Unsustainable Competition

Unsustainable Competition

Master’s Thesis Supply Chain Management

University of Groningen, Faculty of Economics and Business

Author: Lourens de Haan Student number: S2382695 Email: l.de.haan.8@student.rug.nl

Supervisor: dr. ir. N.J. Pulles Co-assessor: dr. K. Peters Word count: 11866

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ABSTRACT

3 Table of contents 1. Introduction ………... 4 2. Theoretical background ………..………...… 7 2.1 Sustainability ………..….…… 7 2.2 Greenwashing ………..………… 9 2.3 Hypotheses ………..………….. 11 2.4 Justification ………..…………. 13 3. Methodology study A ………. 14 3.1 Research design ………. 14 3.2 Data collection ………... 16 3.3 Data analysis ……….. 17 4. Results study A ……… 19 4.1 Upstream sustainability ……….. 19 4.2 Downstream sustainability ………. 20 4.3 Greenwashing ………. 20 4.4 Analysis ……….. 20 4.5 Summary ……… 21 5. Methodology study B ………... 22 5.1 Research design……….. 22 5.2 Data collection ……… 22 5.3 Data analysis ………..… 23 6. Results study B ………. 23

6.1 Social and environmental footprint ……… 23

6.2 Sustainability measures ……….. 24

6.3 Sustainability motives ……….... 25

6.4 Competition and sustainability ……….….. 26

6.5 Indications for improvement in sustainability ……… 28

7. General discussion ………... 30

8. Conclusion ………...……… 33

9. References ……….... 34

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1. INTRODUCTION

In the end of 2015 the Environmental Protection Agency (EPA) declared that in a great amount of Volkswagen diesel vehicles so called “defeat devices” were installed. According to EPA, these devices were installed with the sole purpose to bypass vehicle emission control systems (EPA, 2015). Because emission tests always happen in a controlled environment, Volkswagen vehicles were programmed to recognize this situation and subsequently change engine settings with the intention of temporarily reducing nitrogen oxide (NOx) emissions (Mansouri, 2016). These vehicles were having NOx emissions up to 35 times of the permitted levels on the road, while mysteriously passing lab tests (McGee, 2017). VW has admitted that the software had been installed in 11 million vehicles worldwide (Mansouri, 2016). Over the sales period (2008-2015) it has been estimated the excess of 492 million kg of NOx will result in 38 billion US dollars in health damages in the EU alone. (Barrett et al., 2015; Oldenkamp, Van Zelm, & Huijbregts, 2016).

By making environmental claims that are simply false, Volkswagen committed “the cardinal sin” of greenwashing: lying (Chen, Huang, Wang, & Chen, 2018; Lynes, 2015). Additionally, VW is not the only car manufacturer involved in this scandal. Real world pollution tests show that a wide range of diesel cars from other manufacturers emit up to 10 times more NOx than revealed during lab testing (ADAC, 2018; D. Carrington, 2015). If Volkswagen vehicles in the EU alone accounts for $38.000.000.000 in health damages, just imagine what the effect is of the additional NOx of all the greenwashed vehicles on public health worldwide. This paper is devoted to exploring what harmful factors might induce greenwashing, which can briefly be described as spreading disinformation to present an environmentally responsible public image (Ramus & Montiel, 2005).

5 why some companies choose to be green, while others prefer to appear green. Kim & Lyon (2015) notice that being environmentally responsible usually comes at a cost, leaving companies to face opposing pressures: shareholder demands (profits) and green pressure (costs) from secondary stakeholders. Because of this tension between shareholder demands and sustainability there might be an incentive for managers to either [1] reduce efforts towards sustainability or [2] satisfy both demands by greenwashing. Since greenwashing has detrimental environmental and social consequences, analyzing antecedents that likely drive this phenomenon could prove fruitful for sustainable progress and therefore be an interesting proposition for future research (Kim & Lyon, 2015). Since Hu, Chopra, & Chen (2017) concluded on the VW emission scandal that the harsh competition in the automobile industry was a decisive factor for non-compliance: VW had cheated in order to stay competitive. This general idea that competition might contribute towards unsustainable business & greenwashing is also supported by other recent literature (Delmas & Burbano, 2011; Lyon & Montgomery, 2015; Quairel-Lanoizelée, 2011).

From the introduction, a few interesting questions can be distilled:

- Does a highly competitive environment lead to reduced efforts of sustainability? - Does competition lead to greenwashing?

- Why does this happen?

- What measures can be taken to encourage actual sustainability?

The main research question will therefore be:

What are the effects of competition on sustainability and greenwashing and how can this effect be influenced to encourage sustainability?

6 that increased competition is linked to illegal or unethical behavior to attract and retain customers (Bennett, Pierce, Snyder, & Toffel, 2013). Since greenwashing is essentially a form of unethical behavior, it makes sense to suggest that a market with fierce competition could spur corporate greenwashing (Delmas & Burbano, 2011).

This paper will contribute to the existing body of knowledge in the following manner:

- This is one of the first papers to specifically explore the effect of competition on greenwashing. There has been research mentioning competition as a factor (e.g. Delmas & Burbano, 2011; Lyon & Montgomery, 2015) but little research is devoted to uncovering the decision-making process to understand the why and how of the choices made by supply chain managers. In-depth research to understand the how and why of these factors influencing greenwashing is still very much needed (Cheung & Lee, 2018). - According to a literature review by Seuring & Müller (2008), literature on sustainable supply chain management is usually only interested in environmental concerns, while the social aspects are ignored. In that study, only 31 (N = 191) of the relevant papers in the field could be classified as sustainable by addressing both social & environmental dimensions. Future research is in dire need of an integrated perspective where both social and environmental aspects are given attention, since there interrelatedness is beyond any doubt (Seuring & Müller, 2008). Therefore, this paper takes a complete sustainability perspective: both social and environmental issues are considered in this research.

