When does being green pay off? Examine the mediating role of environmental performance in the GPI-competitive advantage relationship

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When does being green pay off? Examine the

mediating role of environmental performance in

the GPI-competitive advantage relationship

Master thesis, MSc Supply Chain Management

University of Groningen, Faculty of Economics and Business

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Abstract

This study empirically investigates the relationships between a firm’s green product innovation (GPI) capabilities, environmental performance (EP) and its competitive advantage (CA). In addition, the GPI capabilities are measured by a set of environmental strategies and environmental performance is measured by the actual impact on the natural environment. The aim of this study is to enhance the understanding of the link between a firm’s environmental impact and its competitive advantage. This study divides a firm’s environmental performance into two dimensions: material reduction, energy saving and pollution prevention. The empirical results show that material reduction is not significantly related to competitive advantage, whereas energy saving, and pollution prevention are positively related. The results indicate a firm’s GPI capabilities have a strong positive impact on both the firm’s environmental performance and competitive advantage. This study provides new insights that a firm’s environmental performance regarding material reduction, energy saving, and pollution prevention do not mediate the GPI-CA relationship. These results indicate that the benefits of a firm developing its GPI capabilities on its competitiveness are not realized through improving the firm’s environmental performance.

Keywords: green product innovation, environmental strategy, competitive advantage,

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1. Introduction

Over recent decades, there is an increasing concern about climate change, pollution, biodiversity loss and environmental degradation due to human activities (Bhuiyan et al., 2018; Enkvist & Vanthournout, 2008). World Economic Forum (2017) reported that our planet is at breaking point. However, firms around the globe are making little progress on sustainability even though they have recognized that success is about more than just making a profit. In contrast, some firms are engaged to develop more sustainable products through green product innovation (GPI), which is considered as a set of organizational capabilities with the purpose of improving organizational environmental performance (EP), which entails a product’s contribution regarding its material reduction, energy saving and pollution prevention to the natural environment (Dangelico, 2016). Up to the present time, researchers and business practitioners have generated insights on greening new products from the phase of product design, production, use up to recycle or reuse (Crossan & Apaydin, 2010). Being green as a company is undoubtedly beneficial for the natural environment. However, companies need to survive in competitive markets and to safeguard or increase their competitive advantage (CA). This leaves the questions of how to be green and when does it pay off.

Several studies have investigated the impact of a firm’s GPI on its environmental performance to examine which capabilities will mitigate the negative environmental impact (Dangelico, 2016; Choi & Hwang, 2015; Böttcher & Müller, 2015). The results from these studies are quite consistent indicating a positive relationship between GPI and EP (Choi & Hwang, 2015). Even more studies have investigated the link between GPI and CA, but have yielded inconsistent results (Grewatsch & Kleindienst, 2017; Dangelico, Pujari, & Pontrandolfo., 2017). Some studies find a positive relationship between GPI and CA (e.g., Chang, 2011; Fraj-Andrés, Martínez-Salinas, & Matute-Vallejo, 2009), others find a negative relationship (e.g., González-Benito and González-Benito, 2005). Still, others see no links between the two (e.g., Dangelico, Pontrandolfo & Pujari, 2013). Even though, a recent meta-analysis shows a positive relationship between GPI and CA (Peters, Buijs, Ziengs, & Warmelink, 2017), working of the GPI-CA relationship per se is complicated and subject to many contingencies (e.g., Katsikeas, Leonidou, & Zeriti, 2016).

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disconnected in the literature, especially the link between a firm’s environmental performance and competitive advantage is neglected by researchers (Katsikeas et al., 2016). Even though, scholars have called for more research on the contingencies-moderators and mediators (considering environmental performance as a mediator or moderator) that affect the GPI-CA relationship (Grewatsch & Kleindienst, 2017). However, very few studies have researched the mediating role of environmental performance and yielded different results.

Jackson et al. (2016) find environmental performance partially mediates the GPI-CA relationship. In contrast, Schoenherr et al. (2014) find environmental performance fully mediates the GPI-CA relationship. Moreover, clarifying the mediation effect is important not only for the commercial business but also for our plant (Jackson, Gopalakrishna-Remani, Mishra, & Napier, 2016). Because of that, this relationship represents that a firm’s GPI capabilities influence its environmental performance, which in turn influences its competitive advantage rather than a direct causal relationship between GPI and CA. This indicates that a firm can be more competitive by improving its environmental performance reducing its actual negative impact to the natural environment, rather than purely focus the peripheral part (e.g., green marketing), and forgetting to solve the central problem (i.e., reducing material, energy and pollution impact). For instance, a manufacturer that develops its green marketing capability (e.g., green campaigns), which considers green is essential for its business growth, and only focus on making green slogans without putting actual deeds on reducing its environmental performance regarding material reduction, energy saving and pollution prevention, cannot achieve competitive advantage. As a result, this firm will realize that achieving competitiveness is via being green not directly through developing its GPI capabilities. Eventually, this firm will proactively rather than reactively thrive for greening their products or services to pursue competitiveness.

Previous research thus suggests that the actual green performance of a firm, i.e., EP, plays a crucial role in explaining the GPI-CA relationship. Although, EP is believed to play a central role in explaining the GPI-CA link. However, there is little empirical work that has investigated EP’s role. It could give more insights concerning the question of when does pay to be green. The above arguments lead to the following research question:

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By answering this research question, the contributions of this study are threefold. Firstly, this study provides an overview of the research model archetypes used in previous studies. Secondly, this study contributes to the ongoing debate in the literature whether developing GPI capabilities contribute to a firm’s competitive advantage relying on secondary data from the DoSym dataset (2015). Lastly, this study develops and tests hypotheses about the GPI-CA relationship, and the role of environmental performance as a mediator in this relationship.

The paper is structured as follows. Firstly, a literature review provides the theoretical background, hypothesis development, and conceptual framework. Secondly, the methodology section presents the sampling approach, information about the data collection process, and the operationalization of constructs. Thirdly, the results section provides the outcomes of tested hypotheses. Finally, the discussion and conclusion sections address the findings in light of the theories and literature, and provide concluding remarks, implications, and future research directions.

