2 ‘Sustainable Development in Emerging Countries’ Master Thesis

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Master Thesis

‘Sustainable Development in Emerging Countries’

Master of Science / International Business and Management

June, 2011

Supervisor

Global Economics and Management Department 5th Floor Duisenberg building, room 557

Phone: 050 363 7338 Email: A.N.Kiss@rug.nl

Co-assessor

Author

Heleen (Hendrika) Klein Horsman Ds. Berkhofweg 37

8148NC Lemele

University of Groningen Faculty of Economics and Business

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ACKNOWLEDGEMENTS

irst and foremost I offer my sincerest gratitude to my supervisor, Dr A.N. Kiss, who has supported me throughout my thesis with her patience, knowledge and constructive feedback. I attribute the level of my Masters degree to her guidance and effort. Secondly I would like to thank the general managers of the two hotels; Mrs. Hartati and Mr. Burchett who were always willing and available to answer my questions. And thirdly, Mr. Van’t Hoff, environment consultant in Indonesia and owner of Bali Eco Lodge and Mr Bipan Kapur director of the environment department of Bali Hotel Association have provided me with some useful information for this study. Finally, I would like to thank Mr. Visscher for his professional and final assessment of my master thesis.

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ABSTRACT

Due to the fact that the environmental degradation is affecting every single person on the world more attention need to paid to sustainable development. This study focuses on the environmental dimension of sustainable development called; environmental sustainability. In the past the service industry was not being accused for the environmental degradation, since this industry was seen as an engine of growth. Due to the lack of distinction in the literature between the service industry and the manufacturing industry the hospitality industry is subject of this study. The purpose of this study is to identify the influences of the national culture and the institutions of the home- and host countries on the ability of a MNC to implement a (global) environmental policy. The conclusion of this study is that the influences of the institutional capacity of the home-country are significant superior to the one of the host-country. The national culture is said to have influences as well although this influences are not that strong.

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ABBREVIATIONS

AT = Agency theory

ADB = Asian Development Bank BOP = Bottom/base of the pyramid BHA = Bali Hotel Association BKR = Bali Kuta Resort

CB = Conrad Bali

CSR = Corporate social responsibility

DJI = Dow Jones Indexes

DJSI = Dow Jones sustainability index EIA = Energy information administration

ECs = Emerging countries

EPI = Environmental Performance Index ES = Environmental sustainability

EU = Europe

H&TI = Hospitality and tourism industry HDR = Human development report IT = Institutional theory

MNC = Multinational corporation

NGO = Non governmental organizations NRM = Natural Resource Management

OECD = Economic Co-operation and Development PEI = Poverty environment initiative

PwC = PricewaterhouseCoopers RBT = Resource based theory

SAM = Sustainable asset management

SD = Sustainable development

TCT = Transaction cost theory TOP = Top of the pyramid

UNCTAD = United Nations Conference on Trade and Development UNDP = United Nations development program

UNEP = United Nations environmental program

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INDEX OF FIGURES

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INDEX OF CONTENTS

2.1 Institutional void in emerging Countries ___________________________________ 10 2.2 The role of national culture in developing strategies _________________________ 11 2.3 From sustainable development to organizational legitimacy ___________________ 12

3. Need for sustainable development ______________________________________ 13 4. Theoretical background and hypotheses _________________________________ 14

4.1 The influences of institutions for MNCs in emerging countries __________________ 15 4.2 The influences of national culture for MNCs in emerging countries ______________ 17

5. Methodology; a Case study ____________________________________________ 19

5.1 Selecting an industry; The Hospitality and Tourism Industry ___________________ 19 5.2 Sustainable development in the H&TI ____________________________________ 20 5.3 Selecting the hotel’s host country ________________________________________ 20 5.4 Selecting the hotels __________________________________________________ 21

5.4.1 Hotel Conrad Bali; Hilton Hotel Group _________________________________ 22 5.4.2 Bali Kuta Resort; Swiss-Belhotel International ___________________________ 23 6. Data collection methods _______________________________________________ 23

6.1 Qualitative data collection method _______________________________________ 23

6.1.1 Selecting the sample ______________________________________________ 24

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7.1 Qualitative data ______________________________________________________ 25

7.1.1 Conrad Bali _____________________________________________________ 26 7.1.2 Bali Kuta Resort __________________________________________________ 28 7.1.3 Summary questionnaires from Conrad Bali and Bali Kuta Resort ____________ 29 7.1.4 Data of the scores on the cultural dimensions of Hofstede _________________ 30 7.1.5 Data of the 2010 Environmental Performance Index (EPI) _________________ 32 7.1.6 Human Development Report ________________________________________ 32 7.1.7 Data from other general sources _____________________________________ 33

7.2 Quantitative data _____________________________________________________ 37

7.2.1 Data from World Bank _____________________________________________ 37 8. Results and Discussion _______________________________________________ 38 9. Conclusion __________________________________________________________ 41 10. Limitations ________________________________________________________ 43 11. References ________________________________________________________ 45 12. Appendices _______________________________________________________ 49

1. Introduction

Emerging countries have a prominent role in the literature nowadays. The countries are rapidly growing and developing which is very attractive for MNCs originating from developed countries. The strength of a MNC is to be capable to deal with different environments by using its worldwide experience and expertise. Strategies of MNCs are said to be influenced by different types of factors such as the home- and host country institutions. The institutional theory possesses that institutions from home- and host countries are influencing the strategies of MNCs. Subsequently it is argued that national culture and institutions are two interconnected factors which can not been seen as separate. The purpose of this study is to examine the influences of institutions and national culture of the home- and host countries on the ability of a MNC to implement (global) environmental policies.

Due to the changing climate affecting every single person on the world the focus is on environmental policies. There is an increased interest at the role of MNCs on the world wide environmental degradation. The findings regarding this role are contradictory; however it became obvious that MNCs need to implement environmental friendly strategies in order to reduce environmental damage. Until a few years ago the service industry escaped blame of the environmental degradation, since especially in emerging markets the tourism industry is seen as the most important economic factor which brings only benefits to the society and country. Although some researchers argue that the service industry in particular is subject to environmental management.