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2. THEORTICAL BACKGROUND

2.1 Sustainability

As can be observed from the amount of publications on this subject, attention to greenwashing has been increasing in recent literature (de Vries, Terwel, Ellemers, & Daamen, 2015; Lyon & Montgomery, 2015; Markham, Khare, & Beckman, 2014; Marquis, Toffel, & Zhou, 2016). The trend in scientific research on this subject should be seen in light of the broader stream of literature on sustainability that arose three decades ago (Brundtland, 1987; Goodland, 1995). It was the Report of the World Commission on Environment and Development - Our Common Future or simply “Brundtland Report” in 1987 that is attributed the generally accepted definition of sustainable development (Kates, Parris, & Leiserowitz, 2016):

Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs (p. 41)

CSR. Since this somewhat fuzzy definition is pertaining to society as a whole, the

extensive scope provides little direction and companies consequently often struggle to apply this concept (Carter & Rogers, 2008). Still, this report acted as a catalyst for more thorough research on sustainable business, with the triple bottom line (TBL) approach as most recognized descendant from this stream of literature (Seuring & Müller, 2008; Slaper & Hall, 2011). TBL was introduced by Elkington (1997) as an accounting framework trying to operationalize sustainability by incorporating social, environmental & financial dimensions to calculate business performance (Seuring & Müller, 2008). TBL is closely related to Corporate Social Responsibility (CSR) , which can be described as an even less concrete version of TBL (Norman & Macdonald, 2004). These concepts however appear more rhetoric, or even greenwashing in nature than actually doing a considerable effort towards environmental sustainability:

At best, a commitment to [TBL] requires merely that the firm report a number of data points of its own choosing that are potentially relevant to different stakeholder groups— typically in the form of a glossy report full of platitudinous text and soft-focus photos of happy people and colorful flora (Norman & Macdonald, 2004, p. 256).

8 chain perspective: “SSCM is the designing, organizing, coordinating, and controlling of supply chains to become truly sustainable with the minimum expectation of a truly sustainable supply chain being to maintain economic viability, while doing no harm to social or environmental systems” (Pagell & Shevchenko, 2014, p. 45). Carter & Liane Easton (2011) even go as far as to suggest that SSCM is now an essential license to do business in the twenty-first century. This development of a more holistic view concerning sustainability can partly be attributed to production processes being increasingly dispersed around the globe, leaving focal companies in a supply chain responsible for the environmental & social practice of their suppliers (Seuring & Müller, 2008). The same logic from ‘regular’ SCM literature applies here: since organizational success is correlated to the strength of its weakest supply chain partner, the designing, organizing, coordinating function of SSCM should improve the chain’s social & environmental performance while providing a competitive advantage (Pagell & Shevchenko, 2014; Spekman, Kamauff, & Myhr, 1998). This shift from a traditional purchasing strategy such as composed by Kraljic (1983) to a model of SSCM which combines accepted best practices with a holistic orientation towards sustainability and a focus on collaboration & continuity in the supply base is perhaps the biggest advancement in SCM in the past few decades (Pagell & Wu, 2009).

True sustainability. From an analytical view and compare the advancements in SCM

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2.2 Greenwashing

Although there has been an increase in attention in greenwashing in recent years, the activity is not new. The term “greenwashing” is attributed to Jay Westerveld in 1986, that noted a hotel was encouraging guests to reuse towels to save the environment (Watson, 2016). Westerveld believed the hotel claimed to be environmentally responsible by reducing energy & water while the actual goal was profit maximization (Orange & Cohen, 2010). As whitewashing is covering material in a very thin layer of white paint, greenwashing is a play of words that infers making thin, or superficial green claims for the sake of profits (Cherry & Sneirson, 2012). It still appears there is no clear consensus among scholars to what exactly constitutes greenwashing, but this research follows the definition used by Delmas & Burbano (2011, p. 66): “The act of misleading consumers regarding the environmental practices of a company (firm-level greenwashing) or the environmental benefits of a product or service (product-level greenwashing)”. This paper will not engage in a profound discussion about the definition of greenwashing, research by Delmas & Burbano (2011) can be used for further reading on this.

Effect on Society & Environment. Greenwashing impacts society in quite a

10 confidence in true sustainability, impeding companies to immerse in sustainable practices (Delmas & Burbano, 2011).

Drivers of Greenwashing.

Seeing that greenwashing has a considerate negative effect on the development of environmental sustainability, identifying the pressures and circumstances that act as an incentive for greenwashing should prove a fruitful step towards prevention. To this date, the theoretical framework by Delmas & Burbano (2011) shown in figure 1

provides a comprehensive overview of the drivers of greenwash (Lyon & Montgomery, 2015). In this article, drivers of greenwashing are categorized in four groups: [1] non-market external, [2] market-external, [3] organizational and [4] individual psychological. The first group encompasses the key driver of greenwashing: the regulatory environment. The second group entails the pressure asserted by market-specific stakeholders. The third group consists of organizational attributes that influence or mediate the response to both external drivers. Finally, cognitive and psychological aspects on an individual level shape the decision-making processes made by employees, affecting how the other drivers are perceived, processed and translated into responses (Delmas & Burbano, 2011). As can be seen in figure 1, competitive pressure is listed as an “Market External Driver” in category 2 as a factor that contributes to greenwashing. According to Delmas & Toffel (2008) firms have the tendency to shape themselves after comparable businesses in the industry that they recognize to be more successful. These organizations are then engaging in greenwashing behavior because they feel they are already trailing the successful organizations and might otherwise get at an impassable distance (Delmas & Burbano, 2011). Although the aforementioned paper on determinants of greenwashing provides an extensive framework on all possible causes of greenwashing, in-depth research on the how and why of these sources is still very much needed (Cheung & Lee, 2018).

