, research of McFarland et al. (2008) take supply chain contagion as their main focus, Zsidisin et al. (2005) explore business continuity planning, Lai, Wong and Cheng (2006) consider the adoption of information technology in the supply chain, and Wu et al. (2013) assess the pressures of foreign owned firms on local Chinese firms.
2.3. Empirical Applications of the Institutional Isomorphism Framework
The framework of institutional isomorphism by DiMaggio and Powell (1983) has gained significant attention by fellow researchers and as such has provided an important contribution to institutional theory. According to their paper, the fact that institutional isomorphism is taking place is rooted in three types of institutional pressures, which are coercive, mimetic and normative pressures. The first pressure, coercive isomorphism, posits that convergence takes place through influence exerted through those in power. For example, governmental organizations are a strong source of power that may influence a firm’s actions (Rivera, 2004). Zhu and Sarkis (2007) have found that with decreasing (natural) resource availability and increasing environmental problems, the government (both central and local) exert pressure by establishing environmental regulations. Zsidisin et al. (2005) add to this notion by stating that these pressures often originate from this type of political influence and from problems with legitimacy. The second type of pressure, mimetic isomorphism, entails that uncertainty encourages imitation (Chizema and Kim, 2010; Zsidisin et al., 2005). According to Zhu and Sarkis (2007) this can take the form of mimicking actions of successful competitors in the face of uncertainty. This often happens through benchmarking the company with other industrial actors (Zhu and Sarkis, 2007; Zsidisin et al., 2005). The last pressure is normative isomorphism, which stems from pressures by stakeholders with a vested interest in the organization (e.g. shareholders) (Zhu and Sarkis, 2007). Moreover, it also results from the professionalization of work and the struggle by occupational members (e.g. managers) to define the conditions and methods of their work (DiMaggio and Powell, 1983; Zsidisin et al., 2005).
cited well over a thousand times. In their article, Mizruchi and Fein (1999) have examined 26 papers in detail that have actually operationalized DiMaggio and Powell’s framework. From this analysis, a wide variety of applications can be uncovered. For example, some researches have dealt with organizational structures (Fligstein, 1985; Palmer, Jennings and Zhou, 1993), strategic implications (Fenell and Alexander, 1987), decision-making approaches (Levitt and Nass, 1989) and upper-echelon perspectives (Chizema and Kim, 2010; Mizruchi and Stearns, 1988). In connection with sustainability, several researches have used this framework to explain the adoption of ISO 14001 standards at the firm level (e.g. Darnall, 2006; Delmas and Montes-Sancho, 2011). With regard to the supply chain level, there are only few applications (e.g. Wu et al., 2013; Zhu and Sarkis, 2007), which are different from the aim of this paper. Closest to the aim of this paper is the research by Zhu and Sarkis (2007), who consider the moderating effects of institutional pressures on the relationship between green supply chains and organizational performance. However, as they only focus on external pressures in the Chinese context and do not research whether institutional pressures drive supply chain sustainability as such, their focus is different from this research.
3. THEORY AND PROPOSITIONS
The following sections will focus on developing propositions that are well-grounded in literature. These propositions provide a starting point for assessing the drivers of supply chain sustainability according to institutional theory. A conceptual overview of these propositions can be found in Appendix 1.
3.1 Coercive Isomorphism
Coercive isomorphism arises from problems of legitimacy and political influence. Regarding this first type of isomorphism, it can be distinguished in formal and informal pressures (DiMaggio and Powell, 1983). These are exerted by organizations that the focal organization depends on and by cultural expectation of the society in which the firm finds itself (DiMaggio and Powell, 1983; Chizema and Kim, 2010).
Teegen, Doh and Vachani (2004) have made a clear depiction of this institutional environment (see Figure 1). As can be seen, there is both a formal pressure from governmental institutions and an informal pressure of the society and NGOs. Concerning the formal pressures, Chizema and Kim (2010) have argued that governments around the world discriminate between large and small/medium sized firms. Often the large firms are scrutinized by the government more extensively than other firms in the country, as
these have an exemplary function (Ullmann, 1985). This is further supported by Lee and Pennings (2002), who confirmed that dividing firms according to their size is a good application of institutional theory. As Lee and Pennings (2002) state, larger firms endure stronger institutional pressures and have a stronger motive to create a more efficient governance structures. If these findings are applied to sustainability, it can be argued that larger firms will create a more efficient governance structure of monitoring their supply chain’s sustainability. Vermeulen and Kok (2012) have investigated the ways the government pressures firms to have more sustainable supply chains. The formal pressure of governments links closely to their strategy of government initiation, in which there is central regulation by means of coercion. Besides this formal governmental pressure, large firms are also stronger influenced by informal pressures. The larger firms within a country or industry are placed in
Figure 1: Institutional context (adapted from Teegen et
the public spotlight through media attention. The society demands certain cultural expectations of firms and their supply chains to be inherently sustainable in their conduct of business. As Dobbin, Edelman, Meyer, Scott and Swindler (1988) and Edelman (1990) have mentioned, size is not only an indicator of the complexity and scale of an organization but also signals the visibility of a firm to external constituencies. Similarly, Powell (1991) concludes that society pays more attention to large rather than small firms.