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2. Theoretical background of strategies in emerging countries

Emerging countries (EC) are assuming an increasingly prominent position in the world economy. This phenomena of a growing importance of emerging economies is reflected in an increased interest in researching multinational corporations’ (MNCs) strategies active in emerging economies (Wright, Filatotchev, Hoskisson and Peng, 2005). MNCs have an important role in linking poor and rich economies by transferring knowledge, capital and value systems across borders. These strategies are influenced by several factors which determine the success or failure of the firm. Those factors influencing a strategy are translated in different perspectives such as; industry view, institutional-, resource-based-, transaction- and agency theory.

The agency theory (AT) deals with the problems involved in creating the most appropriate form of governance to ensure that managers as agents act in the interests of owners (Jensen and Meckling, 1976). The transaction cost theory (TCT) studies the influence of transaction costs on whether market, hierarchy, or hybrid forms are the most appropriate governance mode. The industry view introduced by Porter (1980) argues that conditions within an industry, to a large extent, determine firm strategy and performance. The resource-based theory (RBT) is concerned with the influence of firm resources and capabilities in explaining why firms differ and how they achieve and sustain competitive advantage (Barney, 1991). Finally the institutional theory (IT) focuses on the role of the political, social, and economic systems surrounding firms in shaping their behavior and is seen as the most dominant theory within EC (Wright et al., 2005). This study elaborates on the IT which is the focus of the next paragraphs.

According to Hoskisson, Eden, Lau and Wright (2000 p.249) emerging countries are “countries with low-income, however they are rapidly growing by using economic liberalization as their primary engine of growth”. These countries are characterized by underdeveloped market institutions and political and economic uncertainty which implies that MNCs are facing a new challenge. Since underdeveloped institutions are an important characteristic in ECs, the focus of this study is on the IT by explaining the role of these underdeveloped institutions. Meyer, Estrin, Bhaumik and Peng (2009) argue that in particular institutions in host economy are the most important factors influencing a firm strategy.

2.1 Institutional void in emerging Countries

informal- (social conventions and cultural norms) and formal institutions (laws, regulations and policies). The underdeveloped institutions characterizing ECs do hamper the implementation of a global strategy for MNCs. MNCs active in ECs will have additional challenges in developing strategies which affects their business across borders. On the other hand Oliver (1991) suggests that institutional processes can often facilitate, rather than constrain, the strategic behavior of firms in a given environment.

The presence of underdeveloped institutions or even the absence of institutions in ECs is called institutional void. Institutional void can be defined as “the relative lack of intermediary firms, regulatory systems and contract enforcing mechanism” (Miller, Lee, Chang and Breton-Miller, 2009 p.803). Many economists argue that the low level of development characterizing ECs are caused by the weak or incomplete environments. MNCs in these weak environments need to adapt their strategies to fill the institutional gaps (Rivera-Santos and Rufín, 2010). The low level of income mentioned as another characteristic of ECs is similar to the characteristics of bottom of the pyramid (BOP) markets. The concept ‘base of the pyramid’ (BOP) claims that business can help eradicate poverty. Rivera-Santos and Rufín (2010) state that in BOP markets weak institutions in particular create problems for MNCs coming from top of the pyramid (TOP) markets. Another interesting characteristic of a BOP market is that they tend to be relatively isolated which leads to a strong local culture. Besides, people living in BOP markets have less contact with national or international cultures. This raises the question of the relationship between national culture and institutions of the home- and host countries are influencing the ability of a MNC to pursue a global strategy. MNCs need to adjust to the multifaceted business environment of each country. This becomes more difficult if the differences between the home- and host environments increases. Therefore it is said that MNCs must adapt their business strategies and organizational forms in order to be able to manage these differences (Estrin, Baghdasaryan and Meyer, 2009). The home- and host country institutional environments of a MNC are together the legitimating environment or the global "meta-environment” (Kostova and Zaheer, 1999). In other words, institutions are influencing the organizational legitimacy of a MNC as explained later on in this paper.

2.2 The role of national culture in developing strategies

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Hofstede et al. (2002) view culture as part of informal institutions in the environment that ‘underpin formal institutions’. The statement of Hofstede et al., (2002) together with the question raised in the previous section regarding the relationship between national culture and institutions affecting strategies of MNCs introduces the second focus of this study; national culture which will be further explained in detail in chapter four.

2.3 From sustainable development to organizational legitimacy

The legitimacy of the MNC as a whole is “the acceptance and/or approval of the MNC by its legitimating environment”. The legitimacy of the MNC subunit is “its acceptance by the specific host country institutional environment” (Kostova and Zaheer, 1999 p.64). Another definition of legitimacy given by López, Garcia and Rodriquez (2007 p.288) is “a status that comes from the harmony between a corporation's value system and that of society”. As stated earlier are institutions parts of the legitimating environment. Strategies pursued by MNCs in ECs should be in harmony with values of the specific society. Without any acceptance of the society a MNC is not able to survive.

Legitimacy is closely related to corporate social responsibility (CSR) activities. Without behaving socially responsible, a MNC will never be accepted. In other words without sustainable development a firm can not easily achieve organizational legitimacy. CSR rather involves managing a firm in such a way that it can be ‘economically profitable, law abiding, ethical and socially supportive’ , something which is complicated when operating in a large number of different contexts with often diverging views of the role of business in society (Kolk and van Tulder, 2010). There is a growing interest in CSR activities which are seen as becoming increasingly strategic. It affects the core business of a MNC, since CSR is a potential source of competitive advantage (Kolk and van Tulder, 2010 and López et al., 2007). CSR consists of environmental, natural, economic, social, cultural and political factors which are similar to the characteristics of sustainable development. These can be grouped into social, economic and environmental areas which is called the ‘tripple bottom line’.

