Linköping Studies in Science and Technology

Dissertations No. 1698

Sustainability and company performance:

Evidence from the manufacturing industry

Lujie Chen

2015

Division of Production Economics

Department of Management and Engineering

Linköping University, SE-581 83 Linköping, Sweden

© Lujie Chen

Sustainability and company performance: Evidence from the manufacturing industry Linköping Studies in Science and Technology, Dissertations, No. 1698 ISBN: 978-91-7685-967-4 ISSN: 0345-7524 Printed by: LiU-Tryck, Linköping Distributed by: Linköping University Department of Management and Engineering SE-581 83 Linköping, Sweden Tel: +46 13 2810

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Abstract This dissertation approaches the question of sustainability and its influence on company

performance, with special focus on the manufacturing industry. In the contemporary production

environment, manufacturing operations must take into account not only profit, but also

environmental and social performance, in order to ensure the long-term development of the

company. Companies have to decide whether they should allocate resources to environmental and

social practices in order to improve their competitive advantage. Consequently, in decision-making

processes concerning operations, it is important for companies to understand how to coordinate

profit, people, and planet.

The objective of this dissertation was to investigate the current situation regarding manufacturers’

sustainable initiatives, and to explore the relationship between these sustainable practices and

companies’ performance, including financial performance, operational performance, innovation

performance, environmental performance, and social performance. First of all, a structured

literature review was conducted to identify sustainable factors considered to be important in the

decision making of manufacturing operations. The findings were synthesized into a conceptual

model, which was then adopted as the basis for designing the survey instrument used in this

dissertation. Drawing on Global Reporting Initiative (GRI) reports, empirical research was

performed to explore the relationship between environmental management practices and company

performance. Interestingly, the findings showed that many environmental management practices

had a strong positive impact on innovation performance. Sustainability disclosures and financial

performance were further analyzed using extended data from the GRI reports. The results also

showed that several social sustainability indicators, such as product responsibility, human rights,

and society, displayed a significant and positive correlation with return on equity in the sample

companies.

In order to further explore the research area and to verify these findings, a triangulation approach

was adopted and new data were collected via a survey conducted among middle and large sample

companies in the Swedish manufacturing industry. The results indicated that the sustainable

improvement practices had a positive impact on company performance. Some environmental and

social improvement practices had a direct and positive correlation with product and process

innovation. Furthermore, findings suggested that better cooperation with suppliers on environmental

work could help to strengthen the organizational green capabilities of the focal companies.

When considering the company’s general approach to implementing sustainable practices, some

interesting findings emerged. There were limited significant differences in sustainable practices

when comparing different manufacturing sectors, and different countries and regions. However, the

results showed that Swedish manufacturing companies often place higher priority on implementing

economic and environmental sustainability practices than on social ones.

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This dissertation contributes to the literature on manufacturing sustainability. The study expands the

understanding of how environmental, social, or economic perspectives as a triple bottom line can

influence company performance and to a certain extent the supply chain. Identifying and

understanding such relationships gives companies the opportunity to integrate sustainability into

their manufacturing operations strategy in order to sustain their manufacturing operations over the

long term.

Keywords: empirical research, sustainable practices, company performance

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Svensk sammanfattning Denna avhandling tar sig an frågan om hållbarhet och dess påverkan på hur företag presterar, med

ett särskilt fokus på tillverkningsindustri. I dagsläget har produktionen inte bara kravet att skapa

vinster utan också att prestera väl med liten miljöpåverkan samt under goda sociala omständigheter,

för att säkerställa företagets långsiktigt hållbara utveckling. Företag måste besluta sig för i vilken

omfattning miljömässiga och sociala satsningar ska ske för att öka sin konkurrenskraft i olika

avseenden. I beslutsprocessen för hur ett företag ska bedriva sin verksamhet måste företaget i fråga

därför förstå hur balansen mellan vinst, människa och planet, bör hanteras.

Syftet med denna avhandling är att undersöka den nuvarande situationen för den

tillverkningsindustrin med avseende på dess åtaganden för hållbar utveckling. Därtill har

avhandlingen för avsikt att utforska förhållanden mellan hur företag praktiskt arbetar med

hållbarhetsfrågor och hur det hänger samman med företagets prestation i olika avseenden såsom:

finansiellt, operationellt, innovationsmässigt, miljömässigt och socialt. Till att börja med genomförs

en strukturerad litteraturgranskning för att identifiera de nyckelfaktorer som anses vara viktiga för

beslutsfattare i producerande verksamhet. Resultatet från litteraturgranskningen används sedan för

att utforma en konceptuell modell som sedermera används som utgångspunkt i utformningen av en

enkätstudie som genomförs i denna avhandling. Dessutom genomförs en empirisk studie baserat på

företagens hållbarhetsredovisningar (på engelska: Global Reporting Initiative, GRI) för att utforska

förhållanden mellan hur företagen arbetar med miljöledning och hur detta påverkar företagens

prestation. Intressant nog visas att det finns en positiv korrelation mellan många delar av

miljöledningsarbetet och en förbättrad innovationsförmåga. Hållbarhetsfrågorna och finansiell

prestation analyseras också djupare genom att nyttja utökad data från hållbarhetsredovisningarna.

Detta visar att många hållbarhetsfrågor såsom: produktansvar, mänskliga rättigheter, och samhälle

signifikant korrelerar med avkastningen på eget kapital bland de företag som studerats.

För att vidare utforska forskningsområdet och verifiera avhandlingens resultat, genomförs med ett

metodmässigt triangulärt förhållningssätt ytterligare en enkätstudie bland stora och medelstora

tillverkande svenska företag. Resultaten indikerar att förbättringar i hållbarhetsavseenden kan ge

positiva resultat för företagens prestationer. Vissa förbättringsåtgärder i socialt och miljömässigt

avseende har en direkt positiv korrelation med produkt- och processinnovation. Vidare kan

miljömässigt samarbete med leverantörer stärka gröna organisatoriska förmågor hos företaget i

fråga.

Intressanta slutsatser kan också dras utifrån hur företagens generella angreppssätt i arbetet med

hållbarhetsfrågor. Det är begränsade signifikanta skillnader i arbetet med hållbarhetsfrågor vid

jämförelse mellanolika sektorer inom återanvändning, olika länder och regioner. Däremot

prioriterar ofta svenska tillverkande företag implementering av rutiner för ekonomisk och

miljömässig hållbarhet i högre utsträckning än motsvarande inom socialhållbarhet.

Denna avhandling bidrar till litteraturen inom hållbar produktion. Studien ger en förståelse för hur

miljömässiga, sociala och ekonomiska perspektiv, kan påverka företagens prestation och i viss mån

även dess försörjningskedja. Att identifiera och förstå dessa förhållanden ger företagen bättre

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möjligheter att integrera hållbarhetsfrågor med utvecklingen av sina produktions- och

verksamhetsstrategier, vilket i sin tur kan göra företagens tillverkande verksamhet hållbar i det

långa loppet.

Nyckelord: empirisk forskning, arbete med hållbarhetsfrågor, företags prestation

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Acknowledgments First and foremost, I would like to thank my main supervisor Professor Ou Tang, who has helped

me a lot throughout my academic training with his motivation, guidance, knowledge, and patience.

He is such a good supervisor who always provides me with wise suggestions. His enthusiasm for

research and life has also inspired me how to contribute productively to family and society.