In case even a hint of unsustainable practices in the supply chain are uncovered by the constituents of a firm, this receives a great deal of media coverage and helps to define the public opinion. This process is exacerbated by NGOs, who are always on edge to confront firms with their unsustainable practices (Teegen et al., 2004). Both Vermeulen and Kok (2012), and Teegen et al. (2004) argue that the role of NGOs is quite significant in pressuring for sustainability in the supply chain. More interestingly, however, several researchers have found that some governments work closely together with NGOs by even supporting them financially (Hirata, 2002; Vermeulen and Kok, 2012; Teegen et al., 2004). These NGOs mostly target large multinationals, as their actions would make a more profound statement when confronting a large MNE. The media coverage accompanied with these actions could seriously harm the firm’s reputation (Lipschutz, 1992; Rieff, 1999; Teegen et al., 2004). As Teegen et al. (2004, p. 475) state, “NGOs have the potential to dramatically alter traditional conceptions of the role of MNEs in the global economy and their relations with other players”. As a consequence of this size discrimination, large firms would likely be more concerned with having a sustainable supply chain. In conclusion, in terms of governmental action, public opinion and NGOs, this trend can be noted of large firms being scrutinized to a greater extent for sustainability both in their supply chain and business practices in general. This leads to the following propositions regarding coercive institutional pressure:
Proposition 1a: The larger the size of the firm, the higher the coercive pressure from
institutions and other constituents to implement sustainable practices and standards in the supply chain.
is supported by various other researchers as well (e.g. Green, Morton and New, 1996, Walton, Handfield and Melnyk, 1998 and Zhu, Sarkis and Geng, 2005). According to Vermeulen and Kok (2012), one common factor found is that governments often set minimum requirements (e.g. compensation) or maximum restrictions (e.g. pollution emissions) in order to promote supply chain sustainability. In this regard, the European Union has also been especially active. However, it should be noted that these formal institutional pressures can differ significantly between countries. For each country in which a firm is active, the governments are likely to have varying regulations on sustainability. Hettige, Huq, Pargal and Wheeler (1996) state that even if environmental regulations would be similar, in practice they will differ as a result of the varying capacities of countries to implement, monitor and enforce such regulations. According to Christmann and Taylor (2001) these differences result from each country’s ability to tolerate unsustainable practices and the degree to which they have set different economic and environmental priorities. In a study of Kaufmann, Kraay and Mastruzzi (2009) almost all countries in the world are assessed based on the quality of their institutions. Three of their proposed indicators are especially interesting for determining the coercive pressures of governments: political effectiveness, regulatory quality and the rule of law. Apart from these three, the study of Kaufmann et al. (2009) also consists of three other indicators. These remaining three indicators are voice and accountability, political stability and the control of corruption. However, as these three measure enabling or constraining factors under old institutionalism and do not allow for measuring institutional pressures, it is proposed to focus on the first three indicators.
all three of the suggested indicators of institutional quality lead to a greater likelihood of supply chain regulations and a more effective enforcement of these. This amounts to a greater degree of coercive pressure, which leads to the second proposition regarding coercive institutional pressures:
Proposition 1b: The higher the average quality of institutions of all target markets combined
in terms of a) political effectiveness, b) regulatory quality, and c) the rule of law, the higher the coercive pressure from institutions on MNEs to have a sustainable supply chain.
Proposition 1c: The larger a) the total amount of target markets, and b) the average size of
all target markets combined in terms of the amount of consumers, the more coercive pressures are experienced by the firm from their consumers to have a sustainable supply chain.
advantage over other suppliers (DiMaggio & Powell, 1983). Hereby, the supplier becomes even more important for the focal firm. As a consequence, substituting these suppliers can be difficult and costly as the focal firm will have problems accessing a similar inflow of resources. This is also supported in a research of Teo, Wei and Benbasat (2003), who take an institutional isomorphic perspective to adopting inter-organizational linkages. They argue that the ability to switch between suppliers determines the extent of dependence of the focal firm on their suppliers. The combination of a low degree of supplier substitutability and a high degree of transaction-specific investments leads to an increased level of dependence and, therefore, increased levels of risk and vulnerability, which strengthen the pressures experienced by the firm from their constituents. Sriram et al. (1992) argue that more dependent buyers are also more likely to seek safeguards and engage in monitoring their suppliers. This leads to a form of collaborative action becoming more attractive for the focal firm, in which potential malicious and opportunistic behaviours are being held in check (Bode, Wagner, Petersen and Ellram, 2011; Sriram et al., 1992). All in all, this paves the way for sustainability initiatives being deployed in cooperation with the focal firms’ suppliers. As DiMaggio and Powell (1983) argue, it is a position of dependence that leads to increased levels of isomorphic change. It is proposed that increased levels of risk and vulnerability will make the focal firm more susceptible to coercive pressure from the constituent groups. As the firm has less control over their supply chain, the pressures already exerted by the constituents will be felt stronger and, therefore, more attention is paid to the sustainability of their supply chains. This moderation effect leads to the third proposition regarding coercive institutional pressures.