Combining the framework of Delmas & Burbano (2011) with the results of the other mentioned studies suggests it would be interesting to dive deeper into the effect of competition on

11 sustainability. Does competition encourage corporate misconduct & unethical behavior which negatively effects sustainability? Additionally, can unethical behavior in a highly competitive environment be linked to greenwashing? Since literature suggests both might be plausible and interesting future research, this study focuses on the gap of knowledge concerning the effects of the competitive environment on both social & environmental sustainability.

2.3 Hypotheses

Competition. Competition is usually linked to positive outcomes to society, such as

higher productivity eliciting to lower prices and better quality (Bennett et al., 2013; Syverson, 2004). However, rivalry (a subset of competition) was found to foster unethical behavior since the pursue of success makes competitors `do whatever it takes` and go beyond ethical and legal standards (G. Kilduff et al., 2016). Furthermore, Bennett et al. (2013) established evidence to assert that though competition fosters unethical and illegitimate practices to attract and retain customers. Companies under heavy competition might exhibit similar behavior when making choices that affect social & environmental sustainability. As stated before, being environmentally responsible usually comes at a price. A price that organizations in a competitive environment might not be willing to pay when the perceived benefits for firm profitability are not so clear. This is supported by Quairel-Lanoizelée (2011) who expresses that fierce competition exerts strong constraints on costs that may elicit managers to operate irresponsibly, leading to negative social & environmental consequences. Therefore, I expect that, ceterus paribus, firms experiencing difficult competition will show significant indifference towards both social and environmental sustainability in comparison with firms that experience little competition. Having explained the proposed mechanism, the following two paragraphs will illustrate why both the upstream (purchasing) and downstream (marketing) departments were selected to assess this proposition.

12 purchasing can play such a decisive role as upstream boundary spanner, this study expects to see the opposite behavior in case of heavy competition. A similar idea is posed by Bennett et al. (2013) who thinks that the most important implication of his research is the fact that intense competition might motivate suppliers to get involved in illegal activities such as ignoring safety laws, child labor and air pollution. If competition can lead to negligence towards social and environmental issues in the supply chain as argued here, it would not only make sense to also expect this behavior in the purchasing department, it would be a mistake to disregard this decisive element of corporate sustainability. Accordingly, I hypothesize the following:

H1a: Sustainable purchasing is negatively associated with high competition

Sustainable marketing. The conjunction of marketing and sustainability have been mainly concerned with understanding the ecological conscious customer in order to design and implement the most profitable strategies to target this population (Sharma, Iyer, Mehrotra, & Krishnan, 2010). But just as traditional purchasing evolved to SSCM, present-day sustainable marketing is an integrative concept that involves a balanced approach to environmental, social and financial considerations (Bridges & Wilhelm, 2008). This holistic approach means that product development programs should consider the processes of all supply chain members, such as suppliers polluting or making use of child labor (as in the SBRP experiment). Furthermore, sustainable marketing expects marketers to manage customer demand through marketing and demarketing. In terms of sustainability, this means promoting responsible consumption and discouraging consumption that is ultimately destructive (Sodhi, 2011). Lastly, sustainable marketing requires the adoption of environmental accounting methods (such as life-cycle assessment or LCA) to calculate the true environmental and social impacts caused by production, ownership, use and disposal to incorporate these ‘hidden’ costs in product offering and pricing decisions (Bridges & Wilhelm, 2008). Seeing the important role of marketeers towards corporate sustainability, examining the effect of competition on marketing decisions that have social and environmental consequences should be valuable. I therefore hypothesize the following:

H1b: Sustainable marketing is negatively associated with high competition

13 appears to have become an attractive approach to get in front of the opposition (Parguel, Benoît-Moreau, & Larceneux, 2011). In addition, Kim & Lyon (2015) explain that being environmentally responsible usually comes at a cost, leaving companies to face opposing pressures: shareholder demands (profits) and green pressure (costs) from secondary stakeholders. Because of this tension between shareholder demands and sustainability there might be an incentive for managers to satisfy both demands by greenwashing. By pretending to be green for the bodies demanding sustainability (e.g. governmental regulations) without investing the shareholders’ capital, both sides will be satisfied, unless they get caught. Accordingly, I hypothesize the following:

H2: Greenwashing is positively associated with high competition

2.4 Justification

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STUDY A: SBRP EXPERIMENT

3.1 Research design

The main objective of study A is to explore how competition can lead to reduced results in sustainability and possibly encourage greenwashing. This objective will be addressed through a scenario-based role-playing (SBRP) experiment.

SBRP experiment. An SBRP experiment or vignette-based experiment is an experiment in which a short impressionistic scene is described to report scripted information about certain concepts of interest. In practice, this means that employees with working experience in an area of interest are given a fictional role and react and respond to this scripted information (Rungtusanatham et al., 2011). After careful documentation these responses should be quantified and analyzed to gain insight about the nature of reactions and responses and improve the understanding of organizational decision-making in an area of interest (Mir et al., 2017; Rungtusanatham et al., 2011).