I also want to thank my co-supervisor Dr. Andreas Feldmann at KTH (Royal Institute of

Technology). It is my honor to be his first PhD student. Dr. Andreas Feldmann helped me

especially with the survey component of this dissertation. I would not have been able to complete

such a large-scale survey in Sweden without his help.

I sincerely thank Professor Jan Olhager at Lund University for giving me the precious opportunity

to be involved in the Vinnova project and to be a PhD student at Linköping University. Professor

Jan Olhager was my main supervisor for my first year of PhD study, and he also taught me how to

write a good research paper. Thanks to him, I have developed a great interest in research in the

Operations Strategy field.

Besides my supervisors, I would like to thank Professor Xiande Zhao at China Europe International

Business School for sharing a lot of interesting research information with me at academic

conferences. He has shown me how to be a pioneer and active researcher in the empirical research

field.

My sincere thanks also go to Mr. Jan Johansson at Partner Tech and Ms. Agneta Ring at Toyota

Material Handling for supporting my research and helping me to do something interesting in the

industry.

Thanks to my colleagues at Production Economics. You have shown me a good time and an

enjoyable work life.

Thanks to my Chinese friends in Sweden for making every day in Sweden interesting and lovely.

Lastly, I would like to give the biggest thanks to my dear mother, Linling Li, for all her love and

encouragement in my life. I would not have been able to accomplish anything without her support.

She is the best mother in the world.

To my husband, Yixuan: thank you from the bottom of my heart for accompanying me all the way.

Without your encouragement and support, I would probably have given up on my PhD study.

Thanks for your daily care and love, which I shall appreciate for my whole life.

To my father, Yuxiang Chen, who is already in Heaven: I will always remember you. I hope that

each of my little achievements can make you happy.

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List of Publications Dissertation outline

The dissertation entitled Sustainability and company performance: Evidence from the

manufacturing industry is a summary of the author’s studies in the doctoral research program in the

Division of Production Economics, Department of Management and Engineering at Linköping

University.

This dissertation includes two parts, the introductory part as well a selection of five papers. The

current statues of appended papers are displayed in the following list.

Paper 1:

Chen, L., Olhager, J., & Tang, O. (2014). Manufacturing facility location and sustainability: A

literature review and research agenda. International Journal of Production Economics, 149, 154-163.

An early version of this paper was presented at 17th International Working Seminar on Production

Economics, February 20-24, 2012, Innsbruck, Austria

Paper 2:

Chen, L., Tang, O., & Feldmann, A. (2014). Applying GRI reports for the investigation of

environmental management practices and company performance in Sweden, China and India.

Journal of Cleaner Production, 98, 36-46.

An early version of the paper was presented at 18th Greening of Industry Network Conference,

Linköping, Sweden

Paper 3:

Chen, L., Feldmann, A., & Tang, O. (2015).The relationship between disclosures of corporate social

performance and financial performance: Evidences from GRI reports in manufacturing industry.

International Journal of Production Economics, accepted, DOI: 10.1016/j.ijpe.2015.04.004

An early version of this paper was presented at 18th International Working Seminar on Production

Economics, February 20-24, 2014, Innsbruck, Austria

Paper 4:

Chen, L., Feldmann, A., & Tang, O. (2014). An empirical evaluation of sustainable operations

practices and performance in Swedish manufacturing industry. Submitted to Journal of Cleaner

Production

An early version of the paper was presented at the 21th

International Annual EurOMA Conference,

20-25 June, 2014, Palermo, Italy.

Paper 5:

Chen, L., & Tang, O. (2015). Does the supplier involvement affect manufactures’ sustainability?

Submitted to Journal of Business Ethics

Received Purchasing & Supply Management Best Paper Award at 6th

European Decision Sciences

Institute Conference, 31 May to 3 June 2015, Taormina, Italy.

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Table of Contents 1. Introduction ................................................................................................................................... 1

1.1 Sustainability and company performance ................................................................................... 1

1.2 Research objectives ..................................................................................................................... 5

1.3 Research design and limitations .................................................................................................. 6

2. Research Methodology .............................................................................................................. 10

2.1 Literature review ....................................................................................................................... 10

2.2 Secondary data analysis ............................................................................................................ 12

2.3 Survey ....................................................................................................................................... 13

2.4 Data analysis method ................................................................................................................ 15

2.5 Research quality ........................................................................................................................ 16

2.5.1 Validity ............................................................................................................................... 16

2.5.2 Reliability ........................................................................................................................... 17

3. Theoretical Framework ............................................................................................................ 19

3.1 Sustainability at company level ................................................................................................. 19

3.2 The relationship between sustainbility and company performance .......................................... 20

3.3 Related organizational theory .................................................................................................... 25

3.3.1 Institutional theory ............................................................................................................. 26

3.3.2 Stakeholder theory .............................................................................................................. 27

3.3.3 Resource dependence theory .............................................................................................. 28

3.3.4 Ecological modernization theory (“win-win” principle) .................................................... 29

4. Overview and Summary of Papers ........................................................................................ 31

4.1 Paper 1 – Manufacturing facility location and sustainability–a literature review and

research agenda ............................................................................................................................... 31

4.2 Paper 2 –Applying GRI reports for the investigation of environmental management

practices and company performance in Sweden, China and India .................................................. 32

4.3 Paper 3 – The relationship between disclosures of corporate social performance and

financial performance: Evidences from GRI reports in manufacturing industry ............................ 33

4.4 Paper 4 –An empirical evaluation of sustainable operations practices and performance

in the Swedish manufacturing industry ........................................................................................... 35

4.5 Paper 5 – Does supplier involvement affect Swedish manufacturers’ sustainability? .............. 36

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5. Discussions and Conclusions ................................................................................................... 38

5.1 Discussions ................................................................................................................................ 38

5.2 Conclusions ............................................................................................................................... 40

5.3 Future research .......................................................................................................................... 43

References ........................................................................................................................................ 45

Appendix A-English translation of questionnaire .................................................................. 57

Appendix B-The author’s contributions to the appended papers ....................................... 67

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1. Introduction

In the manufacturing industry, the concern over sustainability is greater than ever. In

addition to facing high-pressure competition, manufacturers must increasingly pay attention

to resource usage, waste treatment, air emissions, water pollution, employee welfare, and so

on. Failing to manage these sustainability issues can substantially damage the image of the

company and thus affect its performance. For instance, Apple Inc. has been blamed for

using child labor in producing its iPhones and Macintosh computers; the Coca-Cola

Company has been defamed for damaging local water resources in India; Dell Inc. has been

criticized for disposing of electronic waste in an environmentally unfriendly way

(Parmigiani et al., 2011); Chinese dairy manufacturers have suffered from environmental

and safety crises (Chen et al., 2014). These companies’ misbehaviors in their environmental

and social management have affected their company performance and destroyed their

reputation in some cases. These examples indicate the importance of understanding

sustainability management and its relationship to the company’s reputation and

performance.

1.1 Sustainability and company performance

In 1987, the Brundtland Report first provided the concept of sustainability development,

describing it as “a development that meets the needs of the present without compromising

the ability of future generations to meet their own needs” (WCED, 1987, p. 45).