Proposition 1d: The more vulnerable the position of the firm in terms of resource
dependency, the stronger firms experience coercive pressures and the more likely they are to increase the sustainability of their supply chain.
Proposition 1e: The more vulnerable the supply chain because of geographic dispersion, the
stronger firms experience coercive pressures and the more likely they are to increase the sustainability of their supply chain.
3.2 Mimetic Isomorphism
Mimetic isomorphism is a response to uncertainty. DiMaggio and Powell (1983) argue that not all institutional pressures are derived from a coercive authority. They state that uncertainty is also a powerful force that encourages imitation. Firms model themselves especially after similar organizations within the same industry that have shown to be more legitimate and successful (DiMaggio and Powell, 1983). Haveman (1993) reaches a similar conclusion and argues that mimetic pressures can be observed in two ways: the prevalence of the practice within the same industry and the success of these organizations that have adopted the practice. It is through this imitation that firms tend to respond to their uncertain environment by observing other firms (March and Olsen, 1976). These uncertain circumstances with ambiguous causes and unclear solutions are often handled efficiently by firms when copying others (Haveman and Wang, 2013). When encountering uncertainty, firms could evaluate their internal resources (Barney, 1991) and the external environment to develop better governance strategies.
chain management can prepare firms for superior long term performance. According to DiMaggio and Powell (1983), these developments also have a ritual aspect, as these firms try to enhance their own legitimacy and demonstrate they are changing for the better. Heugens and Lander (2009) state, that by adopting new isomorphic innovations both symbolic and substantive business performance could be improved.
As a consequence, it can be argued that economic performance is typically the most important driver to implement environmental management practices in the supply chain (Zhu and Sarkis, 2004) and, therefore, to mimic successful sustainable competitors. In this sense, poor prior firm performance, which leads to greater firm uncertainty, may cause firms to mimic sustainability initiatives in the supply chain in order to improve the firm’s performance. According to Greenwood and Hinings (1996), it is this poor prior performance of a firm that can act as a catalyst to trigger organizational changes. Becoming sustainable in the supply chain will be an adaptive response to these uncertainties faced by the firm. Firms will have to demonstrate to their stakeholders, most notably their shareholders, that there is a change for the better by adopting new governance strategies and templates (Greenwood and Hinings, 1996) in their supply chain. In conclusion, poor prior performance could lead to firms mimicking successful counterparts in order to help turn around their supply chain for the better. This leads to the first proposition regarding mimetic institutional pressures.
Proposition 2a: The higher the economic uncertainty faced by the firm in terms of poor prior
firm performance, the more likely they are to mimic other companies that successfully engage in sustainable supply chain initiatives.
equivalent, occupy a similar economic network in the same industry, and have similar goals, customers and suppliers. This phenomenon is described by Abrahamson and Rosenkopf (1993) as the “bandwagon pressure”, in which firms adopt similar practices as their competitors without assessing its efficiency and return on innovation. Consequently, if other firms are engaging in certain behaviours in the same industry, and this course of action becomes legitimated and taken for granted, others will follow in order to not be perceived as less innovative or responsive (Fligstein, 1985; Goodstein, 1994). The firms that are perceived to be most successful in this new and innovative governance are often imitated the most (Burns and Wholey, 1993; Haunschild and Miner, 1997, Teo et al., 2003). According to Miner and Haunschild (1995), firms can selectively imitate those practices of competitors they consider most effective and avoid other practices according to their perceived outcome. Combining all of the aforementioned research findings leads to the second proposition regarding mimetic pressures.
Proposition 2b: The more sustainable the supply chains are of the top few firms in the
industry, the more likely other firms will mimic them in also having a more sustainable supply chain.
3.3 Normative Isomorphism
it will lead to a greater deal of conflict between their accepted behavioural norms during the socialization process. This would lead to a shift in the ideational boundary (Suddaby, David and Greenwood, 2007), creating a break with traditional practices as new actors (i.e. new board members), who rely on their unique backgrounds, expertise and experience advocate new management practices. To provide an example, a board consisting of members with a dominant engineering background are likely to advocate different views on good practices as opposed to a board that includes business and law backgrounds as well (Barkema and Shvyrkov, 2007). As Holm and Schøler (2011) note, the individual board member can make valuable contributions to the decision-making process by providing unique perspectives and can thereby influence key outcomes. This is supported by Hillman and Dalziel (2003), who state that an appropriate mix of experience and capabilities is needed in the board to assess the impact of the firms’ strategy on sustainability. In this sense it can be argued that, besides from different educational backgrounds, another difference is likely to arise when one or more members on the board have a purchasing or supply chain background. As these board members have first-hand experience and knowledge on the supply chain it would most likely lead to a better evaluation of the suppliers’ practices to fit the environment. According to Bear, Rahman and Post (2010), this diversity of experience is important as it can enhance innovation and enable the board to effectively address their business environment. Moreover, Hafsi and Turgut (2013) note that diversity in board members’ background influences their sensitivity to stakeholders and to the wider society’s concerns. As a result, the board members’ educational backgrounds and/or the presence of a board member with a purchasing/supply chain background can lead to differences in norms and values about sustainability, which are likely to create a rise in normative clashes in the board about sustainability in general and supply chain sustainability in specific. According to Chizema and Kim (2010), this amounts to normative isomorphism according to institutional theory leads to the first two propositions regarding normative institutional pressures:
Proposition 3a: The higher the educational diversity on the board, the more likely firms are
to engage in being sustainable in their supply chain.