2. Theoretical background and hypothesis development

2.1 Defining GPI

GPI entails making use of a firm’s competencies to produce and sell products or services that fulfill the requirements of creating both environmental and economic value (Peters et al., 2017). This study relies on Dangelico’s (2016) literature review for the classification of GPI capabilities. Dangelico (2016) discusses two different type of GPI capabilities, namely functional and integrative.

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The functional capabilities consist of two dimensions: technically-related and market-related capabilities. Technically-related capabilities refer to a firm’s ability to physically develop and make a new product (Verona, 1999). Examples are green R&D and environmental product development process innovation. Market-related capabilities refer to a firm’s ability to screen, use and disseminate market information to sell its new product (Verona, 1999). Examples are environmental benchmarking and environmental financial model, in particular, the firm’s ability to set up a specific target market for the firm’s green products and the capability to assess this market needs. Moreover, the link between each dimension can be further specified with the dimensions of Dangelico and Pujari (2016).

2.2 Defining environmental performance

It is believed that improving a firm’s environmental performance will benefit its business as well for our planet (Jackson et al., 2016). Judge and Douglas (1998) define a firm’s environmental performance as ‘‘the firm’s effectiveness in meeting and exceeding societal expectations with respect to concerns about the natural environment’’ (p.245). Dangelico and Pujari, (2010) outline a framework of a firm’s environmental performance entailing three different environmental dimensions: material, energy and pollution. These dimensions are highlighted regarding their actual impact on the environment at different stages of a product’s physical lifecycle such as, the impact of products and the processes of producing, using and disposing of them.

The material dimension concerns the percentage of recycled materials, the efficiency of material usage, and the reduction of hazardous materials used in the production process (Dangelico & Pujari, 2010). The pollution dimension addresses the emission of greenhouse gas and particulate matter that discharged by certain products to the natural environment (Dangelico & Pujari, 2010). The energy dimension emphasizes how a firm minimizes its energy consumption in different production phases (Dangelico & Pujari, 2010). In addition, the well-accepted measurement for a firm’s environmental performance regarding these three dimensions is through a product life cycle assessment (LCA). For example, a firm that measures and compares environmental impact during the whole life cycle of the green product with the conventional products. As a result, the firm will know exactly the amount of materials, energy, and pollution they have lowered.

2.3 The effect of GPI capabilities on environmental performance

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Tang, & Jin, 2015; Yang, Hong, & Modi, 2011; Schoenherr et al., 2014). Dangelico and Pujari (2010) argue that a firm’s GPI capabilities including environmental policies, environmental vision and knowledge sharing, help the firm to increase its environmental performance. For example, a firm’s environmental policies are formally defined and implemented by means of eco-plans and ethical codes, which in turn gives the general direction for reducing its product’s environmental impact with regards to materials reduction and pollution prevention (Dangelico & Pujari, 2010). Similarly, Schoenherr et al. (2014) highlight that a firm’s GPI capabilities including environmental supplier collaboration, strategic environmental sourcing, and environmental institution involvement, improve the firm’s environmental performance with respect to pollution prevention and material reduction. For example, a firm collaborates with its suppliers who strive for green product development and green transportation, which in turn helps the firm reducing its CO2 emissions. Likewise,

Chen et al. (2015) argue that a firm’s GPI capabilities including green R&D and green benchmarking, enhance the firm’s environmental performance with respect to energy saving. For example, a firm that has the green R&D competency, which enables the firm to exploit, integrate, and convert new environmental technology, improves the efficiency of the firm’s energy consumption. Based on the above discussions, the following hypothesis is developed:

H1a-c: A firm’s GPI capabilities are positively related to its environmental performance with respect to (a) material reduction, (b) energy saving, and (c) pollution prevention.

2.4 Competitive advantage

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leadership, opportunities for entering or creating new market, improved product quality and increased market share (Banerjee, 2003; Peters et al., 2016).

2.5 The effect of GPI capabilities on competitive advantage

This study adopts the resource-based view (RBV) as a theoretical lens. Because, the RBV provides a view on how a firm attains sustained competitive advantage (Barney, 1991), and is widely adopted by GPI researchers across management studies (Hitt et al., 2016). The RBV explains that a firm can achieve sustained competitive advantage through its valuable, rare, inimitable and non-substitutable resources, which are known as VRIN criteria. The VRIN criteria can be seen as the characteristics of resources of a firm which are useful for innovation, and firms can exploit them to obtain competitive advantage (Chang, 2011). Moreover, a firm’s GPI capabilities (e.g., green R&D competencies and green knowledge sharing) can be treated as the unique resources for the firm, which in turn leads to competitive advantage (Chang, 2011). Similarly, Hart (1995) argues that the resources deployed by the firms in order to successfully produce and sell green products that meet VRIN criteria will foster the basis of competitive advantage. Identically, Danneels (2012) highlights that a firm can create resource bundles that meet the VRIN criteria by striving for developing its product and process innovation, in other words, developing its GPI capabilities, will achieve competitive advantage. To demonstrate, a firm is pioneering in green R&D and green marketing development, it will highly likely gain competitive advantage and enable the firm to sell its products and services, to enhance the firm’s images also with the possibility of creating niche markets (Chang, 2011; Porter & van de Linde, 1995).

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there are no links between the two. Although the findings of previous research are mixed, a recent meta-analysis (Peters et al., 2017) has indicated strong evidence for a positive relationship. The few papers with a negative or uncorrelated relationship maybe the result of different measurements, research models, and different research settings. Therefore, this study expects a positive relationship, and formulates the following hypothesis:

H2: A firm’s GPI capabilities are positively related to its competitive advantage.