Kleindorfer et al. (2005, p. 485) developed the concept of sustainable operations

management, which is defined as integrating “the profit and efficiency orientation of

traditional operations management with broader considerations of the company’s internal

and external stakeholders and its environmental impact.” There has been a lack of

consensus regarding the definition of sustainable supply chain management (SSCM; see

Krause et al., 2009). The literature has emphasized the complex nature of supply chains and

the difficulty in providing cross-industry framework due to the wide spectrum of issues

affecting different sectors (Pullman et al., 2009).

Furthermore, there are different ways to measure company performance. A common

categorization has been to divide performance into financial and non-financial performance

(Ittner, 2008). Traditional accounting measurements of financial performance have

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included sales growth, return on equity (ROE), earnings before interest and taxes (EBIT),

and return on investment (ROI), among others (Eldenburg at al., 2010; Orlitzky, 2011;

Zahra, 1995). Such financial measurements often measure an organization’s profitability.

On the other hand, innovation performance, market share, and other operational key

performance indicators (KPIs) are usually applied to measure non-financial performance

(Hyvönen, 2007). Moreover, in the sustainability research literature, scholars have argued

that company performance should have a broad scope that includes a triple bottom line,

instead of only focusing on a single aspect of company performance, such as financial

performance. More specifically, company performance refers to environmental

performance, social performance, economic performance, operational performance, and

innovation performance.

In light of these developments, the perspectives on manufacturing companies’ operations

have expanded from economic to environmental and social aspects in current trends.

Manufacturing companies are not only aiming to improve operations in terms of flexibility,

delivery, quality, and cost, but also attempting to be competitive in terms of environmental

and social issues (Caniëls et al., 2013; Vachon and Klassen, 2008). For companies

operating in a competitive global environment, studying sustainability issues is necessary

and should be prioritized in the decision-making processes by company management.

Otherwise, companies will not be able to maintain their competitive advantage in the long

run (López et al., 2007). However, there is still a question as to whether investments in

environmental management practices and other corporate social responsibility (CSR)

initiatives offer direct returns in terms of improvements to a company’s performance.

Several studies have supported the notion that there is a positive relationship between

sustainable practices and better company performance. Initial research by Spicer (1978)

indicated that there was a medium to strong association between financial indicators, such

as profitability, and some environmental indicators, such as pollution control, especially for

the pulp and paper industry. Further research by Zhu et al. (2012), among others (e.g., Hart,

2005; Shrivastava, 1995), has supported this conclusion, suggesting that improved

environmental and social practices can help companies to gain competitive advantage and

subsequently improve their performance. Hart (1995) used a natural-resource-based view to

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explain the above link. The central idea of the natural-resource-based view is that

companies that foster and maintain good relationships with the ecosystem can achieve

sustainable competitive advantage from their efficient usage of natural resources.

Shrivastava (1995) further argued that such a positive relationship can be facilitated

through technology transfer, total quality environmental management, and so on. Zhu and

Sarkis (2004) conducted empirical research on the Chinese manufacturing industry,

concluding that significant relationships exist between overall green supply chain

management practices and environmental and economic performance. Montabon et al.

(2007), Russo and Fouts (1997), Wu and Pagell (2011), and Hofer et al. (2012) have all

supported the premise that environmental management practices can lead to innovation.

Innovation, in turn, can help companies to increase their market share and to reduce their

costs, resulting in greater financial gains.

At the same time, some studies have supported the opposite claim that there is a negative

relationship between sustainable initiatives and company performance. The main argument

here is that sustainable initiatives often increase operational costs and boost product prices,

thus having a negative impact on financial performance and market share (Brammer and

Millington, 2008; Cornell and Shapiro, 1987; Friedman, 2007; Tang et al., 2012; Walley

and Whitehead, 1994; Williams et al., 1993).

However, only a few studies have focused on the manufacturing industry, despite the fact

that the manufacturing industry contributes significantly to the world’s economy. Moreover,

the manufacturing industry plays a crucial role in global sustainability, contributing

substantially to labor employment, resource consumption, and energy usage. Meanwhile,

manufacturers are facing more regulatory restrictions and greater pressures in terms of raw

material consumption, energy usage, and employee welfare. Manufacturers must deal with

pollution risks during production processes, and various demands from investors, NGOs,

governments, customers, and other stakeholders. Therefore, it is necessary to conduct in-

depth investigations into the relationship between sustainability and company performance

in the manufacturing industry. According to the APICS (2005, p. 65) dictionary, the

manufacturing industry is defined as “a series of interrelated activities and operations

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involving the design, material selection, planning, production, quality assurance,

management, and marketing of discrete consumer and durable goods.”

In addition to examining the manufacturing industry, the scope of this study is extended

from a company level to a supply chain level, considering the impact of suppliers and other

members of the supply chain. Understanding the link between sustainability and

performance in this case is important in industrial practices. According to Carter and

Rogers (2008, p. 368), sustainable supply chain is defined as “the strategic, transparent

integration and achievement of an organization’s social, environmental, and economic

goals in the systemic coordination of key interorganizational business processes for

improving the long-term economic performance of the individual company and its supply

chains.” Given the complexity of the current global operations environment, focal

companies in supply chains should integrate suppliers into their consideration of strategy

development. Otherwise, focal companies may face a variety of risks, such as

environmental, economic, and social risks (Tang and Musa, 2011). For instance, the focal

companies in developed countries such as Sweden are now outsourcing their production

overseas. However, are their suppliers adhering to proper environmental and social

standards? Do suppliers cooperate efficiently with the focal companies in terms of their

environmental and other CSR practices? These questions are critical; if there is

mismanagement of sustainable work on the part of the supplier, the focal company can face

serious punishment. For example, IKEA suffered from the scandal of horse meat being

found in its “Köttbullar” line of meatballs (Stanciu et al., 2013); Samsung was blamed for

their Chinese suppliers using child labor (Zutshi et al., 2009); Nike had to face the issue of

local pollution caused by its suppliers (Parmigiani et al., 2011).

Questions remain, which have not been clearly answered by previous empirical studies.

Specifically, it is important to investigate the different patterns of environmental

management practices in developing and developed countries; the relationship between

sustainability performance and a company’s innovation capabilities; the relationship

between a company’s strategy and its sustainable practices and performance; the impact of

a company’s mapping methods on its sustainability strategy and targets; the companies’

status with respect to sustainability and their general approaches toward implementing

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sustainable practices, including the economic, environmental, and social ones. In effect,

what are the specific environmental practices and other social responsibility practices that

lead clearly to greater returns in terms of financial performance? The dissertation thus

adopts an empirical research methodology and attempts to answer the above questions by

investigating companies in the manufacturing industry.

1.2 Research objectives

This dissertation aims at investigating the relationship between sustainability and company

performance in the manufacturing industry from an operations management perspective.

Operations management can be defined as “the activities that transform inputs into finished

goods and services” (APICS, 2005, p. 76). The overall research objective is to examine the

relationships between sustainability improvement practices and a company’s performance

in terms of the triple bottom line of economic, environmental, and social performance, as

well as operational performance and innovation performance. These relationships are

investigated both for a single company and at the supply chain level. In order to achieve

this objective, sustainability factors and general approaches in implementing sustainable

practices need to be identified and comprehended. Moreover, the difference between

developed and developing countries and regions, different sectors of the manuacturing

industry, and the involvement of suppliers should also be investigated.