3. Need for sustainable development

Due to global problems such as poverty, climate change and other global events which are dominating our interconnected world, our lives and societies are affected. Therefore the awareness of environmental issues and the need for organizations to act in an environmentally responsible manner has increased considerably (Kolk and van Tulder, 2010 and McGuire, 2010). In this paper the focus is on the environmental dimension of sustainable development: environmental sustainability (ES) defined as ‘‘the need to improve social and human welfare while reducing the ecological footprint and ensuring the effective achievement of organizational objectives” (Pinkse, Kuss and Hoffmann, 2010 p.161). Besides, firms focusing on SD are able to achieve more easily organizational legitimacy.

MNCs are said to bring prosperity to the BOP markets by create, leverage and arbitrage capabilities on a world scale. However MNCs are not bringing only positive contributions, since they have the ability to shift resources and production across borders (Dowell, Hart and Yeung, 2000). Environmentalists argue that MNCs move dirty operations to countries where regulatory standards are less stringent, the so called ‘pollution havens’. This is translated by Park, Russell and Lee (2007) into two different views. The first one is called the pollution-haven hypothesis and the second one is called the pollution-halo hypothesis. The former posits that trade liberalization, open markets, increased foreign direct investment and MNCs will encourage the flow of low-technology and polluting industries to developing countries and trigger a ‘race to the bottom’ in environmental standards. Whereas the latter view suggests that trade liberalization or foreign direct investment encouraged by the MNCs may actually help elevate worldwide environmental standards through the transfer of efficient technology and established management practices. The pollution haven hypothesis is also known as ‘race to the bottom’ for poor nations, since MNCs are only establishing their facilities to reduce costs and externalize environmental responsibility. However Dowell et al., (2000) has concluded that according to his data this was not statistically proven. By introducing these theoretical hypotheses Park et al, (2007) mentioned the weakness of these theories, since they all have failed to take into account the effect of culture. This study does include culture due to this reason and the reason that institutions and culture are mutual related as explained above.

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is local adaption required? This leads to the following research question;

To what extend do institutions and national culture of the home- and host countries influence the ability of a MNC to implement a (global) environmental policy within emerging countries?

The theoretical foundations are used to describe the relationships and consequently a research question is formulated. In order to be able to visualize the ideas so far, a conceptual model is presented below;

4. Theoretical background and hypotheses

The research question is formulated and in the following section the theoretical background of the factors influencing the ability to implement a (global) environmental policy is presented. Subsequently hypotheses are formulated as well to be able to answer the research question in a comprehensive way.

4.1 The influences of institutions for MNCs in emerging countries

As argued by the existing literature different types of institutions are influencing a strategy of the MNC. These are informal-/formal- and home- and host institutions. Emerging markets are said to have weak institutions and may even face institutional void. Why should a MNC pursue an environmental policy if they are not forced to? Currently there are no world wide regulations yet for MNCs regarding environmental policies. MNCs can perceive this as an opportunity or a problem and they have to deal with a so called ‘moral free space’ (Kolk and van Tulder, 2010).

How MNCs behave in different environments is very debatable. As explained, on the one hand it is argued that MNCs exploit cross-country differences in environmental regulations by moving their unsustainable practices to countries with weak or even no regulations and by adapting their policies to local country conditions (Christmann, 2004). On the other hand it has been suggested in the literature that MNCs will pursue self regulation which refers to ‘a firm’s adoption of environmental policies or performance standards that exceed the requirements of government regulations’. This is possible by developing a standardized environmental policy which leads to a reduced ability to exploit cross-country differences in environmental regulations. Pinkse et al., (2010) argue that MNCs self-regulate in countries with weak environmental regulations due to several reasons. First of all MNCs are leveraging capabilities to reduce environmental impact. Secondly MNCs feel pressure of non governmental organizations (NGOs) and therefore decide to self-regulate their environmental policies. Thirdly MNCs expect to benefit from self regulation through global standardization by being more efficient.

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Jones Sustainability Indexes (DJSI) in 1999. The DJSI is the first global index tracking the financial performance of the leading sustainability-driven companies worldwide. Based on the cooperation of Dow Jones Indexes and SAM asset managers are provided with reliable and objective benchmarks to manage sustainability portfolios.

The third reason of why to implement an environmental policy is to minimize costs. Although the results are conflicting Klassen and McLaughlin (1996) argue that environmental management plays an important role in the performance of a firm. Besides, the pollution-haven hypothesis predicts that MNCs are moving to ECs in order to escape from stricter regulations which are costly. This is supported by Dowell et al., (2000) who concluded that countries with weak environmental regulations are cheaper to operate in. On the other hand they conclude that firms with global environmental standards have higher firm values as measured by Tobin’s Q. The third reason applicable to this research is to achieve legitimacy by acting socially responsible and including CSR activities. The increased awareness worldwide due to global environmental problems has made the local people in ECs aware as well. They have the knowledge and the freedom to not accept unsustainable activities of MNCs in their country. The final reason can be the presence of strong institutions and NGOs. Although it is argued that ECs have weak institutions this might not be the case for every single EC.

By having discussed the influences of the home- and host institutions and the related theory, the following hypothesis is formulated;

Hypothesis 1: The combination of weak institutions, regarding to environmental sustainability in the host-country and strong institutions in the home country will lead to global standardized environmental policies in

emerging countries.

4.2 The influences of national culture for MNCs in emerging countries

The whole world is in danger and suffers from problems affecting every single person on the planet. These problems like environmental degradation needs to have attention and important decisions need to be taken. These decisions are made by persons coming from different societies and thus different cultures. It is important to know why certain people are making what types of decisions. Culture consists of the knowledge, beliefs, values, and goals that guide human activity (Milton, 1997) and is therefore said to influence the decisions that foster or hamper environmental sustainability.

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This dimension measures the level of equality between people living in a culture. A higher value implies that power is more concentrated, people are not been seen as equal and that a society is dependent upon ‘higher’ people. This leads to the following hypotheses;

Hypothesis 2: Home and Host cultures with a higher score on PDI perceive environmental sustainability as less important compared to cultures with a low score on PDI.