Proposition 3b: The presence of a member on the board with a purchasing or supply chain
In a similar vein, it can be argued that the role of foreign investors is also a factor that causes institutional normative pressures. According to Useem (1996), there is a history of investors mobilizing themselves to affect political and social actions of the firm. Chizema and Kim (2010, p. 118) define the role of foreign investors as: “to represent and diffuse, in a non-coercive fashion, alternative norms and mechanisms of shareholder capitalism.” This could lead to a similar shift in the ideational boundary (Suddaby et al., 2007) as proposed for having a more diverse board, leading to a break with traditional practices as these foreign investors have different norms and values about sustainability. This is supported by Bear et al. (2010), who state that almost half of all institutional investors consider environmental and social performance when making investments decisions, favouring firms that have well-governed sustainability practices. According to Clark and Crawford (2012), these investors are instrumental in shaping the political agenda of firms. By using their ownership stakes they can pressure firms to pay attention to key policy issues (Oliver and Holzinger, 2008). This source of institutional isomorphism is pressured by the investors in two different ways. Foreign investors could promote their interests by either voice (shareholder activism) or exit (threats to sell their shares) (Nooteboom, 1999). These two options suggest that foreign investors could imply their norms and values on the firm, also with regard to sustainability. As mentioned before, the greater the degree of diversity, the more likely normative clashes are to appear, in this case between the foreign investors and the company’s management. As Larsson (1977) has argued, collective actors, in this case, are a major source of normative isomorphic pressures. Since individuals from different cultures have different norms and values about sustainability and business practices is general, having more foreign investors could lead to more collective actions and thus more normative pressures to become sustainable, both in general as in the supply chain. Therefore it is proposed that:
Proposition 3c: The higher the level of foreign ownership, the more likely firms are to engage
4. PROPOSED METHODOLOGY
In order to effectively measure the above outlined pressures of institutional isomorphism, this section will continue with proposing an integrated methodology. As research in the field is limited, the conceptual nature of this paper will provide a useful starting point for further quantitative research on institutional pressures and supply chain sustainability in general.
4.1 Sample
The suggested population from which a sample could be drawn includes firms that have a tangible supply chain. Only in this way, firms within the population can be compared in terms of their supply chain sustainability. By comparing varying degrees of sustainability in relation to the institutional pressures, meaningful statistical results could be found that support the role of institutional theory within the supply chain field. By using a method of purposive sampling (Thomas, 2004), firms will be selected that have a visible supply chain which can be assessed for its sustainability. In order to select these firms, the Forbes Global 500 of 2013 and the Dow Jones Sustainability Index (DJSI) of 2012 have been considered. Firms have been selected using multiple criteria. First of all, all firms have been categorized according to the industrial sector they are present in. From this list, several sectors have been excluded, which are the service sector, the financial and banking sector, the energy sector, the travel industry, the real estate sector, and lastly all media related firms. The reason for this division is to exclude all firms that do not have a tangible supply chain and are, therefore, of no relevance to this research. Secondly, all remaining firms have been scrutinized individually using the firm’s website and additional information to establish a pattern of suppliers. In this second step, it has firstly been evaluated if the firms actually manufacture goods themselves or only provide services. Firms of the last category are excluded. Moreover, using the search function on the company’s homepage, it is researched whether they have suppliers and/or codes of conduct for these suppliers. Firms that have are included as a presence of suppliers is established, other firms have been ignored. The remaining firms constitute a total sample size of 184 firms.
scope for analysis of survey data (Thomas, 2004). Given the fact that almost 200 firms are present in this research leads to the conclusion that the sample is representative and that meaningful conclusions can be made based on this sample.
When further examining the sample proposed for this research, Table 1 provides a good overview of the amount of firms per country. At first, the table seems to indicate a bias towards the US, which is not unexpected as many of the largest firms are based in the US. A bias could potentially be a problem for this research as countries differ in terms of their regulatory frameworks and are, hence, more focussed on supply chain sustainability. However, when comparing these numbers to Figure 2, which shows the continental division, it can be concluded that there is in fact no bias. This figure indicates that there is even a small majority of European firms. With regard to the industrial sectors the firms are present in, Figure 3 shows a good spread over several sectors, without one dominating. However, as said before, some sectors might have different types of suppliers, which a factor that needs to be controlled for.