More specifically, to fulfil the study’s objective, the following research questions are

explored.

Research question 1: What sustainability issues and factors are considered to be important

for supply chain and operations management?

Research question 2: What is the status of sustainable practices in the manufacturing

industry, and what general approaches are being used for implementing such practices,

including economic, environmental, and social ones?

Research question 3: What is the relationship between sustainable practices and company

performance, with the latter including environmental performance, social performance,

economic performance, operational performance, and innovation performance?

Research question 4: What are the current sustainable operations practices and

performance in the Swedish manufacturing industry? In particular, how are Swedish

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manufacturers configuring their sustainability strategies, and does supplier involvement

affect Swedish manufacturers’ sustainability?

1.3 Research design and limitations

In order to provide an overview of the papers appended to this dissertation, Table 1 presents

the study objective, general ideas, research methods, and data sources of each paper. The

relationship among these papers is briefly described below.

Paper 1 presents a comprehensive literature review of related studies on sustainability and

facility location. Drawing on the knowledge gathered from literature, this paper investigates

how sustainability aspects are included in the decision making concerning manufacturing

facility locations and the role of location in evaluating manufacturing sustainability. This

literature review provides a synthesized framework for examining sustainability, along with

some basic theoretical knowledge and a research agenda. Even though manufacturing

location is not the focus of this dissertation, it is a typical problem for operations

management. Thus, the framework presented should still be valid for companies with

manufacturing operations as their business focus. Furthermore, this framework serves as

the theoretical background for the survey design and data collection in Paper 4 and Paper 5.

Although laws and regulation can be the main drivers for companies to adopt sustainability

practices, we still need to understand which environmental management practices (EMPs)

have positive correlations with company performance. The result will affect the company’s

operations strategy and determine how to best allocate resources in green initiatives.

Another question is whether these EMPs differ across countries, which is especially useful

knowledge for multinational companies operating in a global environment. In Paper 2, the

relationship between EMPs and company performance is mapped and analyzed. The data

are collected from a content analysis of standard environmental data from Global Reporting

Initiative (GRI) reports and financial reports of the sample companies. The analysis and

comparison study are conducted in different sub-sectors of the manufacturing industry, as

well as in developed and developing countries.

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Table 1. A brief presentation of the appended five papers

Paper

Number

Main topic Research

methods

Statistical analysis

method

Data source

Paper 1 Manufacturing facility

location and

sustainability

Literature

review

None 81 related articles

Paper 2 Environmental

management practices

and company

performance

Secondary

data

analysis

Non-parametrical

Kruskal–Wallis one-way

ANOVA test, Spearman’s

rho test for correlation

37 manufacturing

companies in Sweden,

China, and India

Paper 3 Disclosure of

corporate social

performance and

financial performance

Secondary

data

analysis

Descriptive analysis,

cluster analysis, non-

parametrical Kruskal–

Wallis one-way ANOVA

test, Spearman’s rho test

for correlation

75 manufacturing

companies in automotive,

metal products, forest and

paper, chemical, and

health care products

Paper 4 Sustainable operations

practices and

performance in the

Swedish

manufacturing

industry

Survey

Factor analysis, cluster

analysis, Pearson test for

correlation

101 Swedish

manufacturing companies

Paper 5 Moderating role of

supplier involvement

in the focal

companies’ initiatives

Survey

Partial least squares

structural equation

modeling, t-test

101 Swedish

manufacturing companies

Paper 3 is in line with the thoughts and methods of Paper 2, but extends the usage of GRI

reports to investigate whether corporate social performance affects financial performance in

the manufacturing industry. This third paper focuses on the social aspects of CSR

indicators, rather than on environmental ones, and studies the relationship between the

disclosures of a company’s social performance and its financial performance. Moreover,

the social practices across different manufacturing sectors are examined. In this way, Paper

3 provides insights into the inherent interrelationships among the different categories of

CSR analyzed.

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Paper 4 and Paper 5 are based on the data collected from a survey of the Swedish

manufacturing industry, using a questionnaire designed based on the results of Paper 1.

Paper 4 aims at investigating the links between the three bottom lines, namely the

environmental, social, and economic aspects of sustainability and company performance.

The paper analyzes the implementation of sustainability improvement practices in different

companies, and the correlation between the company’s strategy and its sustainable practices

and performance. There is a particular emphasis on technology innovation and technology

strategy due to the results of Papers 2 and 3. Paper 4 can be viewed as a triangulation study,

since it attempts to further verify some of the results generated by Papers 2 and 3. However,

Paper 4 draws on the empirical data from the Swedish manufacturing industry, instead of

secondary data (GRI reports) as in the two previous studies.

Paper 5 tests the indirect impact of supplier involvement on the focal company’s

sustainable initiatives. Partial least squares structural equation modeling is used to confirm

the causal relationship between sustainability drivers, sustainable practices, and

performance. Meanwhile, the indirect effects of suppliers are investigated in this paper.

This study attempts to test and further develop the existing research on sustainability and

company performance, especially with respect to supplier involvement. Paper 5 further

verifies the previous research results found in Papers 2, 3, and 4, confirming the causal

relationship between sustainability drivers, sustainability improvement practices, and

overall sustainable performance.

Despite its in-depth investigation, this dissertation still has some limitations. First, this

study has a static viewpoint of the research questions; a longitudinal analysis is missing

from both the content analysis of the GRI reports (Papers 2 and 3) and the data collection in

the survey (Papers 4 and 5). This gap is mainly due to the limited time resources in the

doctoral study program. In other words, the research is based on a snapshot investigation.

Further in-depth analysis is needed in order to fully examine the topics. More supporting

data should be gathered, for instance, through a longitudinal survey investigation.

Second, the sample selection could be another research limitation of this dissertation. The

survey data (Papers 4 and 5) include only middle and big companies, whereas small

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manufacturers are excluded. In addition, the survey data are based on the Swedish

manufacturing industry. Thus, conclusions and interpretations drawn from the study results

should be considered carefully. It is as yet unknown whether the research conclusions can

be generalized to other industries and other countries. Nevertheless, these results provide

the direction for future investigation.

Third, although some statistical tests were performed to check for data bias, reliability, and

validity, some data errors, such as self-report response bias, may still exist. In both the

survey study and GRI reports, there may have been a tendency for respondents to present a

better image of their company’s sustainability than the reality.

Finally, the measurement of sustainability practice and performance is still a controversial

topic in the literature. The measurements for Paper 4 and Paper 5 were selected using the

results from the literature review in Paper 1. A potential limitation could be related to the

measurement scales in this newly designed questionnaire. In order to overcome this

limitation, the questionnaire was pilot tested among academic experts and industry

practitioners. In addition, rigorous statistical methods were used to examine the reliability

and validity of the questionnaire.

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2. Research Methodology

In order to achieve the research objectives introduced in Section 1.2, different research

approaches have been applied to deal with various problems concerning sustainability and

company performance. The applied research methodology and general research process are

presented in this section. In addition, the validity and reliability of this study are also

discussed. In the following subsections, brief overviews of the literature review, secondary

data, and survey instrument are presented. Meanwhile, the respective advantages and

disadvantages of each research method are discussed.