2.6 The effect of environmental performance on competitive advantage

Companies are often interested in assessing whether their investment of greening products or processes (e.g., reducing hazardous materials and using clean energy) can generate worthwhile financial returns, such as entering lucrative new markets and attaining cost advantage with a short-term payoff (Gabler et al., 2015). Oftentimes, firms are shouting loud to claim they are ‘green’ and announcing how great they are for improving the natural environment, but if people zoom in and observe it carefully, most firms are not truly green. Because, pursuing competitive advantage is the priority for commercial companies, and reducing environmental impact is the second or third place on their business agenda (Hammer & Pivo, 2017). Consequently, the question arises: whether environmental performance and competitive advantage are also correlated.

Prior studies have yielded mixed results regarding this relationship. Olson (2013) finds empirical evidence that a firm’s environmental performance is negatively associated with its firm performance, which includes market performance and competitive advantage, in the US market. Because, to the mass-market, only the ‘dark green’ consumer, which accounts for as the minority, follows their products (Olson, 2013). For the majority, they frequently purchase non-green alternatives due to cheaper prices, higher qualities (Olson, 2013). In contrast, in a recent study, Dangelico and Pontrandolfo (2015) argue that a firm’s environmental performance related to material reduction, energy saving, and pollution prevention can offer competitive opportunities for companies and change the competitive landscape in many business sectors. For example, by increasing resource productivity (i.e., material reduction), companies can benefit from environmental investments and transform them into a source of competitive advantage (Orsato, 2006; Dangelico & Pontrandolfo, 2015; Porter & van der Linde, 1995).

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can be seen as a form of inefficiency. Indeed, the fact that discharging of hazardous substances, waste or energy into the natural environment represents that resources are used in an incomplete, inefficient and ineffective way resulting in a negative impact to the natural environment (Kuo & Chen, 2016). Likewise, Sariannidis et al. (2013) find that a firm’s environmental performance (i.e., pollution prevention: the reduction ratio of CO2 emissions)

is positively related to its business performance. The fact is that high ratio of pollution prevention also measures the efficiency of energy usage, materials reductions, and improved utilization of secondary products, which in turn leads to a substantial cost advantage, and obtains a more competitive position in the marketplace (Dangelico & Pontrandolfo, 2015). Furthermore, Orsato (2006) highlights that a firm’s environmental performance, which involves product or process improvement (e.g., use of biodegradable materials or components and the product development of energy-efficient product) can be seen as a source of differentiation advantage, and will help the firm to enter lucrative new market, increase market share and achieve cost leadership. As has been noted from prior studies, this study expects that GPI comprises a group of firm’s capabilities in reducing environmental impact regarding three environmental dimensions: material reduction, energy saving and pollution prevention leading to the following hypothesis:

H3a-c: A firm’s environmental performance with respect to (a)material reduction, (b)energy saving, and (c)pollution prevention are positively related to its competitive advantage.

2.7 The mediating role of environmental performance

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consider energy saving, only take the reduction of material and reduction of air emission into account. Thus, the findings of these two studies are limited in the research setting (both are conducted in the US) and construct measurement, with respect to the mediating role of environmental performance to explain the GPI-CA relationship.

In order to clarify this relationship, this study provides an overview, based on 86 academic articles (these are the same 86 articles as used in the meta-analysis by Peters et al., 2017), that outlines the current archetype of GPI, EP and CA relationships (full list see appendix A). Also, this study classified four type of archetypes, namely, A, B, C and D. Figure 1 shows that archetype B indicates that GPI has a direct impact on CA, which only concerns about a firm’s business impact; C indicates that GPI has a direct impact on EP, which only concerns about a firm’s environmental impact; D indicates that EP mediates the GPI-CA relationship, which addresses the purpose of a firm developing its GPI capabilities is to improve its environmental performance, which in turn influences its competitive advantage, rather than the direct causal effect between a firm’ GPI capabilities and its competitive advantage.

GPI CA EP GPI CA GPI EP GPI EP CA A B C D

Number of archetype A has been researched: 36/86 Number of archetype B has been researched: 42/86 Number of archetype C has been researched: 6/86 Number of archetype D has been researched: 2/86 Figure 1. The archetype of GPI, EP and CA relationships.

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According to a well-accepted mediation effect study in academia developed by Baron and Kenny (1986). They suggest that the mediation effect must follow three steps. Firstly, the independent variable (GPI capabilities) must affect mediation variable (environmental performance) i.e., H1a-c. Secondly, the independent variable (GPI capabilities) must affect the dependent variable (competitive advantage) i.e., H2. Lastly, the mediation variable (environmental performance) must affect the dependent variable (competitive advantage) i.e., H3a-c. As all the proposed hypotheses (H1a-c, H2 and H3a-c) fulfill the mediation effect requirement. Therefore, this study expects that a firm’s environmental performance mediates the relationship between the firm’s GPI capabilities and competitive advantage, and formulates the following hypothesis:

H4a-c: A firm’s environmental performance with respect to (a)material reduction, (b)energy saving, and (c)pollution prevention mediate the relationship between the firm’s GPI capabilities and competitive advantage.

2.8 Research framework

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14 GPI Capabilities Material Reduction Competitive Advantage H2 H1a H1b H3a Energy saving Pollution Prevention H1c H3b H3c H4a H4b H4c

Figure 2. Research framework

3. Methodology

3.1 Research design

The primary objective of this research is to investigate: the role of a firm’s environmental performance in the relationship between a firm’s GPI capabilities and its competitive advantage. In order to answer this research question, developed hypotheses, and to generalize the findings, a quantitative approach is appropriate (Yin, 1981). This study relies on the secondary data that were obtained from DoSym dataset (2015). Below the properties of this dataset are described.

The empirical context of the survey is the environmental strategies and performance outcomes of Dutch manufacturing firms. The sample of this study covers a wide range of industries from paper products, rubber, plastics, metal, machinery, and equipment manufacturing firms to strengthen the generalizability of the outcomes. Those firms were selected based on the criteria of ISIC-rev4 classification (i.e. Class C, ISIC codes 10-33) but the food and the repair & amp; installation sectors (codes 10-12, and 33) were excluded.