Process. The SBRP experiment has been constructed to answer the

aforementioned hypotheses. In this experiment employees will be subjected to a vignette where a certain amount of market competition is assumed (low or high). In essence, there were two different samples: the upstream vignette that addressed decisions in a purchasing (SCM) context for employees with experience with suppliers and the downstream vignette that addressed decisions in a marketing context for employees in contact to customers. For upstream cases regarding environmental sustainability with high competition, a quick summary of this vignette would look like this:

You are the SCM executive of BatteriesCo, a leading battery manufacturer that wants to expand. There is an increase in demand of batteries, but the traditional supplier cannot provide satisfactory amounts of nickel, a crucial metal you need for producing batteries. The SCM department found an alternative supplier of nickel, but there are major environmental issues (deforestation, pollution) associated with this source. Another major buyer has also contacted this supplier for nickel, but the supplier only has sufficient capacity to serve one company. The supplier of nickel is the only solution to suffice the increasing demand and meet production goals, as a SCM you have to make sourcing decisions.

15 decisions about sustainability. At the end each second case, participants were requested to answer a collection of general questions the peers were interested in. In table 1 the method for fairly allocating the different vignettes can be examined, this ensured that the distribution of competitive and non-competitive cases was equal. Sequences of cases were mixed to avoid biases and improve reliability and validity. All items in the questionnaire are measured on a seven-point Likert scale (1 = no, completely disagree to 7 = yes, completely agree).

Up st rea m ( S CM

) Competition? Case 1 Case 2 + general

questions

Participant 1 Competitive Social Environmental Participant 2 Non-competitive Environmental Social

Participant 3 Competitive Environmental Social

Participant 4 Non-competitive Social Environmental

Do wn st re am (Ma rke ting

) Participant 1 * Competitive Social Environmental

Participant 2 Non-competitive Environmental Social Participant 3 Competitive Environmental Social

Participant 4 Non-competitive Social Environmental

Experimental manipulations. Participants were

randomly assigned identical cases with only one difference: the manipulation of the level of competition. For participants in the downstream (marketing) group with a competitive market, in the case on social sustainability there was a paragraph that stated:

In the meantime, you know from the reports of one of your business analysts that another fashion brand with a major denim line has approached the Nordic retailer. Similar to HotFashion, the other Fashion brand is seeking to sign a contract with the retailer. The retailer is looking for only one partner to fulfill its ambitions to expand into denim. If it decides to do business with the other brand, then the retailer will not do business with HotFashion

In contrast, participants in the downstream (marketing) group with a non-competitive market were subjected to the following information in the case on social sustainability:

In the meantime, you know from the reports of one of your business analysts that the Nordic retailer is not approached by any other fashion brand with a major denim line. Therefore, you can safely assume that there are no fashion brands similar to HotFashion that seek to sign a similar contract with the retailer.

16 As one would expect, for the environmental & social cases in both the downstream and upstream samples identical strategies were used for the experimental manipulation of competition.

3.2 Data collection

SBRP experiment. For the SBRP experiments I contacted and was accepted to a retail distribution center. The target group was a specific department that was selected because it had experience with contact with both customers and suppliers. The standardized SBRP experiment was distributed to B2B companies by me and six other researchers and entered into a single database, which will effectively organize data sources to improve the reliability of the study (Baxter & Jack, 2008). Since sample size is a major concern for meaningful statistical analysis (as it is linked to the significance level and statistical power) this form of data pooling is realistically needed to generate statistically significant results. The selected B2B companies represented different business areas: three logistics service providers, a provider of financial services, a manufacturer, a wholesaler and a distribution center. The participants in the experiment were predominantly Dutch (>70%) or German (15%) and mostly male (85%), but people from thirteen different countries are present in the sample. Two different methods have been used to distribute the SBRP experiments among participants, hard-copy on paper and online using Qualtrics. More information on these methods is available in Appendix 10.2 were the SBRP experiment protocol can be found and 10.4 where an example of the entire SBRP experiment can be reviewed. The added example* is the version of participant 1 according to table 1 from the downstream (marketing) vignettes.

Validity checks. Following the scenario, participants were asked to assess the competition in the customer market of their fictional company on the Likert-scale. This was done by letting participants evaluate two statements: the first stated that competitors were

Upstream (SCM) N Avg. age Min. age Max. age % male % Dutch Competitive 70 38 20 61 - - Non-competitive 84 36 19 58 - - Total 154 37 - - 88% 75% Downstream (Marketing) Competitive 62 40 25 58 - - Non-competitive 68 35 22 59 - - Total 130 37 - - 83% 69%

17 participants searching similar materials and the other stated that there was a high level of competition. Since this level of competition acted as the independent measure, a correct understanding of this manipulation by the participants was critical. In addition to the manipulation check, a second validity test was added. To confirm that any of the manipulations did not have an unintentional effect on the assumed independent measures, a Hawthorne check was performed as suggested by Bachrach & Bendoly (2011).

Measures. In the SBRP experiment, the dependent variable was a construct of sustainability that was measured through three items. For upstream sustainability (H1a) this construct entailed having employees with experience with suppliers to assess statements that inferred sourcing of materials from suppliers with social and environmental problems. For downstream sustainability (H1b) this meant assessing statements on the likeliness of informing your customers of social and environmental problems in your supply chain. The last hypothesis (H2) was measured through three items at the end of each second case. For this construct, employees were asked to assess statements on greenwashing, such as “A green product being a little environmentally unfriendly does not concern me”. This instrument is derived from a 14-item scale of corporate greenwashing by Wu, Wang, & Wu (2017), but had to be altered and shortened to 3 items because of size constraints of the vignette.