2.1 Literature review

Fink (2005, p. 3) defined a literature review as “a process of reading, analyzing, evaluating,

and summarizing scholarly materials about a specific topic.” It is important to conduct a

literature review as part of a research project, as it can help authors to authenticate the

authority and legitimacy of their research, to define the potential contributions of their

project, and to limit their research to a reasonable scope (Croom, 2009).

According to Seuring and Müller (2008), Croom (2009), and Machi and McEvoy (2012),

the typical steps for conducting a systematic literature review can be summarized as

follows:

o Decide on a topic to be investigated, as well as the component issues related to the

review topic;

o Set the research boundaries;

o Search for existing literature in order to find information relevant to the topic under

investigation;

o Evaluate and manage the collected literature in order to file and classify relevant

materials. This step includes the denotation of relevant findings, as well as the editing

and extraction of the findings;

o Analyze, synthesize, and interpret the findings. The intention is to identify the

potential gaps in the research, as well as future research opportunities;

o Write the review report.

11

There are a variety of different methods that can be used to analyze and interpret the

findings, for example, a qualitative approach, often conducted through content analysis.

Seuring and Müller (2008) conducted their literature review by analyzing the content in

order to make structural and descriptive analyses according to the defined content criteria.

The typical steps for structuring a content analysis can be generalized as: Collect the

relevant material, and select the structural dimensions and analytic categories in the

research field. Carefully determine the definition and coding of each category. Evaluate the

material, including the denotation, editing, and extraction of the related findings. Finally,

report the results (Seuring and Müller, 2008).

A quantitative approach, in this case citation/co-citation analysis, is represented by Tang

and Musa (2011). The objective of citation/co-citation analysis is to review the current

status and development of a particular area of research. Once the citation/co-citation

analysis has been conducted, statistical data can be obtained from the gathered materials.

Citation/co-citation is a useful tool for determining the academic structures affecting a

particular field (Tang and Musa, 2011).

At the beginning of this doctoral study project, a literature review was conducted with the

aim of better understanding the existing knowledge concerning the environmental and

social issues related to manufacturing location problems, and the relationship between them.

The main reason for considering the location problem was due to the research funding

received from VINNOVA (Swedish Govermental Agency for Innovation Systems) for a

research project entitled “Manufacturing Location and Facility Roles.” Although the

research included in the dissertation is not focused on manufacturing location, the literature

review still helped to clarify the academic and industrial perspectives on sustainability in

relation to operations management, especially since manfacturing location is an important

part of operations management. This systematic literature review futher helped to

categorize and identify the questions and directions of future research on sustainability

issues with respect to supply chain and operations management.

In Paper 1, the literature search included peer-reviewed journal articles published between

1990 and 2011. First of all, a descriptive analysis of the reviewed literature was developed

12

along with a categorization of the journal articles into two dimensions: research

methodology and topic area. Following a content analysis, the environmental and social

factors, and perspectives affecting location decision making were identified. The findings

were then synthesized into a sustainability manufacturing facility location framework, and a

future research agenda for sustainable locations was produced.

2.2 Secondary data analysis

According to the definition by Vartanian (2010, p. 3), “secondary data can include any data

that are examined to answer a research question other than the question(s) for which the

data were initially collected.”

Secondary data analysis is widely used in exploratory research, as well as in business

research. For example, Venkatraman and Ramanujam (1986) applied secondary data to

measure business performance in strategy research. Bottomley and Holden (2001) used

secondary data to analyze how consumers evaluate brand extensions. Secondary data are

also a trusted and popular source in CSR investigations (Luo and Bhattacharya, 2006).

Taneja et al. (2011) conducted a literature review of CSR-related studies over 38 years

starting in 1970. They found that 60% of published CSR studies applied secondary data

analysis (Baumann et al., 2013).

There are multiple sources of secondary data. For example, Luo and Bhattacharya (2009)

collected company social performance data from the list of Fortune’s most admired

companies. Baumann et al. (2013) obtained CSR and financial indicators from

BrandFinance and CSRHub. Karake (1998) measured CSR performance using a company’s

reputation index. Other possible data sources for CSR indicators include FTSE4Good, the

Dow Jones Sustainability Index, and the Domini Social 400 Index (Brown et al., 2009).

There are some benefits to using secondary data analysis (Cowton, 1998). These include:

o Reducing the investment in time and money;

o Enabling researchers to carry out cross-country and longitudinal analyses;

o Allowing most of the secondary data to be treated systematically (Kamins and Stewart,

1993);

o Achieving greater external validity.

13

Meanwhile, there are also some disadvantages to using secondary data (Cowton, 1998),

including:

o Difficulty accessing the collection of primary data, especially in business ethics

research (Liedtka, 1992);

o The potential for social desirability response bias (Randall and Fernandes, 1991). For

example, self-report data may cause companies to hide ethically undesirable

characteristics and inflate ethically desirable characteristics;

o Loss of depth despite providing comparatively larger samples.

In this dissertation, secondary data were obtained from Global Reporting Initiative (GRI)

reports. Usually, the GRI reports have been used for measuring sustainability indicators.

There are several advantages to using the GRI reports as a secondary data source. First,

GRI reports are globally accepted sustainability disclosures (Chen et al., 2015). Second,

unlike other CSR reports, GRI reports have a sufficient component related to environmental

issues (Marimon et al., 2012). Third, GRI reports are advantageous in terms of their

comprehensiveness, visibility, rate of uptake, and perceived prestige. Therefore, they can be

viewed as a reliable and efficient source of secondary data.

2.3 Survey

Surveys can help researchers to gather information from individuals about themselves or

concerning the organizations to which they belong (Forza, 2002; Rossi et al., 2013). The

survey is a very important method in the operations management field, especially in the

case of theory development and theory testing (Forza, 2002). Since the 1980s, there has

been a growing trend toward designing and executing surveys in operations management

research (Rungtusanatham et al., 2003). Operations strategy, quality management, and

supply chain management are among the top three subfields of operations management, in

which the survey method has been widely applied (Karlsson, 2009).

Surveys can be categorized into different types according to their contribution to the

knowledge (Forza, 2002; Fowler Jr, 2008; Singleton Jr et al., 1993):

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o Descriptive survey: Descriptive surveys are not concerned with how/when/why

questions; they are designed to focus primarily on the “what” questions. Such an

approach can also be used to uncover the distribution of an event in a population (Forza,

2002). It can be used in situations where limited knowledge is available on research

issues (Karlsson, 2009).

o Exploratory survey: The aim of conducting an exploratory survey is to gain first insight

into a research topic for which there is limited knowledge. Exploratory surveys always

form the research basis for future in-depth surveys (Forza, 2002). Moreover,

exploratory surveys can determine whether what is being observed can be explained by

existing theories.

o Confirmatory/Explanatory/Theory-testing survey: This type of survey is derived from

theory-based expectations and tries to answer the research questions of how and why

variables relate. The research hypothesis is often developed based on the research

needs and can be further tested to indicate the existence of the predicted relationships,

pointing out the negative or positive direction of the relationships (Malhotra and

Grover, 1998).

The shortcoming of both descriptive surveys and exploratory surveys is that they cannot

effectively confirm the results of complex or subtle relationships or new perspectives

(Karlsson, 2009). Exploratory surveys help us to explore something new, to establish the

groundwork. Then, descriptive surveys can be conducted to increase the knowledge

initiated in the exploratory surveys. Finally, explanatory surveys can help to explain the

knowledge developed.