3.2 Data collection

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were considered as reliable and valid from the DoSym dataset (2015) for this study. Table 1 shows the overview of the sample.

Table1. An overview of the statistics of the sample. Adapted from DoSym dataset (2015) Size (number of employees) Frequency (%)

< 99 38 (37.6%)

100-249 38 (37.6%)

250-499 11 (10.9%)

500+ 14 (13.9%)

Respondents Manager Not a manager

R&D and innovation 18 (17.8%) 11 (10.9%) New product development (NPD) 17 (16.8%) 11 (10.9%) Marketing, Business Development, Sales 8 (7.9%) 5 (5.0%)

Engineering 8 (7.9%) 2 (2.0%)

General management 8 (7.9%) 0 (0.0%)

Production & logistics 4 (4.0%) 1 (1.0%) Other (e.g., purchasing, quality management) 4 (4.0%) 4 (4.0%)

Sector (2-digit ISIC-rev4 code)

Manufacture of machinery and equipment (ISIC code 28) 29 (28.7%) Manufacture of fabricated metal products, except machinery and

equipment (ISIC code 25)

22 (21.8%)

Manufacture of electrical equipment (ISIC code 27) 9 (8.9%) Manufacture of rubber and plastics products (ISIC code 22) 8 (7.9%)

Other sectors* 33 (32.7%) Type of market Business-to-Business (B2B) 91 (90.1%) Business-to-Consumer (B2C) 7 (6.9%) Mixed (B2B and B2C) 3 (3.0%) 3.3 Operationalization of concepts

Following a thorough literature review, complemented by the secondary data obtained from the DoSym dataset (2015), variables are measured by corresponding constructs.

GPI capabilities were measured by six environmental strategies, items (see Table 2) were

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Table 2. Construct of GPI capabilities

Construct of GPI capabilities

Items

Green R&D Your company has invested considerable time and resources in developing sustainable product and production technology

Green benchmarking

Your company reflects environmental standards of production and product development with the "best-in-class" in our industry

Strategic planning process

Your company has a long-term vision regarding the environment, and in particular the role of environmentally friendly (er) products and production

Strategic planning process

Your company has an environmental policy in which its involvement and objectives for environmentally friendly (er) products and production play an explicit role

Cross functional coordination

Knowledge about sustainability in various departments and positions present in the organization is structurally shared

Cross functional coordination

In developing the business vision and environmental policy, different departments of the company are closely involved (e.g., product development, sales, marketing, procurement, production, human resources, finance).

Green Supply Chain Management

Your company works closely with suppliers to design and produce environmentally friendly (re) production and products

Green Supply Chain Management

Your company encourages customers and/or end-users to use products in an environmentally-friendly way

Other stakeholders Your company works closely with other parties, such as governments, knowledge institutes, environmental organizations and industry associations, to make sustainable products possible

Environmental performance was measured by means of the actual impact of the product on

the natural environment regarding three different environmental dimensions: material, energy and pollution throughout the product’s physical life cycle. Items (see table 3) were adapted from previous studies (i.e., Huang & Wu, 2010; Peters et al., 2016).

Table 3. Construct of Environmental performance

Construct of Environmental Performance

Items

Materials To what extent are materials used in your product (group) as long and as efficiently as possible?

Energy and Pollution

To what extent have adjustments in the product design resulted in savings in transport?

Energy To what extent have you minimized the energy consumption of your product (group) in the production phase?

Pollution To what extent has the use of hazardous substances and chemicals in your product (group) been minimized?

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Competitive advantage was measured by a firm’s market share, market leadership, new

market, and cost advantage. The scales for measuring the items (see Table 4) were adapted from prior study (Peters et al., 2016; Banerjee et al., 2003). Respondents that are answering the questions based on the extent of what a green product has contributed to a firms’ competitive advantage (Likert scale to 1 to 5).

Table 4. Construct of competitive advantage

Construct of Competitive Advantage

Items

Cost Advantages Has your company realized significant cost savings with sustainable products and production?

Market leadership Has your company achieved a leading position in the market thanks to sustainable products?

New Markets Has your company opened a new market for sustainable products?

Market Share Have sustainable products increased market share for your company?

Control variables. In line with earlier work (Dangelico, Pontrandolfo, & Pujari, 2013; Katsikeas, Leonidou, & Zeriti, 2016; J. L. Walls, Phan, & Berrone, 2011), this study includes two control variables: R&D intensity, and firm size to avoid the danger of model misspecification: Firm size, three dummy variables were created: small SME (1-99 employees), large SME (100-249), and large companies (more than 250 employees). The ‘large companies’ variable is used as the reference group. For R&D intensity, two dummy variables were created: R&D investment is less than 10% of annual revenue, and R&D investment is more than 10% of annual income.

3.4 Data analysis

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different models and compare these models to find the pattern between the independent variable, mediator and dependent variable. Finally, use Joint Significance Test, Sobel Test and Bootstrapping Test to check the path coefficient c (the coefficient between independent variable i.e., GPI capabilities and dependent variable i.e., competitive advantage) and path coefficient c' (the coefficient between independent variable and dependent variable when the mediator i.e., environmental performance was included). If the results show that independent variable no longer affects dependent variable after the mediator has been controlled, making path c' drops to zero. This implies a full mediation effect. If c' is reduced in absolute size but is still different from zero when the mediator is introduced. This implies a partial mediation effect.

4. Results

4.1 The measures

Unidimensionality of the constructs was assessed through exploratory factor analysis (EFA) on GPI capabilities, EP and CA, using principal component analysis (orthogonal varimax method). By performing EFA, the items for a construct representing one dimension is verified, and all item load (see Appendix B) significantly on one dimension with a factor loading greater than 0.50, which is widely accepted threshold. For the GPI capabilities, only one factor was extracted which accounts for 54,45% of the variance (Kaiser-Meyer-Olkin [KMO] statistics 0.872, Bartlett statistics 363.748, significance .000).