3.3 Data analysis

The results of the SBRB experiments are analyzed with a software package (SPSS) for statistical inference. After contact with the department, 32 hard-copy vignettes were made available by the author for data collection. 30 employees agreed to participate in the SBRP experiment and 21 participants returned the vignette. This results in a willingness to participate of 94% and a response rate of 66%. As stated before, the full database comprises not only this research’ data but also data from fellow scholars. Any form of data analysis and subsequent discussion is based on this pooled database.

18 with non-competitive cases. This is confirmed by Welch’s T-test (P < 0.001 in both upstream and downstream). The result implies that the manipulation worked on average and most of the participants understood the level of competition in their experiment. The Hawthorne check (HC) consisted of two questions that are related to the study context but unrelated to each other and will therefore be treated individually. The questions show no significant difference in responses between competitive and non-competitive cases (P > 0.1) in the upstream samples. This result implies that the Hawthorne check did not find any evidence to suspect that the design of the experiment had any extraneous perceptual effects. However, looking at the second Hawthorne question in the downstream sample we see a significant difference between the competitive and non-competitive cases (P < 0.01). This results casts doubt about the focus and the isolation of the manipulation used in the downstream SBRP experiment (Bachrach & Bendoly, 2011).

Upstream (SCM) MC mean MC P HC1 mean HC1 P HC2 mean HC2 P

Competitive 5.20 (σ 1.3) .000* 5.30 (σ 1.7) .668 4.57 (σ 1.5) .565 Non-competitive 3.39 (σ 1.6) 5.40 (σ 1.4) 4.44 (σ 1.3) Downstream (Marketing) Competitive 5.46 (σ 1.2) .000* 5.27 (σ 1.4) .701 4.69 (σ 1.6) .008* Non-competitive 3.35 (σ 1.5) 5.37 (σ 1.3) 3.93 (σ 1.6)

19 Yahaya, 2014). I will therefore continue with the parametric Welch’s T-test, but also use the non-parametric alternative (Mann–Whitney U-test) to confirm and improve the reliability of this study.

It is advisable to measure the internal consistency of the items to assess to which extent the items measure the same construct (Tavakol & Dennick, 2011). Among most journals and research areas, Cronbach Alpha is the accepted method of performing this statistical test (Cortina, 1993). The results of the test can be found in table 4 and suggest that all corresponding items can be merged together to form the intended construct.

Construct Measures Cronbach Alpha N

Upstream sustainability 3 0.885 154

Downstream sustainability 3 0.848 130

Greenwashing 3 0.717 141

Table 4: Internal consistency

4. RESULTS STUDY A

4.1 Upstream sustainability

Instinctively, the beginning of the statistical analysis will pertain to the first hypothesis:

H1a: Sustainable purchasing is negatively associated with high competition

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4.2 Downstream sustainability

In the same manner as before, we can test the premise of hypothesis H1b:

H1b: Sustainable marketing is negatively associated with high competition

After combining the variables into one construct the Welch’s T-test was executed. For the competitive and non-competitive group, the reported means where 5.36 and 4.38 respectively. According to Welch’s T-test, the distributions in the group differed significantly (n1 = 62, n2 = 68, Welch’s statistic = 11.583, P = 0.001). The Mann–Whitney U-test came to the same conclusion with a mean rank of 54.46 for the competitive and 75.57 for the non-competitive group (Mann–Whitney U = 1423.5, P = 0.001). Since there appears to be strong evidence (P < 0.01) for this hypothesis, H1b will be confirmed.

4.3 Greenwashing

At this moment, the procedure to test the hypotheses should be familiar. The last hypothesis that is considered is H2:

H2: Greenwashing is positively associated with high competition

The descriptives revealed that the means between groups where not so different: 3.15 for the competitive group (n1 = 66) and 2.94 for the non-competitive group (n2 = 75). Welch’s T-test statistic is 1.037 with a significance of P = 0.311. The Mann–Whitney U test comes to a fairly redundant conclusion with a mean rank of 73.59 for the competitive group and 68.72 for the non-competitive group (Mann–Whitney U = 2304, P = 0.478). This means that hypothesis H2 should be rejected.

4.4 Analysis

21 Even though I am not suggesting increasing the sample size alone will generate significant results, a bigger sample in combination with other possible improvements to the SBRP experiment might prove fruitful for future research on the effect of competition on sustainable sourcing.

The evidence to support the second hypothesis (H1b) was stronger since the significance was equal to P = 0.001. The effect size of this result was also calculated by using Cohen’s D. This equation gave a result of D = 0.6, meaning that the differences in means between the two groups are 0.6 standard deviation, indicating a moderate to high practical effect according to Cohen (1988). Further deduction is also interesting, since Cohen’s U3 unveils that at least 73% of the competitive group made choices that were significantly less sustainable than what the non-competitive group scored on average (Durlak, 2009).

Hypothesis H2 pertained to the proposed relationship between competition on greenwashing. The differences in means between the competitive and non-competitive group were negligible (3.15 - 2.94), meaning that, on average, the competitive group only scored 0.2 higher on the 7-point Likert-type scale. Although this result indicates that the competitive group was more prone to ignore social and environmental issues present in the supply chain than the non-competitive group, the difference is very minor and can be attributed to chance.

4.5 Summary

H1a. No significant relationship found between high competitive pressure and

sustainable purchasing. Both the parametric and non-parametric statistical tests produced results above the 95% confidence interval (P ≥ 0.1) leading to the rejection of H1a.

H1b. With both tests producing a significant result (P ≤ 0.001) it must be concluded

that there is strong evidence to support that marketeers experiencing high competition are inclined to disregard harmful environmental and social practices in comparison with markets with an absence of competition, confirming H1b.