The survey process can be described in the following steps (Flynn et al., 1990; Forza, 2002):

o Link to the theoretical level by defining the construct, developing hypotheses, and

setting research boundaries;

o Design the research by considering macro-constraints, defining information needs,

establishing a target sample, specifying the data collection method, and selecting the

measurement instruments;

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o Pilot-test the survey, including survey control testing, developing procedures for

handling missing data, and evaluating measurement quality in an exploratory way;

o Collect data for theory testing and dvelopment. This implementation stage includes

data gathering, cleaning, and input, as well as quality measurement.

o Analyze the collected data, including preparatory data analysis and research hypothesis

testing.

o Generate reports to discuss theoretical and managerial implications, and replicability,

and to present future research possibilities.

This dissertation examines the relationships between sustainability improvement practices

and a company’s triple bottom line performance, as well as the moderating role of supplier

involvement in the manufacturing industry. In order to further understand and verify the

findings of Papers 2 and 3 derived from the GRI reports, a theory-testing survey was

employed as the principal research method in Papers 4 and 5.

2.4 Data analysis method

Methods of data analysis can differ according to the research objectives. Methods can take

either a qualitative or a quantitative approach. In this dissertation, a quantitative approach

was used as the main method for quantifying and analyzing the data.

As listed in Table 1, different statistical methods were applied to analyze the data. Cluster

analysis, non-parametrical Kruskal–Wallis one-way ANOVA test, and Spearman’s rho test

for correlation were applied to the non-parametric data, whereas cluster analysis, factor

analysis, t-test, and Pearson test for correlation were used with continuous data.

Structural equation modeling (SEM) was also used in this dissertation. SEM is widely used

in theory testing and theory development surveys, contributing greatly to the validation of

instruments and the testing of linkages between constructs (Gefen et al., 2000). Compared

to the first-generation multiple regression method, SEM has the advantage of being able to

work with multiple equations simultaneously and construct latent (unobservable) variables.

Two SEM methods are widely used in the field of operations management: the covariance-

based method and the variance-based method. The covariance-based method is the more

traditional method. There are several types of software that can be used, such as LISREL

16

(Jöreskog and Sörbom, 1982), Analysis of Moment Structures (AMOS), EQS, and MPLUS.

Covariance-based SEM can be used in both theory testing and confirmation, but it is unable

to explain variances and make predictions. The variance-based method, on the other hand,

is represented by partial least squares (PLS) path modeling. Related software includes

Smart PLS, PLS-Graph, and SPAD PLS. PLS SEM has the advantage over traditional

covariance SEM with respect to theory development, prediction, formative measurement,

and complex modeling (such as second-order models).

2.5 Research quality

This section discusses the quality of research in terms of validity and reliability. Validity

and reliability are the critical foundations of scientific work and integral to both

quantitative and qualitative methodologies.

There are four characteristics necessary for rigorous research to be described as reliable and

valid: dependability, confirmability, transferability, and credibility (Guba and Lincoln,

1981; U.S. Government Accountability, 1990). According to Kidder and Judd (1986) and

Yin (2013), there are four common tests of validity and reliability that can be applied to all

research in the field of social science:

o Construct validity: defining accurate measures at the operational level for the concepts

under investigation;

o Internal validity: building causal connections and investigating whether certain

conditions lead to other conditions.

o External validity: determining whether the research results can be generalized.

o Reliability: proving that the research can be repeated, i.e., the same results can be

achieved by applying the same methodology.

2.5.1 Validity

The meaningfulness of a research concept and its various elements can be defined as

validity. In other words, validity is concerned with whether the research is well-founded

and resembles the real-world (Drost, 2011). In order to achieve validity, a research project

should be designed structurally and logically. The key issue for validity is that the research

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should measure what it purports to measure and measure it correctly (Thomas and Nelson,

1996).

Validity can be categorized as external validity and internal validity. External validity is the

extent to which specific research findings can be generalized to a larger population,

different settings, and so on. Internal validity is the extent to which the principles of causal

connection have been followed in the research design.

In this dissertation, different validation methods were applied depending on the

characteristics of the research. For the content analyisis of the GRI reports, the validity was

ensured by using a consistent, valid coding scheme. The coders follow the GRI report

indicators, which itself is considered to be a valid measurement system (Chen et al., 2014).

For the survey part, the convergent and discriminant validity of the reflective measurement

models were tested using average variance extracted (AVE) and heterotrait-monotrait ratio

(HTMT). The validity of the formative measurement models was tested using a variance

inflation factor (VIF) and indicator weights.

2.5.2 Reliability

Reliability is defined by Joppe (2000, p. 1) as “the extent to which results are consistent

over time and an accurate representation of the total population under study.” One

important criterion for relablity is that the study can be repeated using a similar

methodology. Generally speaking, reliability can be achieved by measuring the same object

with multiple times or in different ways. Therefore, to produce a reliable scientific work, a

consistent measurement instrument is essential. A reliable measurement tool should be

characterized by minimal error.

Internal consistency is one dimension of reliability. It verifies whether several related

items/observations that are designed to measure the same general construct will lead to

similar results with the same dimensions. In statistical analysis, Cronbach’s alpha is the

approach applied most often for testing internal consistency (Fowler Jr, 2008; Zhu and

Sarkis, 2004).

Inter-rater reliability is another kind of reliability, which is an important criterion for

content analysis. For instance, when different individuals conduct obervations on the same

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subject, they will have different judgments. In this case, the degree of agreement among

raters is a kind of inter-rater reliability. To confirm inter-rater reliability, correlation

coefficients such as the Pearson correlation test or Spearman correlation test can be applied.

For the content analysis in Papers 1, 2, and 3, research objectivity was ensured by using a

systematic approach and a structured process (see Seuring and Müller, 2008). The goals

were to identify the objectives of the research, to design a standard coding process, and to

ensure the consistent usage of the code sheet.

In the above three papers, multiple independent researchers followed the same structured

guidelines for conducting the content analysis, which improved the reliability. Differing

analyses were addressed and resolved through meetings.

For the survey studies (Papers 4 and 5), reliability was tested using different methods:

o Exploratory factor analysis (EFA) was employed to test the unidimensionality of the

items. This test was used to investigate “ whether the measurement items converged in

the corresponding factor ” (Urbach and Ahlemann, 2010 , p. 18). In other words, this

test checked “if every item loads with a high coefficient of one factor, and this factor is

identical for each item that is supposed to measure it” (Urbach and Ahlemann, 2010, p.

18). If the loading coefficient is higher than 0.6, the reliability is considered to be high.

Meanwhile, if the loading coefficient is lower than 0.4, the reliability is considered to

be low (Urbach and Ahlemann, 2010).

o Cronbach’s alpha was employed to measure the internal consistency. A value for

Cronbach’s alpha higher than 0.6 implies that the scores of all of the items under a

specific construct have identical scope and meaning (Cronbach, 1987; Urbach and

Ahlemann, 2010 ).

o Indicator reliability “represents the degree to which a variable/sets of variable is

consistent considering what it aims to measure” (Urbach and Ahlemann, 2010, p. 18).

It can be tested by measuring indicator loadings. The threshold value is 0.7 for

indicator relaibility at a significance level of p < 0.05 (see Chin, 1998). However, Chin

(1998) also stated that a lower item loading is acceptable in exploratory research.