The three sub-dimensions of environmental performance, (a) material reduction, (b) energy saving, and (c) pollution prevention were combined in a factor analysis to check whether it would yield three factors. However, only two factors were extracted with Eigenvalues greater than 1, account for 56,65% of the variance (KMO statistics 0.727; Bartlett statistics 170.174, significance .000). The first factor is related to a firm’s environmental performance regarding the material reduction. The second factor is related to a firm’s environmental performance with respect to energy saving and pollution prevention (all the items of energy saving, and pollution prevention are measuring one dimension, therefore the two constructs were merged to one). Consequently, H1a-c, H3a-c and H4a-c are re-formulated slightly, namely,

H1a: A firm’s GPI capabilities are positively related to its environmental performance with respect to material reduction.

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H3a: A firm’s environmental performance with respect to material reduction is positively related to its competitive advantage.

H3b-c: A firm’s environmental performance with respect to energy saving and pollution prevention are positively related to its competitive advantage.

H4a: A firm’s environmental performance with respect to material reduction mediates the relationship between the firm’s GPI capabilities and competitive advantage.

H4b-c: A firm’s environmental performance with respect to energy saving and pollution prevention mediate the relationship between the firm’s GPI capabilities and competitive advantage.

For the competitive advantage construct, one factor was extracted and accounts for 65,93% of the variance (KMO statistics .769, Bartlett statistics 108.899, significance .000).

Cronbach’s alpha coefficient was used to examine the reliabilities among the items within each factor. The Cronbach’s alpha (see Table 5) of GPI capabilities and competitive advantage exceeds the widely recognized rule of thumb 0.70. In contrast, although the Cronbach’s alpha of material reduction, energy saving, and pollution prevention are not exceeding the good acceptable threshold but still considered as lowest acceptable threshold in management studies, thus indicating the adequate reliability of the measurement scales in this study (O’Leary-Kelly & Vokurka, 1998).

Convergent validity of each measurement scale was examined by conducting EFA using the maximum likelihood approach (O’Leary-Kelly and Vokurka, 1998). All indicators in their respective constructs have statistically significant (p<0.05) factor loading greater than 0.50 (see Appendix B), which indicates the convergent validity of the theoretical constructs (Anderson & Gerbing, 1988). Based on these results, it can be concluded that the constructs and scales have convergent validity.

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them as shown in Table 6, which provides evidence of discriminant validity (Fornell & Larcker, 1981). For example, the square roots of the AVEs for the two constructs; GPI capabilities and competitive advantage, are 0.74 and 0.81 in Table 5 which are more than the correlation, 0.442, between them in Table 6. This shows that there is an adequate discriminative validity between GPI capabilities and competitive advantage. As can be seen from these two tables, all constructs’ square roots of AVEs are more than the correlations among all constructs. Thus, the discriminative validity in this study is acceptable.

Table 5. Measurement statistics

Constructs Mean Standard deviation

Number of items

Cronbach’s α coefficient

AVE The square root of AVE

GPI Capabilities 3.14 0.77 9 0.89 0.54 0.74

Environment Performance

Material reduction 2.88 0.90 4 0.60 0.45 0.67

Energy & pollution 2.99 0.78 4 0.66 0.55 0.74

Competitive Advantage 2.90 0.80 4 0.82 0.66 0.81

Table 6. Correlation of the constructs

Constructs A B C D

(A) GPI capabilities 1 0.333** 0.457** 0.442**

(B) Material reduction 1 0.294** 0.012

(C) Energy & pollution 1 0.279*

(D) Competitive advantage 1

* p<0.05, ** p<0.01

4.2 Tests of hypotheses

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Table 7. Results of Regression Analysis

Reported results: coefficient (t-value), *p<0.1, **p<0.05, ***p<0.01 (two tailed significance level)

Based on model 3 and 4, the analysis shows that H1a and H1b-c are confirmed, that is a firm’s GPI capabilities have a significant and positive impact on its environmental performance regarding material reduction, energy saving and pollution prevention, respectively (b=0.25, p<0.05 and b=0.39, p<0.01, respectively). It is noticeable that the variance explained increases to more than doubled when compared to model 1and 2 that only control variables are included (R² increases from 7% to 10% and from 12% to 24%, respectively).

Regarding the significance of control variables, this study controlled two variables, namely firm size and firm R&D intensity as control variables. It is noticeable that in Model 1 and 2 (only control variables are involved), firm size has a significant influence on independent variables, and R&D intensity has a week impact on independent variable, which in turn

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influence the outcome. However, this study is not interested in these two variables. Therefore, controlling these two variables, and kept them as constant is important for this study. Note that in the models including control variables only (Model 1, and 2) indicates that firm size (small companies) has a strong and negative impact on material reduction, energy saving and pollution prevention. However, for big companies, firm size has a non-significant impact on both material reduction, and energy saving and pollution prevention. When GPI capabilities are included, the significance of firm size is dramatically decreasing, the material reduction, and energy saving, and pollution prevention are not significant anymore. R&D intensity has a weak negative impact on a firm’s environmental performance regarding energy saving and pollution prevention before the introduction of GPI capabilities, but a slightly increased negative impact when GPI capabilities are introduced.

Furthermore, based on model 5, H2 is also confirmed that is GPI capabilities have a significant and positive effect on a firm’s competitive advantage (b=0.43, p<0.01). However, H3a (see model 6) is not confirmed: material reduction does not have a positive effect on a firm’s competitive advantage (b= -0.07, p>0.1). But H3b-c (see model 7) is confirmed: energy saving, and pollution prevention have a positive effect on a firm’s competitive advantage (b=0.24, p<0.05). In addition, although not hypothesized in the conceptual model, model 8 shows the combined effect of GPI capabilities, material reduction, energy saving and pollution prevention on competitive advantage. The explained variance of energy and pollution, R² increases from 18% to 32%. GPI capabilities have a strong, positive and significant effect on a firm’s competitive advantage (b=0.42, p<0.01). By adding GPI capabilities to model 8, the effect of energy saving, and pollution prevention is not significant anymore. However, material reduction becomes more negative (b=-0.17) still non-significant.