Uncertainty avoidance (UAI)

This dimension represents the degree of how people feel themselves threatened by risks brought by natural and human forces. A high value implies that people have a high priority for activities reducing these risks (Park et al., 2007). This will lead to the following hypotheses;

Hypothesis 3: Home and Host cultures with a high score on UAI perceive environmental sustainability as more important compared to cultures with a low score on UAI

Long term orientation (LTO)

This dimension represents the idea if the culture is long-term oriented or short-term oriented. The higher the value the more the culture is oriented on a long-term and people from this culture are taking decisions by taking the impacts for the future into consideration. This leads to the last hypotheses;

Hypothesis 4: Home and Host cultures with a higher score on LTO perceive environmental sustainability as more important compared to cultures with a low score on LTO.

Masculine (MAS)

This dimension refers to how people behave within a culture and what they perceive as important. A higher value is associated with a feminist who refers to taking care of people and perceiving quality of life as important. This leads to the following hypotheses;

Individualism (IND)

The individualism-collectivism dimension refers to the extent to which the decisions about a person’s life are determined by the individual or by the in-group a person’s circle of family, friends, or peers (Husted, 2005). A high value implies that people perceive shared interest as important. This will lead to the following hypotheses;

Hypothesis 6: Home and Host cultures with a high score on IND perceive environmental sustainability as less important compared to cultures with a low score on IND.

5. Methodology; a Case study

In order to examine the influence of institutions and national culture of the home- and host countries on the MNC’s ability to implement a (global) environmental policy in ECs a deductive methodology is applied (Eisenhardt, 1989). Based on literature and existing theories numerous expectations are formulated. These expectations are tested by observing specific cases in this study. The theoretical perspective of this study is that institutions and national culture of the home- and host countries are likely to influence the ability of a MNC to implement a (global) environmental policy in ECs. The interesting question is this case would be how this influences the ability of a MNC.

This study is a case study, a research strategy which focuses on understanding the dynamics present within single settings (Eisenhardt, 1989). Case studies combine data collection methods, like; interviews, questionnaires and observations. This implies that a combination of qualitative and quantitative data is possible. The main disadvantage of a case study is the ability to generalize the results.

5.1 Selecting an industry; The Hospitality and Tourism Industry

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2007). This is in particular important, since the H&TI is seen as an engine of growth (Kasim, 2007). Secondly, the enormous growth in the H&TI is due to a change in profiles of international tourists in two ways; Firstly, the profiles of tourists are changing with respect to the type of country to be preferred to visit. This requires a higher quality and wider range of services (Lucas, Marinova, Kucerova and Vetrokova, 2004) and secondly tourists are becoming more ‘green’. There is a growing preference among guests to stay in hotels pursuing sustainable practices and thus care about the environment (Mensah, 2006). Environmental considerations have influenced the choice of destination of tourists (Kozak, 2004). Due to these trends there is an increased need for ES. As third reason choosing this industry is because it is argued that the impact of the acceptance of environmental considerations among hotels in ECs is still rare. Finally Wright et al., (2005) have identified a research gap and stresses that little distinction has been made between manufacturing- and service industries which produces intangible products regarding environmental issues.

5.2 Sustainable development in the H&TI

Due to the fact that the role of MNCs within the H&TI became more important this industry attracted some attention. It became apparent that environmental issues within this particular industry play an important role as well. Mensah (2006) called this a shift from ‘mass tourism’ with unsustainable practices to sustainable tourism development. Despite the fact that the service industry was perceived as soft, Kasim (2009) argues that environmental management is especially important for the hospitality industry, since it lacks recycling facilities, little bottles of shampoo and the cold blast of the air conditioner all contributes to environmental inefficiency. Though, Kasim (2007) argues that the adaption of environmental policies may prove to be a long and difficult process, particularly in emerging countries.

5.3 Selecting the hotel’s host country

prominent. Diamantis (2000) have studied sustainable tourism in Mediterranean Islands. He stresses the importance of the institutional factors for these islands, since Europe (EU) and other NGOs are primarily responsible for the development and sustainable initiatives within these islands. For ECs this is obviously different since these countries still need to develop, have weak institutions and do not have the financial resources and expertise yet to invest in environmental policies.

The country which is central in this study is Indonesia and in particular the beautiful island Bali where tourism is very important. Bali is highly dependent on the H&TI and Indonesia belongs to one of the most important and fastest growing EC. Bali has seen a boost in gross domestic product (GDP) growth during the last decade (World Bank) which is a characteristic of an emerging market. Besides, Indonesia together with China and India has the largest amount of poor people (UNCTAD, 2010). It is interesting to see how the implementation of environmental policies takes place on such an island of an EC with a high level of poverty and a relatively low level of development. Another important detail is the role of Bali as being the host-location for the United Nations Climate Change Conference held in 2007. The Bali Action Plan received critique due to its generic nature and lack of clear emission targets. According to Bruce and Storey (2010) is Bali suffering from weak institutions with respect to waste management as a second major characteristic of an emerging market. Due to the lack of a national policy on sustainability, weak indicators, standards and guidance and the failure to coordinate environmental policy have all contributed toward ad hoc approaches to waste management. The hotels in Bali generate a significant amount of waste, although there have been many relatively successful initiatives to manage tourism-generated waste, including the Hotel Solid Waste Management Program. Unfortunately it services a small part of the tourism; this demonstrates that opportunities arise from partnerships with business, government and NGOs (Bruce and Storey, 2010). Therefore this research aims at identifying the influences of institutions in Indonesia, Bali on the implementation of (global) environmental policies by hotels.