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STUDY B: INTERVIEWS

5.1 Research design

To gain further insight into the circumstances that lead to unsustainable choices in competitive environments, interviews have been conducted with employees of the firm. This is approach is suggested by Testa, Boiral, & Iraldo (2015) who express that conducting qualitative interviews might be necessary to continue research on the role of external pressures (i.e. competition) on environmental practices. The research aim of this study is to assess how and why sustainability is implemented and if competition influences this to identify possible measures for improvement. In the appendix (10.3) the interview protocol can be found, which should enhance the reliability and validity of research data (Yin, 1994).

5.2 Data collection

To cover a wide variety of perspectives I decided to have interviews with employees in very different positions and levels in the chain of command to collect opinions from different

positions in the hierarchy. The five interviewees and their respective positions in the firm are displayed in figure 2. The site manager is responsible for managing two major warehousing locations of a well-known retail chain in the Netherlands. The other four interviewees are all employed in one of those locations. Therefore, this warehousing location is the focal company of this research.

The same set of themes and (basic) questions were used for all interviewees, although differences in positions may have led to differences in knowledge, opinions and responses leading to different follow-up questions. The semi-structured interviews are recorded using a digital audio recording device, which are transcribed afterwards. Additionally, notes are written down to provide a running commentary about the interview, involving both (but separately) observation and analysis (Eisenhardt, 1989). The documentation of the interviews was processed as soon as possible to maximize recall and filling of gaps in the data (Karlsson, 2009). Each interview lasted for about 45-60 minutes and was done by a single interviewer. The outline

23 of the semi-structured interview and the guidelines used for the interviews are available in Appendix 10.4

5.3 Data analysis

All interviews were held in Dutch, recorded by phone, transcribed to text and then translated to English. After this, an assessment was made about to what extent a coding technique will improve this research. Since a lot of raw data was collected through the interviews, the data lacked structure while this structure was needed to gain an overview of the important topics and answers. Therefore, Atlas.ti was used to organize the data through an open coding process. All the responses were organized and labeled based on the primary goals of study B, uncovering important themes and underlying meanings.

6. RESULTS STUDY B

6.1 Social and environmental footprint

To put the policy towards sustainability in proper perspective, the first objective was to uncover the main sources of environmental and social impact of this company. If the nature of operations implies a negligible impact is, a sustainability policy is perhaps not that important. But since this company keeps and distributes refrigerated (fresh) products, this was not the case. According to the department manager of fresh products: “We have refrigerated products, which represents a huge energy consumption. In addition to this impact, there is also transport [to the stores] and everything is also delivered to us via diesel trucks.”

The other department manager mentions the same sources of impact, but being a department manager of reverse logistics, he includes the environmental implication of the reverse logistics: “We also have many return flows, including waste flows.”

The first acknowledgement that certain environmental impacts can also have social consequences is given by the department manager of fresh products: “All diesel emissions here have an influence on air quality in the area. There are no protests now, but only someone have to get sick and point to the company for social pressure.”

The team leader of fresh products says that handling fresh food itself has implications for sustainability: “Product loss or shrinkage resulting from breakage, out of date or damaged products is one of the biggest problems for a DC in terms of sustainability.

24 stores in the north and middle of the Netherlands. So what measures is this company taking to reduce the social and environmental harm it causes?

6.2 Sustainability measures

When the fresh department manager was asked about the measures in terms of sustainability (deliberately without the environmental, social or financial distinction), he immediately responded with mentioning the energy-saving measures the company had taken recently: “When I look at energy-saving measures, we have just replaced the fluorescent lighting with LED lighting. This saves both costs and the environment. Furthermore, we try to keep the cold chain as closed as possible, with automatic doors, (…). We are also IFS certified, which among other things has the result that the temperature is as stable as possible. This indirectly also has positive environmental effects.”

The manager in reverse logistics also mentions the LED lighting, and recognizes a positive social (side) effect: “(…) which was an investment of a few hundred thousand euros. This light is more pleasant to work with, the color temperature is similar to daylight. This is more pleasant for the employees.”

The manager in reverse logistics thinks the processing of waste flows also contribute to sustainability: “Recycling our waste flows as much as possible is one of the measures that we take. To us, waste does not exist anymore: All cardboard & paper, plastic foil, hard plastics (e.g. from flower vases), soft drinks bottles (PET) from retailers are collected and recycled.”

Since transport is responsible for a substantial part of the environmental footprint of the company, there are also measures aimed at reducing that component: our fleet always runs with the highest possible Euro standard, currently Euro-6. Furthermore, we are always working on experimental trials, like LNG & hydrogen. For example, the VDL & DAF electric truck, they [another DC] are also going to purchase one, that will be charged by the energy generated by the many solar panels on the roof of the distribution center.” – Site manager.

Furthermore, the site manager commissioned to investigate whether the roof construction at this location is technically suitable for installing solar panels, so that this location can also be energy-neutral.

25 Some products are unsaleable while the intrinsic product quality is not affected. This can happen in case of package damages or a shelf-life that is too short to be sold to customers but has not yet expired. To make sure that products in this category do not get wasted completely the company is always is close contact with local food banks: “Products that unfortunately cannot be sold at the store for various reasons are shipped to food banks.” – Team leader fresh department.

Similar to the analysis of the company footprint in the previous paragraph, it appears that social considerations are almost being ignored. Almost, since one of the interviewees does mention a social aspect: “Regarding people, this company tries to consider the kind of work people do to ensure that people do not burn up. This can be done by reducing the burden on older people, finding assistance for drivers, senior schemes and other activities for people with disabilities.” – Team leader fresh department

Analysis. According to the interviewees, this company is taking a lot of measures towards sustainability, although almost all are cost-saving measures that also produce positive sustainable effects. The LED-lighting for instance is an investment that improves both the social and environmental sustainability of the company, but was this really the main motive?