4.3 Test of the mediation effect

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Table 8. the overview of proposed hypothesis with the corresponding path coefficient

Hypothesis Proposed effect Path coefficient Results

H1a Positive 0.25** H1a is supported H1b-c Positive 0.39*** H1b-c is supported H2 Positive 0.43*** H2 is supported H3a Positive -0.07 H3a is not supported H3b-c Positive 0.24** H3b-c is supported

H4a Mediating H4a is not supported

H4b-c Mediating H4b-c is not supported

*p<0.1, **p<0.05, ***p<0.01

Baron and Kenny (1986) suggest a joint significance test to examine the mediation effect, which involves three steps. In brief, first, independent variable must affect mediation variable. Second, the independent variable must affect the dependent variable. Last, the mediation variable must affect the dependent variable. Note that in H1b-c, H2 and H3b-c are significant, which fulfill all the required steps for mediation test. Therefore, energy saving, and pollution prevention can be considered as a mediator in explaining the GPI-CA link.

However, the joint significance test is a liberal test (i.e. high type I error), therefore, several other tests in PROCESS macro are performed to verify the results (see Table 9). Sobel test (Sobel, 1982), which estimates the indirect effect and its significance, was conducted to supplement the joint significance test. All those tests indicate that there is no mediation effect as all the p values are not significant.

Table 9. The results of Sobel, Aroian and Goodman test.

Input Test statistic Std. Error p-value a 0.485 Sobel test 0.630 0.182 0.529

b 0.236 Aroian test 0.553 0.207 0.581

Sa 0.715 Goodman test 0.752 0.152 0.452

Sb 0.139

a = raw (unstandardized) regression

b = raw coefficient for the association between the mediator and the dependent variable Sa = standard error of a.

Sb = standard error of b.

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analysis approach that applied to non-normal data. Table 10 shows the results of Bootstrapping test. It was found that GPI capabilities were positively associated with the competitive advantage (b=0.398, t=3.017, p<0.01). In addition, the results indicate that the direct effect of GPI capabilities on competitive advantage became non-significant when controlling for energy saving and pollution prevention. Thus, H4b-c is not supported, which suggests there is no mediation effect (b=0.033, the lower and upper levels for confidence interval fails in -0.018 to 0.177 [zero fails in the confidence interval meaning that it is not significant]).

Table 10. The results of Bootstrapping test

Direct effect of GPI on CA

Effect SE t p LLCI ULCI

0.398 0.132 3.017 0.004 0.134 0.661

Indirect effect of GPI on CA

Energy & Pollution

Effect Boot SE BootLLCI BootULCI

0.033 0.041 -0.018 0.177

5. Discussion and implications

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The empirical results show that a firm’s GPI capabilities are positively related to its competitive advantage. This contributes to the ongoing debate in the literature on the GPI-CA relationship, which is in favor of a positive link. The fact is that several studies have highlighted that a firm’s GPI capabilities are a form of differentiation strategy, which helps the firm to create new products and services. For instance, Chang (2011) highlights that firms that pioneering in GPI development can attain a competitive advantage enabling them to sell their products and services. As a result, enhance their firms’ images also entering a lucrative new market. Moreover, the new product that developed by the firm, which in turn helps the firm to achieve a pre-emption advantage in the marketplace (Porter & van der Linde, 1995).

A possible explanation for this result is that a firm develops its GPI capabilities, such as collaboration with its suppliers with the common objective of being greener in new product development will help the firm to differentiate its product in comparison with other manufacturers. Further, close bonds with customers, which can also facilitate cleaner production, which leads to a better understanding of customer needs and enlarge its green market share. Another possible explanation would be that other stakeholder involvement, such as an environmental institution is involved in the green product development, the institution (e.g., green environmental found and higher education institutions) will provide resources (e.g., found and knowledge) to the firm. As a result, the firm’s costs are compensated by the institution’s incentives, which in turn leads to cost reduction for the firm (Dangelico et al., 2016).

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customers is not willing to pay a premium for more expensive and poorer quality products, which in turn leads to a non-significant impact on the firm’s competitive advantage.

This study also provides the evidence that a firm’s environmental performance regarding energy saving and pollution prevention are positively associated with the firm’s competitive advantage. This result is consistent with prior studies (Sharma & Vredenburg, 1998; Kuo & Chen, 2016) arguing that proactively improving environmental performance (i.e., pollution prevention and energy saving) can contribute to the development of a firm’s competitive advantage. This can be explained by the fact that the new product developed by the firm, which has a focus on energy efficiency, may help the firm to open lucrative new market and attract more customers to pay for the premium price. This is also in line with the statement by Sariannidis et al. (2013) arguing that customers pay a higher price in a short-term, but in a long-run, the product will pay off as the product saves more energy, which offsets the initial investment. Furthermore, customers will be motivated to buy the green product, and more importantly, the firm will increase the green market share and competitive position in the marketplace.

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stronger impact on the firm’s competitiveness compared to the impact of a firm’s actual environmental performance (i.e., truly being green) on the firm’s competitiveness.

5.1 Managerial implications

This study provides new insights that a firm’s environmental performance does not mediate the relationship between the firm’s GPI capabilities and competitive advantage, in other words, the benefits of developing a firm’s GPI capabilities on its competitive advantage is not realized through improving the firm’s actual environmental performance. Moreover, the results show that a firm’s GPI capabilities have a direct positive impact on its competitive advantage. For companies that invest more resources in their GPI capabilities (e.g., green R&D and green supply chain system) development will highly likely achieve greater benefits, like, increasing market share, entering new market and substantial cost saving.