5.4 Selecting the hotels

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even more logical to have opposing national cultures, since this study is interested in the influences of the national cultures. By having opposing national cultures between the two selected home country cultures and the national culture of the host-country different expectations are formulated. Furthermore the home countries should be equally ranked by the Human development report 2010. This is important in order to control for differences in level of economical development which can also influence the ability to implement a (global) environmental policy. Finally, the home countries should at least be somehow active with regard to ES. This is measured with help of the 2010 Environmental Performance Index (EPI) which ranks 163 countries on 25 performance indicators tracked across ten policy categories covering both environmental public health and ecosystem vitality. These indicators provide a gauge at a national government scale of how close countries are to established environmental policy goals. Park et al. (2007) used the Environmental Sustainability Index (ESI) in their research; however that index is only available up to 2005. The EPI is available until 2010, which makes the research more up to date. One home country should be ranked high and the other should be ranked in the middle class. The assumption in this case is that countries ranked at the top have strong institutions and stringent regulations with regard to the environment. It is interesting to see if the hotel chain is forced or motivated by these characteristics of the country of origin to decide which strategies to pursue in other countries or if the characteristics of the host country has the most prevalent influences.

Based upon this criteria hotel chains from the United States (US) and Switzerland are selected. The hotel chain originating from the US is the Hilton Chain, more specifically the Conrad hotel group. The second hotel chain is a Swiss chain called Swiss-BelHotel. Both hotels are positioned in the 4-5 star classification categories. Switzerland is ranked the highest of the three countries according the EP index, namely as second whereas the US is ranked as number 61. According to the Human development report 2010 Switzerland has number 13, US number 4 and Indonesia number 108 and is therefore classified as an emerging country.

5.4.1 Hotel Conrad Bali; Hilton Hotel Group

adjacent to the Nusa Dua resort area. The hotel has around 360 guest rooms including 55 conrad suites.

5.4.2 Bali Kuta Resort; Swiss-Belhotel International

Swiss-Belhotel International is as the name says a hotel chain originating from Switzerland. Bali Kuta Resort (BKR) by Swiss-Belhotel is conveniently located in the heart of Kuta area, 15 minutes away from the Ngurah Rai International Airport and five minutes to Kuta beach. The hotel allows easy access to entertainment venues, tourist attractions, exclusive shopping and site seeing in Kuta, Legian, Seminyak and Nusa Dua. 267 spacious suites and deluxe rooms are presented in five design concepts, all set in classic and contemporary motif.

6. Data collection methods

Currently the cases are selected and the hypotheses are presented. In the following section the research methodology is described. As mentioned before a case study can consist of qualitative and quantitative data collection methods. The most obvious method within this study is the qualitative method. The hotels in Bali are invited to fill out a questionnaire and if necessary a personal interview by phone. As second method secondary data is used qualified as quantitative data. This entails that the questionnaires only do not capture all the dimensions which are required to be researched. In particular data regarding the host country are collected from secondary data. CSR reports of the hotel chains and information regarding the country and government regulations are analyzed.

6.1 Qualitative data collection method

By using different questionnaires designed per hotel the following questions needs to be answered;

1. How the hotel rates its knowledge regarding sustainable development? 2. What types of implemented policies are considered to be the most important? 3. How the hotel rates their level of implementing sustainable activities?

4. What were the largest pressures to implement such activities? 5. Do they see an increase in ‘green’ tourists visiting their hotel? 6. How the hotel assesses the laws and regulations on the island?

7. If the hotel recognizes some influences of the country of origin national culture? 8. How important they assess sustainability practices?

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specifically for the hotel, since questions are formulated with help of information from annual reports. The main purpose of these questionnaires is to investigate what hampers or stimulates the implementation of a (global) environmental policy.

6.1.1 Selecting the sample

The two hotels in Bali are asked beforehand by e-mail to assist this study by providing the required information. The e-mail invitation was sent to the general managers of the hotels. They all responded very rapidly and were very enthusiastic that their hotel was chosen. One of the general managers had spoken with his assistant and she will be the contact person during this study.

These three persons are asked to fill out the questionnaire and if necessary to have an interview by phone later on. It is not compulsory to ask more employees of the hotel, since this study is not interested in personal motivations or subjective answers. The managers need to fill out the questionnaire on behalf of the hotel. Unfortunately the pitfall of these questionnaires with not having face to face contact can lead to answer the questions subjectively.

6.2 Quantitative data collection method

The quantitative method is used to collect the required secondary data provided by the government, Bali hotel association and other NGOs. The purpose of this method is to identify the national laws and regulations with regard to ES within hotels. The following data is used;

1. Annual reports 2. CSR reports

3. Reports of the DJSI 4. Bali Hotel association

5. National laws and regulations 6. Bali land and property

7. PricewaterhouseCoopers Indonesia 8. World bank

9. The Institute for Sustainability and Technology Policy (ISTP) at Murdoch University 10. Asian Development Bank

11. United Nations Development Program 12. Bali Eco Lodge

7. Data

In this chapter the collected data are presented. Data are collected from different sources and is therefore presented separately. Firstly the data collected by using a qualitative data collection method is presented followed by the quantitative data collection methods.

7.1 Qualitative data

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Hilton hotels and resorts

The most recognized name in the industry, Hilton Hotels stands as the stylish, forward thinking global leader of hospitality. Today Hilton welcomes guests in more countries than any other full-service hotel brand, with more than 530 hotels and resorts in 76 countries across six continents. From inaugural balls and Hollywood award galas to business events and days to remember, Hilton is where the world makes history, closes the deal, toasts special occasions and gets away from it all. Hilton Hotels consists of many brands, within this study the focus is on Conrad Hotels (Hilton.com).

Conrad Hotels

As the most global contemporary luxury brand of the Hilton Family, Conrad Hotels & Resorts combines a proud and prestigious heritage with a very contemporary attitude. At its heart, Conrad is all about offering unique experiences for discerning travelers. Individuality is what sets Conrad Hotels apart from its competitors. From guests to team members to the hotels and resorts, Conrad is all about providing places where people can truly be themselves. After all, that’s the real luxury today.

Sustainability within Hilton hotels and resorts

Hilton Worldwide including all its brands is taking care of sustainable practices. They realize that those brands touch hundreds of communities and millions of people every day. It is important to operate in a responsible and sustainable manner which is a priority for the Hilton hotels.