6.3 Sustainability motives

All interviewees are pretty clear on the motives, cost savings are the main goal, while the contributions to sustainability are welcomed as a side effect. The department manager fresh expresses it very straightforward: “We are just a commercial company. Where it saves costs and has a positive effect on the environment, that effect is taken with both hands. But in the first place is not the environment, and in the second place is not the cost, it is rather the other way around.”

26 using your investments in sustainable solutions for marketing purposes.” – Employee Fresh department.

What the ‘mix of decisions’ that are good for the environment and the company means in practice is further elaborated by the department manager fresh products: “(…) if the choice were: the investment is a few percent more but has such an effect on the environment than that could be a reason. But this should not be in the tens of percent, because then it is difficult for me to justify.”

The second motive for sustainability is governmental regulations. Both the EU and national government are (slowly) pushing legislation to improve sustainability. For instance, according to the site manager, since the parent company has tens of thousands of employees, they are obligated to publish a yearly sustainability report. Since creating a sustainability report and adjusting the company to these standards is pretty expensive, profitability is sometimes even less of a decisive factor than governmental regulations. Another manager agrees with this view: “There are some projects that cost us money to meet certain standards. For example, the environmental zones in cities, that future way of supplying is much more expensive for us. That costs us money, but we are forced to do so.” – Department manager reverse logistics.

A third consideration for this company to engage in sustainability measures is to improve the corporate image. The department manager of reverse logistics explains: “What is also important to us is public opinion. We are a commercial company. For us it is very important how the customer looks at us.”

He also explains why this is so important to the company. They want to serve a very big portion of the market: The customer also asks for this [sustainability measures], even though it is only a certain part of the customer that wants this. But we also want to serve these customers

Analysis. The rationale behind the sustainability measures seem quite clear in this firm. Almost all measures are implemented either because of governmental regulations (these usually cost money) or because it saves money. The explanation for these motives is that the firm is mainly interested in profit optimization by following the instrumental logic, any presence of the ecologically dominant logic by Montabon et al. (2016) was unfortunately not observed.

6.4 Competition and sustainability

27 came to light. According to the interviewees the effect of competition of sustainability can act as a double-edged sword. First of all, companies are constantly scanning the competitive environment for changes, developments and successful strategies: “In the end you always look at each other [competitors] and you have to follow certain developments.” – Department manager fresh.

Some innovations have such an effect on the public opinion of a company, that although the emission reductions are insignificant compared to the total environmental footprint of the company, they make a big difference in shaping the corporate image: You do not want to drive around with a diesel car in the city center. If [competitor] passes in an electric car, people think wow, I'm going to order there next time. – Department manager fresh

Companies are examining the competitive environment for businesses that do better in certain areas and thus act as a competitive exemplar: “For instance, a competitor has started to build an energy-neutral distribution center, with solar panels, geothermal energy and water recovery, etc. This is of course looked at.” – Department manager reverse logistics.

These decisions all impact the sustainability policy of the company in a positive way, since they feel they cannot afford to stay behind the opposition and look indifferent towards sustainability. The other side of the sword is that competition can also have a negative effect on sustainability. According to the department manager fresh, competition can lead to unsustainable choices because the investments that take a sustainable perspective into account are usually more expensive than those that do not: “(…) and since the polluter does not always pay the price, you can make that choice.”

If there is no regulation in place, this will result in companies making hazardous decisions to have a slight competitive advantage over the competition: “[if competition does this] their costs per package are a few cents lower than ours, unless regulations are introduced to make polluting choices more expensive.” – Department manager Fresh

28 have to make decisions that are less popular with some people.” - Department manager reverse logistics

There was also evidence for greenwashing by the competition. The manager of reverse logistics explains that greenwashing is becoming a dangerous trend that is simply abused in the fields of marketing. He describes one of the dangers of greenwashing mentioned in the theory section: the erosion of the market of actual sustainable products. “We buy a clean truck for €90,000 and the competitor one of €40,000 and they state that they are equally clean. Then I think yes, but we have to earn back that €50,000 (difference) somewhere.”

Analysis. There seems evidence present in practice of a negative effect of competition on sustainability. Managers experience that sustainable investments are usually expensive and hard to justify to their superiors or shareholders and have low priority. This becomes a problem when a polluting firm does not ‘pay the price’ for polluting, since this way of working then becomes an economically viable tactic. The positive side is that managers also look at competitors for developments in sustainability, although the motive for this procedure seems more like a means to sustain and improve competitive advantage then an end itself. Therefore, it can be concluded that this firm needs more incentives to become truly sustainable, the next paragraph will focus on exploring solutions to achieve this.

6.5 Indications for improvement in sustainability

Governmental regulations. All interviewees mentioned governmental regulations as a

needed extra incentive for companies to invest in sustainability. In a conversation about how sustainability and profitability often embody an inherent paradox that cannot be solved by self-regulating markets, a manager put it this way: “But to be honest, the only body who can take such measures (big sustainability investments) without thinking about profit margin is the government.” – Department manager fresh.

Sustainable consumption. Almost all interviewees also mention that (Dutch)

consumer behavior is often somewhat paradoxical. On one hand most people say that sustainability is an important subject that grants more attention, on the other hand they seem to have entirely different priorities when actually utilizing their purchasing power. “In my experience, the consumer is quite critical and considers sustainability important. But to make an effort and spend extra money, then it suddenly becomes difficult.” – Department manager reverse logistics.