This study also demonstrates that firms developing their GPI capabilities not only enhance their competitive advantage but also improve their environmental performance. Managers should put more effort on the capability development, which is more related to material, energy and pollution caused impact, rather than focus on the peripheral part e.g., green vision and green plan. With regard to the effect of environmental performance on competitive advantage, the results show that material reduction does not contribute to a firm’s competitiveness. In contrast, energy saving, and pollution prevention have a positive impact on the firm’s competitiveness. Therefore, this study suggests that companies should prioritize their focuses. Companies should primarily focus on the product or process development related to energy saving and pollution prevention. Even though, material reduction seems not promising in a short-term regarding financial payoff but put material reduction on their business agenda will certainly improve the quality of our environment, and their customer will realize their effort in a long-term. In addition, managers should be more critical about the word green and they should initiate some green action plans to make their firms being truly green rather than just implementing green advertisement and campaigning green.

5.2 Limitation and future research

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examined the direct impact of a firm’s GPI capabilities on environmental performance and competitive advantage from the focal firm’s perspective, future research can investigate other factors that have direct and indirect impact, like, government enforcement, market needs for green product and intangible competitive advantage (e.g., customer referral and reputation of the firm). Last, future study can research the topics, like, who pays for green and what the costs of being green from different stakeholder’s perspective.

6. Conclusion

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Appendix A: Archetype of GPI studies

Article Authors (year) Journal Archetype

1 Agan, Acar, & Borodin (2013) Journal of Cleaner Production B

2 Amores-Salvadó, Martín-de Castro, & Navas-López (2014)

Journal of Cleaner Production B

3 Ar (2012) Procedia – Social and Behavioral Sciences

B

4 Böttcher & Müller (2015) Business Strategy and the Environment A

5 Chan & Ma (2016) Management International Review B

6 Chan, Yee, Dai, & Lim (2015) International Journal of Production Economics

B

7 Chang (2011) Journal of Business Ethics B

8 Chavez, Yu, Feng, & Wiengarten (2016)

Business Strategy and the Environment B

B 9 Yu, Chavez, Feng, & Wiengarten

(2014)

Supply Chain Management: An International Journal

10 Chen (2008) Supply Chain Management: an international review

A

11 Chen & Chang (2013) Journal of Business Ethics B

12 Chen, Lai, & Wen (2006) Journal of Business Ethics B

13 Chen, Lin, Lin, & Chang (2015) Sustainability A

14 Chen, Tang, & Jin (2015) Journal of Business Ethics B

15 Chen, Wu, & Wu (2015) Int. Journal of Physical Distribution & Logistics

B

16 Cheng, Yang, & Sheu (2014) Journal of Cleaner Production A

17 Choi & Hwang (2015) Operations Management Research B

18 Dangelico & Pontrandolfo (2015) Business Strategy and the Environment B

19 Dangelico, Pontrandolfo, & Pujari (2013)

Journal of Product Innovation Management

B

20 De Sousa Jabbour, Jabbour, Latan, Teixeira, & De Oliveira (2014)

Transportation Research Part E C

21 Dubey, Gunasekaran, & Ali (2015) International Journal of Production Economics

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22 Eltayeb, Zailani, & Ramayah (2011) Resources, Conservation and Recycling

A

A 23 Eltayeb, Zailani, & Hsu, & Tan (2012) Int. J. of Operations and

Production Management

24 Feng & Wang (2014) Journal of Business Ethics B

25 Fraj-Andrés, Martinez-Salinas, & Matute-Vallejo (2009)

Journal of Business Ethics B

26 Gabler, Richey, & Rapp (2015) Industrial Marketing Management

B

27 Genç & Di Benedetto (2015) Industrial Marketing Management

B

28 Gerstlberger, Knudsen, & Stampe (2014)

Business Strategy and the Environment

C

29 González-Benito & González-Benito (2005)

Omega B

30 Graham & Potter (2015) International Journal of Production Economics

B

31 Grekova, Calantone, Bremmers, Trienekens, & Omta (2016)

32 Hartmann & Germain (2015) Journal of Cleaner Production B

33 Hollos, Blome, & Foerstl (2012) International Journal of Production Research

B

34 Huang & Li (2015) Journal of Business Ethics A

35 Huang & Wu (2010) Management Decision B

36 Huang, Hu, Liu, Yu, & Yu (2016) Journal of Cleaner Production A

37 Hung, Chen, & Chung (2014) Technology Analysis & Strategic Management

A

38 Jabbour, De Sousa Jabbour, Govindan, Teixeira, & Freitas (2013)

39 Jabbour, Jugend, De Sousa Jabbour, Gunasekaran, & Latan (2015)

Journal of Cleaner Production A

40 Jackson, Gopalakrishna-Remani, Mishra, & Napier (2016)

International Journal of Production Economics

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41 Kirchoff, Tate, & Mollenkopf (2016) International Journal of Physical Distribution & Logistics Management

A

42 Koo, Chung, & Ryoo (2014) Total Quality Management & Business Excellence

B

43 Küçükoglu & Pinar (2015) Procedia - Social and Behavioral Sciences

A

44 Kuei, Chow, Madu, & Wu (2013) Journal of Environmental Planning and Management

B

45 Kuei, Madu, Chow, & Chen (2015) Journal of Cleaner Production A

46 Laari, Juuso, Solakivi, & Ojala (2016) Journal of Cleaner Production A

47 Lai, Wong, & Lam (2015) International Journal of Production Economics

A

48 Laosirihongthong, Adebanjo, & Tan (2013)

Industrial Management & Data Systems A

49 Lee, Rha, Choi, & Noh (2013) Management Decision A

50 Leenders & Chandra (2013) Technology Analysis & Strategic Management

B

51 Leonidou, Katsikeas, & Morgan (2013)

Journal of the Academy of Marketing Science

A

52 Leonidou, Fotiadis, Christodoulides, Spyropoulou, & Katsikeas (2015)

International Business Review A

53 Leonidou, Leonidou, Fotiadis, & Aykol (2015)

Tourism Management A

54 Li, Jayaraman, Paulraj, & Shang (2016)

International Journal of Production Research

A

55 Lin, Chen, & Huang (2014) Industrial Management & Data Systems B & C

56 Lin, Zeng, Ma, Qi, & Tam (2014) Journal of Cleaner Production B

57 Lirn, Lin, & Shang (2014) Maritime Policy & Management B & C 58 López-Gamero et al. (2009) Journal of Environmental Management B