In 2009 Hilton hotels implemented an environmental friendly policy to manage their business worldwide through the lens of sustainability. This policy helps Hilton hotels by

1. Protecting our world

2. Creating advanced building design 3. Improving operational efficiency 4. Serving the communities

Their policy is said to be a five year time plan and consists of the following reductions from direct operations translated in short- and long term goals and objectives. By 2014, goals for the Hilton Family of Hotels are to:

1. Reduce energy consumption from direct operations by 20% 2. Reduce Co2 emissions by 20%

3. Reduce output of waste by 20% and 4. Reduce water consumption by 10%.

According to Hilton Hotels this policy is a continuous process and does not end after the five years plan. They implemented their own proprietary system of measurement: LightStay. LightStay calculates sustainability performance impact across the global portfolio of hotels. It delivers value to hotel owners without any additional cost. The system's data is used to improve the guest experience and drive economic returns. It consists of four phases; reporting, learning, continuous improving and measuring.

Following the analyses of the sustainable practices of Hilton Hotels it is quite remarkable that there is no separate sustainability report besides their annual report.

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7.1.2 Bali Kuta Resort

Swiss-Belhotel International

Swiss-Belhotel International was founded in 1987 and is unique, compared to many international hotel management companies, with the philosophy of actively consulting and working with the property owners and investors. An increasing number of owners wish to be informed on the day-to-day operations. This has tended to be discouraged by international hotel management companies, whose policy is often to stamp their own particular brand of management and marketing on the operation, free from “outside” owner or investor involvement (swiss-belhotel.com).

Swiss-Belhotel International is active in many countries and they entered the Indonesian and Malaysian market in 1990. It consists of several brands, Grand Belhotel, Swiss-Belhotel, Swiss-BelResort, Swiss-BelBelinn and Swiss-BelExpress. The brand which will have the focus of this study is Swiss-Belhotel Bali Kuta Resort.

The main goals of Swiss-Belhotel International which they would like to achieve are: 1. Excel through Passion and Professionalism

2. Exceed the expectations of our: Guests Investors Owners Staff

3. Understand and contribute to the country, the culture and the environment within which we operate and manage

4. Be environmentally responsible

5. Be economically creative and progressive

6. Be part of and contribute to an economically and environmentally sustainable world community

Looking at goal numbers three till six it is remarkable that no exact strategies are formulated. Similar to Hilton Hotels there is no sustainability report available of Swiss-Belhotel.

7.1.3 Summary questionnaires from Conrad Bali and Bali Kuta Resort

In appendix 12.1 the complete answers per question per hotel can be found. In this sub-paragraph a summary of the differences and similarities is presented.

One of the major similarities is that unfortunately none of the directors or general managers is coming from the home country. Besides the standardized CSR plan of Hilton Worldwide, both managers state that there are no influences of the home country on the implementation of environmental friendly strategies. On the one hand this might be a disadvantage for this study, since one of the research goals is to identify the influences of the home country on the firm strategies. On the other hand it can be argued that there are no significant influences of the home country as such. Another similarity is the fact that both hotels judge their level of local responsiveness at an average level, which is noteworthy for BKR since this hotel has no hierarchal pressures from above to implement environmental friendly practices. CB pointed out that Hilton Worldwide has developed a standardized CSR plan which has to be followed by all the hotels which restricts the necessity and room for local responsiveness. One of the pressures to implement environmental friendly practices as pointed out by BKR is socialization to the communities. For that reason the average level of local responsiveness could be doubtful and could be expected to be higher.

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practices themselves and that there are no pressures from outside like institutional or governmental pressures. BKR states to have an average level of self-regulating these practices and mentions a vague example; like make and implement some action plans. The third dissimilarity is the fact BKR assess the laws and regulations on the island as sufficient whereas CB is assessing this at insufficient. Subsequently CB is giving some interesting information that there is a lack of enforcement and a need for penalties for those not following the laws and regulations. In addition BKR argues that the laws and regulations need to be more straightforward towards the implementation of ES. Comparable is the fact that there is room for the government to improve the shortcomings of the laws and regulations as argued by both hotels. One of the suggestions made by BKR is educating communities by local governments. As fourth it is essential to mention that CB is observing an increase in ‘green tourists’ whereas BKR does not. A final interesting point which has to be mentioned is the fact that CB argues that the Indonesian culture perceives ES as really important (indicated by a 9 on a scale from 1 to 10) however in practice this turned out to be a four. BKR is giving an eight for the importance perception of ES in the Indonesian Culture.

To conclude CB seems to be more active in strategies related to ES compared to BKR. This can be seen in the answers given by BKR which are not specific. Besides, BKR assess itself to have a lower level of knowledge and implementation regarding environmental friendly practices. There are a few similarities which are important for this study. First of all according to both hotels there are no influences from the home country on the implementation of environmental friendly practices. However for CB there is of course the standardized CSR plan developed by Hilton Worldwide. Secondly, both hotels state that there is an average level of local responsiveness. Finally, they both argue that there is room for improvement with respect to the laws and regulations and the role of the government on this aspect.

After having discussed the answers of the questionnaires from both hotels the following three paragraphs present data of sources which were required for the hypotheses development.

7.1.4 Data of the scores on the cultural dimensions of Hofstede

dimensions of Hofstede are summarized per country in the figure below. The original scores per country can be found in appendix 12.2 figures 7-11. Since the LTO dimension was added, this score was not provided for every country on the original website. In order to add the scores of the fifth dimension the study of Hofstede and Minkov (2010) is used. Unfortunately the score on the LTO dimension for Switzerland was not available yet. Therefore the average score on LTO for Europe is used.

Figure 3: The scores on cultural dimensions by Hofstede per Country

These scores are classified as either high or low (above or below the average score) and are summarized in the table below;

Countries PDI IDV MAS UAI LTO

Indonesia High Low Low Low High

Switzerland High High High High High

United States

Low High High Low Low

Figure 4: Scores classified as low or high

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The 2010 Environmental Performance Index (EPI) ranks 163 countries on 25 performance indicators tracked across ten well-established policy categories covering both environmental public health and ecosystem vitality. These indicators provide a gauge at a national government scale of how close countries are to established environmental policy goals. The EPI has two main goals consisting of measuring environmental health and ecosystem vitality. How the EPI framework of EPI is constructed can be seen in appendix 12.4 figure 15.