29 department thinks that the entire issue of mediocre progress in sustainable development is part of a bigger, underlying problem. He points to the importance in society of being successful in life, a concept that is nowadays mostly measured by being financially successful. This ideology is thought since childhood and results in our current society where it is very important to have high education, money and prestige. “People who are successful generally have these (selfish) aspects in their character and therefore have the drive to be the best in everything. But that does not always benefit sustainable decisions, on the contrary. – Team leader fresh department. As far as he is concerned, the most influential method of change would be early education in the importance of sustainability and a shift from the current paradigm that success in life is measured through self-gain. “The importance of sustainability should be taught at an early age, along with multiple (other) ways in which you can have success in life. Then it might be possible for people to realize that the selfish choices they make are no longer/not always the best choices.” – Team leader fresh department.

This view is partly shared by another manager, although he thinks this change will emerge naturally, rather than be planned. “The new generation, like you and my grandchildren look at sustainability very different already. You find other things normal than me. It (sustainability) will increase, we get change.” – Department manager reverse logistics.

Analysis. Three main themes emerged when discussing improvements to

30

7. GENERAL DISCUSSION

31

Sustainable development

It seems that in practice, competition can have positive as well as negative consequences for corporate sustainability. The negative consequences are mainly due to the extra costs of social & environmental measures and the lack of regulation & supervision that make avoiding these costs an interesting option. Therefore, unsustainable choices remain unpunished and the cost is simply passed on to society and ecosystems. This behavior is not just controversial from a moral perspective, but also from the angle of one of the most influential theories of strategic management: the stakeholder theory. Following the typology of Mitchell, Agle, & Wood (1997) it can be concluded that society, or the people affected by harmful decisions can be considered [1] powerful considering the power of the masses, for instance on social media [2] legitimate because of the moral perspective [3] urgent since sustainability is not only very time-sensitive, but it is also of increasing interest and importance to society: “It becomes increasingly difficult for companies to avoid sustainability, because you get the public opinion against you. Especially with the current forms of media, internet etc. If you deviate a little from the norm then they will get you. Companies are more careful with that nowadays.” – Department manager reverse logistics.

Summarizing, the lack of governmental regulations causes little incentive for firms to engage in environmental and social sustainability, while both society and earth’s system of natural resources are desperately in need of this transition. Based on the confirmed results of study A and the qualitative research of study B, the following measures should encourage corporate sustainable development.

Governmental regulations. Since governmental regulations are already mentioned as

32

Sustainable consumption. There exists a large body of research on sustainable

consumption, which is consumption where the consumer includes his social responsibility in addition to the traditional, personal triggers for consumption (Meulenberg, 2003). However, despite the increased attention for sustainability among the general public, everyday consumption is still mainly motivated by habit, value for money and convenience (M. J. Carrington, Neville, & Whitwell, 2014; Vermeir & Verbeke, 2006). This discrepancy between what consumers say and what they do is called the attitude-behavior gap, which can for example be observed by the fact that around 55% of the consumers have positive attitudes towards organic food, while these foods only account for around 7% of total sales in these product ranges (W. Young, Hwang, McDonald, & Oates, 2010). There are several roads imaginable for improving sustainable consumption and many go beyond the scope of this study. However, the study by Vermeir & Verbeke (2006) found that perceived consumer effectiveness (the believe that personal efforts contribute to the solution), customer involvement and perceived availability (of sustainable products) are key determinants for developing sustainable food consumption. Unfortunately, the article remains rather ambiguous in answering what party will materialize this strategy by simply declaring that any stakeholder involved with sustainable supply chains is suitable. Sheth, Sethia, & Srinivas (2011) suggest a market approach, since regulations as a dominant approach to alter consumption patterns are unlikely to succeed. The paper proposes to use marketing as an instrument to facilitate sustainable consumption by creating and maintaining sustainable demand through demarketing of harmful consumption and promotion of sustainable alternatives.

33

8. CONCLUSION

This research adopted an original multi-method approach to expand the understanding of how the competitive environment can influence sustainable decision-making. By considering both quantitative data from SBRP experiments and qualitative data from company interviews, this study did a few interesting findings.

Theoretical contributions. First, through the SBRP experiment strong evidence was

found to support that a highly competitive market can influence social and environmental business decisions in the marketing department. This indicates that marketeers experiencing high competition are inclined to neglect detrimental environmental and social practices, in comparison with marketeers who do not experience this competition. This research is one of the first studies to confirm the presence of this hypothesized relationship, offering a valuable contribution to existing literature.

The interviews gave an understanding of what sustainable development comprises in a big logistical company. This experience in practice combined with the rest of this paper gave a strong impression that sustainable development has a long way to go, despite the (theoretical) progress in recent decades. Therefore, some implications for management and policy arise.

Implications for management and policy. The findings from this study might help

managers to contemplate about decisions-making in case of heavy market competition. Additionally, management should take on the responsibility to promote sustainable consumption, instead of establishing overconsumption through promotional offers. While the market is in suspense, policy makers should act. Business in general has plenty of capability to innovate and adapt to sustainable practices, but they need more incentive to do so. The government should propose a policy including environmental education, promotion of sustainable consumption and further measures rewarding sustainable innovation and development.

34 Additionally, this method restricts insight in the final response rate, rendering an analysis of a possible non-response bias impractical. Future research could focus on proving the effect of competition on sustainable purchasing through improvements to the vignette and a bigger sample size. Improvements to the vignette might be needed since [1] Hawthorne check was significant [2] some participants voiced that the phrasing of personal decision-making as “It is likely that the company will (…)” instead of “I will (…)” could feel ambiguous, even though the role and responsibility of the participant as company executive is extensively articulated.

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