Sample Countries No. Percentage United States 48 26% Japan 18 10% France 15 8% United Kingdom 14 8% Germany 11 6% South Korea 9 5% Netherlands 8 4% Spain 7 4% Canada 6 3% Italy 6 3% Sweden 5 3% Switzerland 5 3% Taiwan 5 3% Australia 4 2% Finland 4 2% Brazil 3 2% Belgium 2 1% Colombia 2 1% Denmark 2 1% Russia 2 1% China 1 0,5% Greece 1 0,5% Ireland 1 0,5% Luxembourg 1 0,5% Norway 1 0,5% Portugal 1 0,5% Saudi Arabia 1 0,5% South Africa 1 0,5%
Table 1: Sample Countries
Figure 2: Division by Continent
4.2 Measures
The following part will operationalize the constructs as proposed in part three of this paper. In order to perform a statistical analysis, all constructs need to be measurable. All propositions that have been stated before will be translated into scores as to create metric variables. In the survey, which will be provided to the sample firms, questions will be asked pertaining to each of the propositions. These will either already be metric or will translated by asking respondents to answer a yes/no question or to provide additional data on their supply chain. This method will be further expanded upon later, but first all variables will be operationalized.
4.2.1. Dependent Variable
The dependent variable in this research will be the score for supply chain sustainability. This dependent variable is abstract and cannot be measured directly. Therefore, it needs to be measured by using proxies that signify higher levels of sustainability in the supply chain sustainability. By taking the weighted average of these proxies a score for supply chain sustainability can be computed. In the questionnaire, which has been provided in Appendix 2, all questions regarding the dependent variable are shown. By examining these questions, it is hoped to give a guideline for determining an overall supply chain sustainability score. It should be noted that each of the questions in itself does not completely signify a higher sustainability in the supply chain. However, by taking them altogether a comprehensive set of questions has been derived that should determine a complete score for the abstract concept of supply chain sustainability. As each of the questions highlights an increased commitment in sustainable supply chain governance, they are likely to increase its sustainability. The questions follow a pattern of logic and are partly based on the already well tested questionnaire of the Dow Jones Sustainability Index.
Supply chain risk
First of all, it is asked whether the firm has a formalized process in place to identify supply chain risk. Having such a process is likely to lead to higher levels of sustainability as the firm is actively engaged in assessing its risk. This is a closed question with a yes or no answer. Therefore, this question will be coded as 1 for yes and 0 for no.
percentage, differences in breadth of the supply chain are accounted for. Differences in length of the supply chain are not considered as it is difficult to identify indirect suppliers and the scope of such research might become too great for the purpose of this paper. The percentage of covered suppliers will be computed between 0 and 1. The closer to 1, the more sustainable the supply chain is likely to be.
Thirdly, it is asked what percentage of the total suppliers is seen as having a high sustainability risk. The more suppliers have a high risk, the lower the overall sustainability of the supply chain. Although a company could control this risk, the fact that it is regarded as a high risk means that no sufficient standards have been implemented yet in the supply chain. This percentage will also be computed between 0 and 1. However, this score will be deducted from 1 as to provide a score that is comparable to other questions. Hereby, the closer the score is to 1, the more sustainable the supply chain is likely to be.
Code of conduct
The fourth question asks for which aspects are covered in the suppliers’ code of conduct of the firm. The more aspects are covered in the code of conduct, the more sustainability is enforced in the supply chain and thus the more likely it is to be sustainable. This question consists out of nine aspects (see also Appendix 2). If no suppliers’ code of conduct is present, the score will be 0. If it is present and for each other present aspect, a score of 0.1 will be rewarded. If all aspects are present this would lead to a score of 1.
Audits
The fifth question addresses the percentage of suppliers audited over the last year relative to the total amount of suppliers. If more suppliers are audited it again signifies a greater commitment of the firm to enforce sustainability in the supply chain and check upon their suppliers. Moreover, the more suppliers that are audited, the greater the likelihood of unsustainable practices in the supply chain to be uncovered and subsequently improved. This will in turn have a positive influence on the overall sustainability of the supply chain. The percentage provided will be computed between 0 and 1.
The seventh question will consider if correction plans are made for audited suppliers. This will show whether firms not only audit but are also committed to improving the sustainability of their suppliers. The more plans for correction exist, the more the sustainability is likely to have been improved over the past period. Again, this percentage will be computed between 0 and 1.
Supplier relationship
When turning to question eight, it is aimed to establish whether the firms provide incentives to their suppliers to improve performance. These could, for example, be in the form of longer-term contracts or covered training costs. When such incentives are in place, it is assumed that suppliers will also improve their sustainability. This question will be answered with either yes (coded as 1) or no (coded as 0).