The purpose of the 2010 EPI in this paper is to estimate the institutional presence in a specific country with regard to environmental sustainability. The main assumption made in this paper is that countries ranked high on the 2010 EPI have strong institutions regarding environmental sustainability and subsequently MNCs originating from these countries are forced to implement environmental sustainable policies which they will implement globally. The focus is on the countries United States, Switzerland and Indonesia which are ranked as second, sixty-first and hundred thirty-four. A disadvantage of the 2010 EPI is that due to methodological changes the country performance cannot be compared over the past years.

Looking at the two home countries United States and Switzerland it can be said that Switzerland has a strong institutional presence regarding environmental sustainability and the United States a relatively weak institutional presence. The host-country Indonesia is ranked very low which implies that there is hardly institutional presence with regard to environmental sustainability. The low institutional presence in Indonesia with regard to ES is also confirmed by the other sources presented in this paper who said that Indonesia suffers from institutional weaknesses.

7.1.6 Human Development Report

ranked as number four and Switzerland ranked as number thirteen are both classified as high. Indonesia is ranked as number hundred eight and is therefore classified as an EC.

7.1.7 Data from other general sources

Besides the main sources mentioned in the case selection criteria and in the methodology chapter, a various number of other sources are approached and used as well. In this paragraph the data which is collected from the additional sources are presented. These data are directly applicable to the case study of this paper which entails Indonesia, Bali and the tourism industry.

Indonesia

According to World Bank, three events are relevant in the energy information administration (EIA) which has to do with the Indonesian laws and regulations. These are the introduction of Indonesia’s Environmental Law in 1982, the first environmental protection legislation (AMDAL) in 1986 and the establishment of the Indonesian Environmental Impact Management Agency (BAPEDAL) in 1990. These three events together entail that any action which is likely to affect the environment is subject to environmental assessment. The introduction of these laws show at least that Indonesia is working on its environmental situation. However the Asian Development Bank (ADB) mentions a pitfall which is the introduction of law number 22/1999 described as decentralization which implies devolving responsibilities for development in most sectors to local governments. This decentralization process was not efficient and roles and responsibilities of government and local governments where unclear. The long-term focus changed in a short-term focus implying that existing laws and regulations were transferred to a short term orientation which aggravated the environmental degradation. Moreover, the crisis in 1997 and in 1998 was not beneficial at all in the field of environmental sustainability. According to ADB was Indonesia one of the biggest countries that reduce its investments in SD during the crisis.

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and growth of environmental impacts. According to these researchers there is a poor reflection of laws and regulations and that introduction of new laws and regulations does not solve the core problem.

The factsheet of 2010 of Indonesia provided by ADB shows that Indonesia has received loans in order to work on the weaknesses mentioned above. Indonesia has developed a medium-term development plan including 11 national priorities: 1 bureaucracy reform and good governance, 2 education, 3 health, 4 poverty reduction, 5 food security, 6 infrastructure, 7 investment and business climate, 8 energy, 9 environment and overcoming disasters, 10 development in less developed, border, and post-conflict regions and 11 culture, creativity and technological innovations. Remarkable for this study is the fact that environment has priority number 9 belonging to one of the last priorities. The first priority, good governance, is a point which is also indicated by Luebke (2009). He concluded that the quality of government leadership plays a greater role in explaining performance differences than does the presence of societal pressure. Regarding the loans and expenditure on environmental sustainability four remarkable issues are identified by Vincent, Aden, Dore, Adriani, Rambe and Walton (2002). First, most spending in the nominal environmental sector is on non-environmental activities. Second, the expenditures on environmental sustainability declined during the economic crisis. Third, they also fell sharply relative to the budget and to GDP. Finally, environmental expenditures declined more in Indonesia during the economic crisis than in Malaysia, Thailand and Korea, relative to both the budget and GDP (Vincent et

al., 2002). Information from UNDP and United Nations environmental program (UNEP) do

he did not respond to answer the question regarding the role of the tourism industry in achieving the goal of reducing greenhouse emissions by 26%.

Tourism industry

For some specific questions regarding environmental sustainability within the tourism industry Mr. Van’t Hoff, director of Bali Eco Lodge and consultant in environmental management is invited to answer some questions. According to the owners of Bali Eco Lodge is an Eco Lodge sustainably integrated with the Natural, Built and Social Environments. The natural environment entails that all processes are organized in a nature way. Built-environment deals with all aspects of building accommodation in an environmental friendly manner with sustainable products. The third environment described by Bali Eco Lodge is the social environment which deals with the employment and training of local people.

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knowledge. Unfortunately, he argues that it would be inappropriate as a consultant to give such opinions to third parties.

Subsequently the Bali Hotel Association (BHA) is approached. BHA has different core activities; however the most obvious one is the environment implying encouraging hotels ‘to go green’. CB is published on the member list of hotels and resorts from BHA whereas BKR from Swiss-Belhotel is not published. Mr. Bipan Kapur director of the environmental department of BHA is contacted and is asked to answer some questions. According to him one of the main reasons to become a member of BHA is to learn, share and to be a part of a lobby for any issues tat concern more than one hotel. All the hotels together can make a difference. Hotels need to take their own initiative to join BHA, since their reputation it is not necessary for the association to invite the hotels themselves. The hotels which are member of BHA are really active in green initiatives. Some of the key activities mentioned by Mr. Bipan Kapur are; reducing carbon emission, waste management, reducing the consumption of plastic, cleaning the beaches and reduce, recycle and reuse. According to him, hotels which are not a member of BHA, do not automatically have a less environmental focus. Those hotels feel that they contribute in their own way and he pointed out that Boutique Resorts, with not many accommodation rooms, are very well integrated with nature and provide a niche experience to their guests as well as very concerned about what and how they protect the environment. As a director of BHA it would be for him inappropriate as well to give information about environmental performances of independent hotels.