59 Lun, Lai, Wong, & Cheng (2015) Transportation Research Part E C 60 Maletič, Maletič, Dahlgaard,

Dahlgaard-Park, & Gomišček (2015)

Total Quality Management & Business Excellence

A

61 Masoumik, Abdul-Rashid, & Olugu (2015)

Procedia CIRP A

62 Molina-Azorín, Claver-Cortés, Pereira-moliner, & Tarí (2009)

63 Paulraj, Chen, & Blome (2015) Journal of Business Ethics A

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A: GPI has a direct effect on both of EP and CA, the total number of articles is 36 out of 86. B: GPI has a direct effect on CA, the total number of articles is 42 out of 86.

C: GPI has a direct effect on EP, the total number of articles is 6 out of 86.

D: EP as a mediator in explaining the GPI-CA relationship, the total number of articles is 2 out of 86.

66 Pujari (2006) Technovation B

67 Pujari, Wright, & Peattie (2003) Journal of Business Research A

68 Richey, Musgrove, Gillison, & Gabler (2014)

Industrial Marketing Management B

69 Roy & Khastagir (2016) Journal of Cleaner Production B

70 Ryszko (2016) Sustainability B

71 Schoenherr, Modi, Talluri, & Hult (2014)

Journal of Business Logistics D

72 Sroufe (2003) Production and Operations Management

B

73 Tung, Baird, & Schoch (2014) Journal of Environmental Management A

74 Vijayvargy & Agarwal (2014) IUP Journal of Supply Chain Management

A

75 Wong (2012) European Journal of Innovation Management

B

B 76 Wong (2013) Business Strategy and the Environment

77 Wong, Lai, Shang, Lu, & Leung (2012) International Journal of Production Economics

A

78 Wong, Wong, & Boon-itt (2013) Service Science A

79 Woo, Kim, Chung, & Rho (2016) Journal of Cleaner Production A

80 Wu & Lin (2016) Total Quality Management & Business Excellence

B

81 Yang, Hong, & Modi (2011) International Journal of Production Economics

A

82 Yu & Ramanathan (2015) International Journal of Production Research

C

83 Zailani, Iranmanesh, Nikbin, & Jumadi (2014)

Asian Journal of Technology Innovation

C

84 Zailani, Govindan, Iranmanesh, Shaharudin, & Chong (2015)

Journal of Cleaner Production A

85 Zhu, Sarkis, & Lai (2007) Journal of Cleaner Production A

86 Zhu, Sarkis, & Lai (2012) International Journal of Production Research

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Appendix B: Measurement and items loading

Constructs Items Factor

loading GPI capabilities (items adapted from Buysse and Verbeke, 2003; Pujari et al., 2003; Zhu and Sarkis, 2004; Seuring and Müller, 2008; Walls et al., 2011; Boons and Ludeke-Freund, 2013)

Green R&D Your company has invested considerable time and resources in developing sustainable product and production technology

0.827

Green

benchmarking

Your company reflects environmental standards of production and product development with the "best-in-class" in our industry

0.826

Strategic planning process

GPI_1) Your company has a long-term vision regarding the environment, and in particular the role of environmentally friendly (er) products and production

0.815

Strategic planning process

GPI_2) Your company has an environmental policy in which its involvement and objectives for environmentally friendly (er) products and production play an explicit role

0.773

Cross-functional coordination

GPI_4) Knowledge about sustainability in various departments and positions present in the organization is structurally shared

0.737

Cross-functional coordination

GPI_5) In developing the business vision and environmental policy, different departments of the company are closely involved (e.g., product development, sales, marketing, procurement, production, human resources, finance).

0.727

Green supply chain

management

GPI_6) Your company works closely with suppliers to design and produce environmentally friendly (re) production and products

0.675

Green supply chain

management

GPI_8) Your company encourages customers and / or end-users to use products in an environmentally-friendly way

0.654

Other stakeholders

GPI_9) Your company works closely with other parties, such as governments, knowledge institutes, environmental organizations and industry associations, to make sustainable products possible

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Constructs Items Factor

loading Environment performance (items adapted from Zhu and Sarkis, 2004; Pujari, 2003; Chen et al., 2006; Huang and Wu, 2010; Scale based on Zhu and Sarkis, 2004)

Material reduction

Meterial_1) To what extent does your product (group) contain recycled materials or reused parts?

0.703

Meterial_2) To what extent does your product (group) contain renewable materials (such as bio-based plastics or wood)?

0.726

Meterial_3) To what extent can your product (group) be effectively recycled? 0.611

Meterial_4) To what extent can your product or parts be reused after use via remanufacturing or refurbishment? 0.646 Energy saving & Pollution prevention

EsPp_1) To what extent have you minimized the energy consumption of your product (group) in the production phase?

0.751

EsPp_2) To what extent have adjustments in the product design resulted in savings in transport?

0.652

EsPp_3) To what extent has the use of hazardous substances and chemicals in your product (group) been minimized?

0.716

EsPp_4) To what extent have you minimized the emission of greenhouse gases and / or particulate matter from your product (group)?

0.841

Competitive advantage (items adapted from Banerjee et al., 2003)

COM_ADV_1) Your company has realized significant cost savings with sustainable products and production

0.611

COM_ADV_2) Your company has achieved a leading position in the market thanks to sustainable products

0.860

COM_ADV_3) Your company has opened a new market with sustainable products

0.849

COM_ADV_4) Sustainable products have created a larger market share for your company

When does being green pay off? Examine the mediating role of environmental performance in the GPI-competitive advantage relationship