The ninth question concerns the termination of contracts because of sustainability issues. It is asked what percentage of the total terminated contracts has been terminated because of sustainability reasons. The higher this ratio, the more the firm is engaged in monitoring their suppliers and cutting them off as soon as unsustainable practices are uncovered. By letting go of unsustainable suppliers, the overall sustainability of the supply chain will increase. This percentage will be computed between 0 and 1.
Staff
With regard to the tenth question, it is asked whether there is a person specifically responsible for monitoring the supply chains’ sustainability. By having such a person in charge, it shows the commitment of the firm toward improving sustainability. As there is a responsible specifically engaging in sustainability it is likely that there is a higher level of sustainability in their supply chain. This is again a closed questions coded as 1 (yes) or 0 (no).
The eleventh question deals with the amount of procurement staff that is trained on sustainability issues. The more trained they are, the more equipped the staff is to spot and deal with sustainability issues in the supply chain. This will in turn improve the sustainability of the supply chain. This question will be operationalized as the percentage of trained staff as part of the total procurement staff, and is therefore computed between 0 and 1.
Collaboration and reporting
sustainable as proactive action is undertaken to improve the supply chain. This is again a closed question, which will be coded as 1 for yes and 0 for no.
The last question pertaining to the dependent variable deals with the reporting of supply chain sustainability. Firms that are attempting to be more transparent are assumed to be more engaged in monitoring their suppliers. Because of their transparency, unsustainable practices could have a substantial impact and are likely to lead to more proactive supply chain governance. This last question is again a yes or no question and coded as either 1 for yes or 0 for no.
By taking into account the answers to all of the aforementioned questions, the score for supply chain sustainability can be derived using Formula 1. Weights have been allocated to each of the questions based on the weightings of the Dow Jones Sustainability Index (DJSI). As several sectors have been excluded from this research (see section 4.1), the weights have been recalculated by only including the relevant sectors.
4.2.2. Independent Variables Coercive pressures
The first proposition (1a) states that the larger the firm, the more coercive pressure they are likely to experience. The size of the firm will not be asked for in the questionnaire as this data is widely available through, for example, the Orbis-database. For the purpose of testing this proposition, it is suggested to take the size of each firm in terms of market capitalization, which is the total value of issued shares. Although the amount of employees is also often taken as an indicator of size, market capitalization is deemed to be more appropriate. As the business activities of the firms in this research differ, it is presumed that not each will require a similar amount of employees. Some of the sectors under consideration are more labour intensive than others. Therefore, using size might be inaccurate for estimating the perceived size in the public opinion. In this sense, market capitalization is a more uniform determinant of size.
The second proposition (1b) will estimate the average quality of institutions in terms of political effectiveness, regulatory quality and the rule of law. As has already been mentioned earlier in this paper, this is based on research by Kaufmann et al. (2009). This research is one of the few that have established the quality of institutions around the world. In cooperation with the World Bank, they have developed a consistent and strong measure of several factors leading to institutional quality. As their scope includes almost every country around the world, all countries under examination in this research have been assessed for their institutional quality. The data for these countries can be found at the end of their report (Kaufmann et al., 2009).
The third proposition (1c) regarding coercive institutional pressures requires information about the size of the consumer markets. As this data is not widely available, it will be asked for in the questionnaire for each firm to list the countries in which they currently sell their products and the size of these. The amount of consumers in each target market can straightforwardly be taken as an indicator for the size, which will be averaged over all markets. Moreover, the total amount of markets can simply be taken from the questionnaire as it asks for a list of all target markets.
Continuing with the fourth proposition (1d) regarding coercive institutional pressures, it is proposed that the more vulnerable the position of the firm and its suppliers is in terms of resource dependency, the stronger the link between the above outlined coercive pressures and the actual level of supply chain sustainability. For this moderation proposition, information is needed on the resource dependency level of the firm. As this data is not widely available, a question in the questionnaire will pertain to this proposition. This question will inquire about the percentage of procurement spend on the three largest suppliers. This percentage will be computed between 0 and 1, similarly as for the percentages which constitute the dependent variable.
using the work of Kogut and Singh (1988). Their formula for cultural distance is based on Hofstede’s (1980) four cultural dimensions. These are power distance, individualism, masculinity, and uncertainty avoidance. This cultural distance coefficient effectively measures the distance between two countries in terms of Hofstede’s four cultural dimensions. The Kogut and Singh (1988) formula is provided below (Formula 2):
In this equation, Iij is the index for the Hofstede dimension i for the foreign country j. Iiu is the
index for the same Hofstede dimension of the home country u and Vi is the variance of the this
index. The formula for the geographic dispersion of suppliers includes this cultural distance for each country relative to the home country and weighs this number based on the size of supplies. This will lead to Formula 3 for determining the geographic dispersion of suppliers:
Mimetic pressures
With regard to the mimetic institutional pressures, the first proposition (2a) suggests that the higher the economic uncertainty faced by the firm because of poor prior firm performance, the more likely they are to mimic successful competitors. This proposition requires information on the prior performance of the firm. Poor prior performance is suggested to be measured by taking the mean growth coefficient of the return on equity (ROE) over the last five years. The growth coefficient of the ROE provides a good measure of performance as it includes both net income and total equity. This indicator is especially important for the shareholders of the firm as it reveals the profitability of the firm opposed to the money the shareholders have invested. Moreover, ROE is a useful measure for comparing firms as has been shown by research of, for example, Boardman and Vining (1989). By taking the growth coefficient, a pattern can be uncovered if there is a persistent decline or growth of this ratio. It is suggested that five years will be adequate as a timespan as this is long enough to establish a pattern and data older than five years might not have much relevance to the pressures for sustainability at present. The firm’s ROE can be determined based on data taken from the Orbis-database.