Another source which is used in this study is the Dow Jones Sustainability Index (DJSI). The DJSI provides information about environmental performances per industry and mentions the ‘best in class’ companies per sector regarding sustainable practices. Only a few hotels are listed in this index and it is interesting to know the reason behind this is. After having contact with employees of the SAM group it become clear why there are a few hotels on the DJSI. First of all hotels do have low sustainability scores and secondly due to index constructs rules that limit the number of companies that can be incused based upon the relative market capitalization size that sector represents within the broader universe. For example Banks and other Financial Services which is an extremely highly capitalized sector are represented much more in the DJSI compared to the hotel sector.

International are not on the DJSI? According to the answer given by the manager of CB is Hilton Worldwide now a private company. This company has undergone significant changes which lead to structurally impact for several years. However he argued that the internally environmental practices are still enforced and does receive a high priority. Do the other hotel chains have other policies or strategies? Having a quick look at the policy of Mariott International Inc it can be seen that they have a separate sustainability report and launched environmental friendly products to be implemented in every hotel worldwide. Subsequently Ritz-Carlton Hotels have implemented a policy called: community footprints. Here they support the community in diverse ways which is beneficial for their legitimacy.

7.2 Quantitative data

In this paragraph quantitative data regarding the environmental situation of Indonesia are presented.

7.2.1 Data from World Bank

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8. Results and Discussion

The results presented in the previous chapter illustrate a lack of institutional capacity and enforcement in the host country. This is confirmed by the hotel managers, environment consultant and other organizations by using questionnaires and secondary data. The ADB and the environmental consultant mention even in specific the institutional weaknesses in Indonesia and the lack of enforcement. The institutional capacity of the home country is determined by secondary data only, which could be a limitation. Since the two home countries do have a higher ranking on the EPI compared to the host country it is assumed that the home countries do have a higher institutional capacity with regard to environmental sustainability. Switzerland has the strongest institutions regarding ES since this country was ranked on the second place. The US was ranked on the sixty-first place implying a high institutional capacity, however relatively lower compared to Switzerland. Indonesia was ranked as hundred thirty-four which indicates a low institutional capacity as confirmed by the key sources. The hypotheses developed for this information was as follow;

Hypothesis 1: The combination of weak institutions, regarding to environmental sustainability in the host-country and strong institutions in the home country will lead to global standardized environmental policies in

emerging countries.

Hypothesis one is only accepted for CB, since Hilton Worldwide has developed a global standardized CSR plan including a number of really specific goals which has to be achieved by all the hotels. For BKR this hypothesis is rejected, since there are no global standardized environmental policies which the hotel has to follow. Thus the combination of weak institutions in the host-country and the strong institutional presence in the home-country do not necessarily lead to global standardized environmental policies in ECs. BKR formulated some goals as presented in chapter 7.1.2, however they are not constructive enough.

As explained in the previous chapter only hypothesis two, three and four are tested in this study, since the scores of the home countries need to be opposing to each other as required in the methodology. The original hypotheses as presented in chapter 4 are transformed in specific hypotheses adapted to this case study and are presented below;

Hypothesis 3: Home and Host cultures with a high score on UAI (Switzerland) perceive environmental sustainability as more important compared to cultures with a low score on UAI (Indonesia and the US).

Hypothesis 4: Home and Host cultures with a higher score on LTO (Indonesia and Switzerland) perceive environmental sustainability as more important compared to cultures with a low score on LTO (US).

With help of figure 4 on page 31 the outcomes of the scores on the three chosen dimensions; PDI, UAI and LTO of Hofstede are presented per hypothesis in the table below;

Country Hypothesis 2 PDI Hypothesis 3 UAI Hypothesis 4 LTO

Indonesia

_-

_-

₊

Switzerland

_-

₊

₊

US

₊

_-

_-

Figure 6: Positive (+) or negative (-) perception of environmental sustainability

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institutions of Switzerland do influence the strategies of BKR. If this was the case than BKR should be at least member of BHA, since this association is highly active in strategies related to ES.

While analyzing the results a few aspects need to be taken into account. First of all the low institutional capacity in Indonesia does not automatically imply that this country perceives ES as not important. Indonesia is one of the biggest emerging countries and their GDP and level of economical development as presented by the human development report are simply suggesting that Indonesia may not have the resources yet to give ES the highest priority. The quantitative data presented by the World Bank and ADB in figure 5 indeed show that Indonesia does not perform well on environmental aspects. However do not forget the fact that Indonesia is one of the biggest countries and is thus easily a victim suffering from for example deforestation.

9. Conclusion

This study is subject of the recently most discussed topic: ‘environmental degradation’ affecting every single person on this planet. Due to the impacts of the environmental degradation on a global level all industries need to cope with new laws and regulations affecting the strategies of the MNCs. MNCs have to invest in environmental sustainability, an aspect of sustainable development, the focus of this study. Environmental sustainability is defined as “the need to improve social and human welfare while reducing the ecological footprint and ensuring the effective achievement of organizational objectives” (Pinkse, Kuss and Hoffmann, 2010 p.161). Besides the fact that environmental sustainability receives more attention due to the global impact of the environmental degradation, MNCs need to implement sustainable development as well in order to achieve organizational legitimacy. Investments in activities which are beneficial for the local communities are beneficial in the process of the acceptance of the MNC.

This study contributes to the literature in two ways; the focus on the service industry and the enclosure of national culture in combination with institutions. In the past it is argued that for a long time the service industry was not being accused for the environmental degradation and thus no distinction is made in the literature between the manufacturing- and service industry. Generally and in particular in emerging markets the service industry was seen as an engine of growth. A significant part of the national income was due to tourism and the harm on an environmental level was not taken serious. Since the 90s more attention is paid to sustainable development applying to every single business on the planet. It is argued that many studies have failed to include the influences of the national culture. Since the national culture is also a part of institutions, this study argues that it is not possible to take them as separate. Institutions and national culture are interrelated concepts and therefore the inclusion of national culture is of added value.