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3. Theoretical Framework

The purpose of this section is to present the literature most relevant to the studies carried

out for this dissertation. There are three main areas of interests: i) sustainability at the

company level; ii) sustainability and company performance; and iii) related organizational

theory. The first two are directly related to the topic of this dissertation, whereas the last

one provided the theoretical basis for hypothesis development.

3.1 Sustainability at company level

Sustainability is a broad topic that can be viewed from many different perspectives, such as

sustainable city, sustainable society, and so on. In this dissertation, the concept of

sustainability has been narrowed to the company level and seen as strongly connected to the

concept of corporate social responsibility (CSR) and the triple bottom line, namely

economic sustainability, environmental sustainability, and social sustainability.

There is a long history of scholarship in this area. Barnard (1968) discussed corporate

social responsiblity at the organizational and executive levels. Carroll (1979) framed

corporate social performance as economic, legal, ethical, or discretionary obligations to

society. Clarkson (1995) established a framework for CSR based on the company’s

relationship with its stakeholders. He stated that stakeholder engagement was very

important for achieving overall company sustainability. Elkington (1997) developed the

idea that a company’s economic sustainability, environmental sustainability, and social

sustainability are inter-related. These three bottom lines of a company’s sustainability can

influence each other. Dyllick and Hockerts (2002) expanded Clarkson’s idea, not only

recognizing the importance of stakeholder engagement, but also providing a conceptual

model and related criteria for narrowing down sustainability at the company level.

Furthermore, they tried to integrate economic, ecological, and social aspects over both the

short and long term.

At the industry level, there are more regulations that drive companies to become more

sustainable. ISO 26000, for example, was launched by the International Organization for

Standardization (ISO) in 2010 to provide new guidelines for companies and organizations

on how to operate effectively in an environmental and humane manner (Lu et al., 2013).

20

For EU countries, there are special strategies in place for promoting environmental and

social responsibility, such as the Renewed 2011–14 European Union Strategy for CSR.

This particular strategy attempts to integrate environmental and social considerations into

the comapany’s core business strategy and daily operations (Crane et al., 2013; Lu et al.,

2013). In a global context, there are several popular guidelines for shaping companies’

sustainable operations, including the United Nations Guiding Principles on Business and

Human Rights, the United Nations Global Compact, the International Labour

Organization’s Declaration of Principles Concerning Multinational Enterprises on Social

Policy, and the Organisation for Economic Co-operation and Development (OECD)

Guidelines for Multinational Enterprises.

In this dissertation, the investigation of sustainability is largely focused within the

company’s organizational boundaries. When a supply chain is investigated, the influence of

suppliers on the focal company is investigated, while highlighting the perspectives of the

focal company.

3.2 The relationship between sustainbility and company performance

As mentioned in the introduction, debates over the relationship between CSR and financial

performance have existed for decades. Some important empirical studies are presented in

Table 2. There are also several meta-reviews of the literature in the field, conducted by

Griffin and Mahon (1997), Roman et al. (1999), Orlitzky et al. (2003), and Lu et al. (2014).

The existing empirical studies on sustainability and company performance have been

divided into two streams according to their research methodologies: secondary data analyis

and survey. Secondary data analysis represents the majority of the contributions in this field.

One possible reason for this dominance might be the ability of secondary data to eliminate

certain biases, such as common methods bias and principal informant bias (Gattiker and

Parente, 2007; Hofer et al., 2012). Another possible reason for many researchers to adopt

secondary data is that it reduces the amount of time and financial resources necessary to

conduct the study.

21

Examining the studies in Table 2, it is evident that most research has focused exclusively

on the relationship between CSR and financial performance, neglecting other aspects of

company performance, such as operational performance and innovation performance.

These collected studies reveal diverse results with respect to the relationship between

sustainability and company performance. One possible reason for these discrepant results is

that corporate social performance can be measured in different ways. When the

measurement indicators and scales are different, the measurement results of corporate

social performance can vary. Thus, a summary of the literature from the 1970s up until now

is presented below, showing the four main streams investigated. These results are consistent

with the previous findings of Orlitzky et al. (2003) and Chen et al. (2015).

i) Reputation ratings. Reputation ratings are based on a collection of opinions that some

entities hold about the corporate social performance of specific companies, most of

them calculated by indexing techniques. Several cases in point are the annual social

responsibility ratings contained in the Kinder, Lydenberg, and Domini (KLD) database

(Lu. et al., 2014). This stream is represented by Vance (1975), Alexander and

Buchholz (1978), Cochran and Wood (1984), Spencer and Taylor (1987), McGuire et

al. (1988), Herremans et al. (1993), Preston and O’Bannon (1997), Brammer et al.

(2006), Luo and Bhattacharya (2006), Surroca and Tribó (2008), Lee and Park, (2009),

McPeak et al., (2010), Lamond et al., (2010), Salama et al., (2011), Wang et al. (2011),

and Ortas and Moneva (2011);

ii) Social audits and observations. According to Orlitzky et al. (2003, p. 408), social audits

“consist of systematic third-party effort to assess a firm’s ‘objective’ CSP behaviours,

such as community service, environmental programmes, and corporate philanthropy.”

This stream is represented by Belkaoui (1976), Chen and Metcalf (1980), Fombrun and

Shanley (1990), Russo and Fouts (1997), Goll and Rasheed (2004), Luken and Stares

(2005), Brammer and Millington (2005), Peinado-Vara (2006), Wen and Yuan (2008),

and Okamoto (2009);

iii) Managerial principles and values. Managerial principles and values are how managers

evaluate social information. This stream is represented by Reimann (1975), Ingram and

22

Frazier (1980), Aupperle et al. (1985), Dooley and Lerner (1994), Agle et al. (1999),

and Godfrey et al. (2009);

iv) Disclosures. An organization evaluates the CSP information and the associated reports

can be seen as sustainability disclosures. This stream is represented by Abbott and

Monsen (1979), Anderson and Frankle (1980), Patten (1990), Wolfe (1991), Seifert et

al. (2003, 2004), Fauzi et al. (2007), Kobeissi and Damanpour (2007), Brammer and

Millington (2008), Aras et al. (2010), and Siregar and Bachtiar (2010).

Using the above categories to compare the empirical results in Table 2, one can see that

these various methods of measurement can yield very different results with respect to the

relationship between company sustainability performance and company performance.

Furthermore, it should be noted that even though the Global Reporting Initiative is an

internationally accepted format for corporate social performance disclosure, it has still not

been widely used in research in this field. Several studies, e.g., Brown et al. (2009), Chen

and Bouvain (2009), and Tate et al. (2010), have used GRI reports as the data source.

However, these studies have not focused on the relationship between sustainability and

company performance.

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Table 2. Selected empirical research in the field of sustainability and company

performance Authors Focus Methods Findings

Ullmann (1985) Corporate social performance and

financial performance

Secondary data Positive relationship

between CSP and CFP

McGuire et al.

(1988)

Social responsibility reputation

and a company’s total assets

Secondary data Positive relationship

between social

responsibility reputation

and a company’s total

assets

Waddock and

Graves (1997)

Corporate social performance and

financial performance

Secondary data Positive relationship

between CSP and CFP over

the long term

Preston and

O’Bannon

(1997)

Company social performance and

financial performance

Longitudinal

investigation in

large U.S.

companies in 1982–

1992

Positive relationship

between CSP and CFP

Karake (1998) Corporate

social performance (measured by

reputation index) and financial

performance (measured by return

on equity)

Secondary data Positive relationship

between the company’s

reputation

index and its return on

equity

Agle et al.