The second proposition (2b) that assesses mimetic institutional pressures examines the relation between the supply chain sustainability of the individual firm as opposed to the average sustainability of the top few firms in each industry. In order to operationalize this proposition, the average sustainability of the top few firms needs to be established as other
(2)
firms might benchmark themselves against these firms. It is suggested to take the average supply chain sustainability rating of the top three firms in each industry. In the analysis, the top three firms should also be included as their supply chain sustainability score might be dependent on pressures amongst these top three most sustainable firms. In order to make meaningful conclusions about this proposition, each industry has to be controlled for.
Normative pressures
The last type of institutional pressure according to DiMaggio and Powell (1983) will examine the normative pressures. Firstly, it is proposed that diversity in the board in terms of educational backgrounds might lead to added pressure for sustainability in the supply chain (3a). Educational diversity will be calculated by using Blau’s heterogeneity index (see Wiersema and Bantel, 1992). This index is calculated as the reverse of the Herfindahl-Hirschman homogeneity index, which is depicted below (Formula 4).
In this equation, S is the percentage of board members with a dominant educational track i and
n is the number of different educational tracks. In order to receive information on the
educational tracks a question regarding these will be present in the questionnaire. Based on a paper by Barkema and Shvyrkov’s (2007), four categories will be highlighted to distinguish between educational tracks. These are a degree in business, law, engineering or no degree. After having calculated the educational diversity, the log of this number should be used in the analysis. According to Barkema and Shvyrkov (2007) there is a diminishing effect of educational diversity due to an information overload, this can be countered by taking the log of Blau’s heterogeneity index.
The second proposition (3b) includes whether there is a board member with a purchasing/supply chain background. There will be a question in the questionnaire asking specifically for this information. This variable will be operationalized by using a dummy variable. A 1 will be ascribed when such a member is present and a 0 when there is no such member on the board.
The last proposition (3c) examines the role of foreign investors in pressuring for sustainability in the supply chain. The amount of foreign investors will be calculated by dividing the total percentage of shares of all foreign investors combined by a hundred per cent (the total amount of shares). For each firm, this means the shareholders need to be researched
to determine their country of origin and their share of the total amount of outstanding stock. Information on institutional investors can be found through the Orbis-database, which already denotes the sizes of their shares. Subsequently, each of the investors will need to be scrutinized individually to determine their country of origin.
4.2.3. Control Variables
After having operationalized both the dependent and independent variables, this section will continue with specifying variables that will be controlled for. The most obvious influence is that of the industrial sectors. As has been shown before, all firms have been divided over eleven industrial sectors (Figure 3). As not all sectors are the same, there might be differences in the levels of risk experienced by firms. In some sectors (e.g. health care, chemicals) the impact of unsustainable practices can be quite profound and there might be added pressure already to be sustainable. Moreover, as the range of products is different across sectors, there will be different business structures present to tailor for each. Therefore, it is relevant to control for industry affiliation. The best way of operationalizing this construct is to create dummy variables for each of the eleven industrial categories. The number 1 will be assigned for the relevant category the firm is active in and a 0 will be assigned to all other categories.
In a similar fashion, country of origin effects also need to be controlled for. As this research will be conducted on a global scale, cross-country differences could have an influence on possible outcomes. For example, some countries’ regulations are more actively enforcing sustainability than others (e.g. the US). Moreover, the nature of production might be different across countries as some produce on a more labour intensive scale than others (e.g. in developing countries). This will be controlled for by creating similar dummy variables as for industry affiliation. The number 1 will be assigned when the firm is headquartered in a specific country, and a 0 will be assigned for all other countries.
Another factor that should be controlled for is firm age. A firm that has been in existence for a longer period of time has also been exposed longer to various institutional pressures and has had more time to effectively implement sustainability standards in the supply chain. They have had more time to create a well-functioning supply chain governance strategy and will have the experience to deal with the various pressures exerted by their constituents. Thus, it can be argued that older firms could be more effective in enforcing sustainability in their supply chain. The year of inception can be found through the Orbis-database or on most companies’ webpages. Firm age is calculated as the total number of years of existence as from the year of inception.
A last factor that will be controlled for is that of ownership dispersion. This could be an important influence on especially the last proposition that concerns foreign investors. If ownership is more concentrated, one dominant shareholder is able to exert strong pressures on the firm, whereas a dispersed firm is less likely to face strong organized shareholder pressures. Ownership dispersion will be operationalized using dummy categories. In research by La Porta, Lopez-de-Silanes and Shleifer (1999) it is argued that 10% is usually enough to establish dominant ownership. However, they state that this is not always the case, so ideally it should also be tested at the 20% level. This will amount to three categories, one with no dominant shareholder, one with a dominant shareholder at the 10% level and the last at the 20% level. For each category, firms will be assigned a 1 when it is shown whether they have a dominant shareholder and at which level. For all other categories, a 0 will be assigned. Relevant shareholder can be examined by using the Orbis-database.
4.3 Methods
4.3.1 Factor Analysis
In a first step, it is suggested to conduct a factor analysis as a means of checking the grouping of institutional pressures. It has been argued in this paper that institutional pressures will fall within three categories as proposed by DiMaggio and Powell (1983): coercive, mimetic and normative pressures. In order to establish that the right constructs have been grouped for the each category, a factor analysis could provide a useful insight. According to Thomas (2004), a factor analysis can be used to determine the underlying structure of a set of variables. In this way, a large set of variables can be condensed to so-called factors (dimensions of variables) with a minimum loss of information (Hair, Black, Babin and Anderson, 2010). Before conducting a factor analysis, it should first be assessed whether there are issues with high correlations. After the correlation tests have been satisfied a factor analysis can be conducted using the Principal Factor Analysis (PFA) method. As the aim is to summarize data and group variables, this method is most appropriate (Hair et al., 2010).
When conducting the analysis, it is argued to extract three factors, one for each category of the DiMaggio and Powell (1983) framework. However, it is suggested to first assess the eigenvalues (which should be above 1) in order to determine whether it is indeed correct to extract three factors. In addition, the total explained variance should be above 60% as is common in social sciences (Hair et al., 2010). When these thresholds are satisfied, the factor matrix of loadings and the communalities index can be analysed to determine whether the grouping of factors as proposed in this report is indeed correct. In case the results are inconsistent with the proposed factors, alternative techniques are available. The most commonly used technique to overcome inconsistent results in factor analysis is to use orthogonal rotation (e.g. varimax). By applying varimax rotation, both issues with extraction and correlations could be overcome (Hair et al., 2010). If this is not the case, one could also consider using Oblique-rotation techniques (e.g. oblimin).
4.3.2. Regression Analysis
results for significance, some earlier steps need to be taken. As a starter, multi-collinearity needs to be assessed. When no apparent issues with multi-collinearity have been uncovered, it is suggested to follow a simple ordinary least squares approach. However, it should not be forgotten that two of the coercive variables are actually moderating a relation. Therefore, the first regression analysis should be run without these two propositions (1d and 1e). All remaining variables will be examined by running multiple models. The first model will only feature the control variables to determine their relevance. Subsequent models will stepwise introduce each of the factors found in the factor analysis, amounting to three further models. The last regression will include all variables (excluding moderators at this point). In this way, models can be compared and the influence of each category can be assessed independently. This should make the researcher able to determine the degree of influence of each of the categories as proposed under the institutional isomorphism theory. In a next step, the goodness of fit should be analysed for each regression, after which each of the variables can be analysed in order to confirm or reject the propositions of this paper. It is suggested to use three levels of significance as common in other research (0.01, 0.05 and 0.1). According to Thomas (2004) statistical values below a level of 10% are considered to have some significance, values lower than 5% are significant and a value lower than 1% is highly significant.
5. DISCUSSION 5.1 Theoretical Limitations
As this research considers supply chain sustainability through a new institutional lens, several other theories are not considered. For the purpose of this paper, new institutional theory is regarded as most appropriate for assessing the drivers of supply chain sustainability. However, other theoretical lenses could explain differences in supply chain sustainability as well by considering enabling and constraining factors. These have not been considered in this paper as the focus is on determining which pressures drive sustainability.
First of all, the framework of institutional isomorphism argues for competitive influences to be seen as part of the institutional process. In contrast, Lee and Pennings (2002) make a clear distinction between institutional and competitive influences. According to them, competitive processes enable the institutional processes and are not a part of it. Lee and Pennings (2002) argue that specific governance templates of the focal firm combined with different survival rates of templates among other firms are likely to produce institutional change. This market feedback of competitors shapes the cognitive premises of managers and enables them to apply similar governance templates (Lee and Pennings, 2002). This appears to be very similar to mimetic isomorphism. However, as Barr (1998) argues, competitive intensity affects the interpretation of adverse environmental events. In a situation of intense competition, profit margins are narrow and firms tend to favour only shareholder value and firm survival instead of producing in a sustainable way (Campbell, 2007). On the other hand, when there is almost no competition, firms have little incentive to act environmentally responsible as declines in reputation will not likely affect profitability and subsequent firm survival (Campbell, 2007). In light of this view, it is not mimetic influences that interplay with the other institutional factors, but it determines whether these other factors are experienced or not. This could provide a first alternative explanation whether or not sustainability practices and standards are implemented in the supply chain.