(1999)

Relationship among stakeholder

attributes,

CEO values, and corporate

performance

Survey of 80 large

U.S. companies

Strong and positive

relationship between

stakeholder salience,

CEO values,

and CSP

McWilliams

and Siegel

(2001)

Corporate social responsiblity and

financial performance

Secondary data Neutral relationship

between CSP and CFP

Seifert et al.

(2003, 2004)

Corporate philanthropy and

financial performance

Secondary data No significant relationship

between corporate

philanthropy and CFP

Luo and

Bhattacharya

(2006)

CSR and market value Secondary data Negative relationship

between CSR and market

value

24

Table 2. Selected empirical research in the field of sustainability and company

performance (Continued) Authors Focus Methods Findings

Brammer et al.

(2006)

CSP reputation ratings and

financial performance

Secondary data Negative relationship

between CSP and CFP

Marom (2006)

Theory building for corporate

social performance

and corporate financial

performance

Conceptual

modeling

A conceptual model on the

relationship between CSP

and CFP

Surroca and

Tribó (2008)

CSP reputation ratings and

financial performance

Secondary data Negative relationship

between CSP and CFP

Luo and

Bhattacharya

(2009)

Company social performance and

risks

Secondary data The relationship between

CSP and company risks can

be moderated by advertising

and R&D

Brown et al.

(2009)

The degree of embedding

GRI within the company

Secondary data and

interviews

For sustainability,

reputation, and brand

management by companies,

GRI reports can be regarded

as a fundamental tool

Chen and

Bouvain (2009)

Impact of membership in the

Global Compact on CSR

reporting

Secondary data Global Compact

membership influences

several fields of CSR

reporting

Aras et al.

(2010)

CSP disclosures and CFP Secondary data Negative relationship

between CSP disclosures

and CFP

McPeak et al.

(2010)

CSP reputation ratings and CFP Secondary data Negative relationship

between CSP reputation

ratings and CFP

25

Table 2. Selected empirical research in the field of sustainability and company

performance (Continued) Authors Focus Methods Findings

Lamond et al.

(2010)

The impact of CSR on company

identity, image, and performance

Survey CSP has a strong positive

relationship with a

company’s identity-building

and positive impact on

company success

Tate et al.

(2010)

Supply chain strategies factor in

environmental, economic, and

social responsibility

Secondary data Supply chain management

activities are an important

part of company

sustainability

Siregar and

Bachtiar (2010)

CSP and stock value Secondary data Negative relationship

between CSP and CFP

Lu et al. (2013) CSR and semiconductor

companies’ performance

Secondary data Positive relationship

between social

responsibility investment

and company performance

Lee et al. (2013) CSR and company performance

in the airline industry

Secondary data Positive relationship

between operations-related

CSR and company

performance

3.3 Related organizational theory

Organizational theory plays a crucial role in the research on sustainability and company

performance. Sarkis et al. (2011) conducted a comprehensive review of organizational

theory, identifying the most relevant organizational theories in the green supply chain

management field as complexity theory, ecological modernization theory, information

theory, institutional theory, resource-based view, resource dependence theory, social

network theory, stakeholder theory, and transaction cost economics. Considering the

background and research methods of this dissertation, several most related organizational

theories are described in the following subsections. The presented theory has played an

important role in the hypothesis development and explanation of the results of this

dissertation.

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3.3.1 Institutional theory

Institutional theory was first suggested by Selznick (1948), who argued that the behavior of

a company can be influenced by its institutional environment. The central idea of this

theory states that “organizations must conform to the established rules and norms of

dominant institutions in order to gain support and be perceived as legitimate” (John et al.,

2001, p. 151).

If we further categorize the institutional context into either formal or informal, institutional

context can be generalized as:

i) Formal institutional context includes regulations, laws, and industry self-regulations (La

Porta et al., 2008)

ii) Informal institutional context includes religious beliefs, cultures, ethics, norms,

traditions, and values (DiMaggio and Powell, 1983; Meyer and Rowan, 1977).

Institutional theory has also been widely applied in sustainability research when

considering cross-industry and cross-country comparisons. In various countries and

industries, divergent cultural and industrial values lead to differences in organizational

behavior. Consequently, these institutional variances yield different standards and

expectations with respect to sustainability. Therefore, the expansion of the notion of

sustainability necessarily takes different paths in different industries and countries (Visser

and Tolhurst, 2010). In other words, specific institutional settings within a particular

country/industry can influence how the organization engages in sustainability activities and

the level of engagement, as well as performance.

Campbell (2007) argued that, in different socio-cultural environments, the engagement of

companies in sustainability issues depends on the existence of isomorphic drivers,

including coercive, normative, and mimetic ones. Based on research by Sarkis et al. (2011),

such isomorphic pressures can explain why organizations need to adopt sustainable

practices, i.e., why the company should behave in socially responsible ways. Companies

are expected to act rationally, according to early institutional studies (Greenwood et al.,

2008), while commonly accepted social understandings determine what it means to be

rational.

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The following are different kinds of isomorphic drivers in institutional theory:

i) Coercive pressure. This pressure is mainly from governments, and it is a key factor in

companies adopting environmental management practices (Kilbourne et al., 2002;

Sarkis et al., 2011). For instance, in Sweden, manufacturers have to adhere to a series of

environmental and social regulations and laws, such as the restriction of hazardous

substances (RoHS), waste electrical and electronic equipment (WEEE) regulations, and

the Social Accountability 8000 International Standard (SA 8000).

ii) Normative pressure. This pressure is driven by consumers (Ball and Craig, 2010; Sarkis

et al., 2011). For example, for Swedish manufacturers, consumer demand for green

products is one of the main drivers to adopt more sustainable strategy and practice in

operations.

iii) Mimetic pressure. Imitation also plays an important role in EU companies participating

in more sustainable friendly initiatives (Aerts et al., 2006; Sarkis et al., 2011).

Companies choose to imitate other companies’ behaviors in order to avoid the risks

associated with complex environments (DiMaggio and Powell, 1983). In the

manufacturing industry itself, there is a trend of companies moving toward standardized

processes and products as a kind of mimetic isomorphism (John et al., 2001).

3.3.2 Stakeholder theory

Ansoff (1965) first introduced stakeholder theory to explain the importance of identifying

crucial stakeholders of an organization. As Ansoff stated, the company’s primary strategic

objective is to achieve the capability to balance the different needs of diverse stakeholders

in the company. This notion was further developed by Freeman (1983), who integrated

stakeholder theory into the corporate social responsibility model and business policy model.

Stakeholder theory indicates that groups of stakeholders can develop and approve the

company’s strategic decisions concerning business policies. Furthermore, stakeholder

behavior can constrain the company’s strategy, which is developed by managers to match

appropriate resources with its surroundings. Freeman (1984, p. 46) defined the stakeholder

as “any group or individual who can affect or is affected by the achievement of the firm’s

28

objectives.” According to this definition, stakeholders can be owners, customers, suppliers,

and public groups.

Stakeholder theory can also be applied to describe and explain how managers plan and

make strategy (Brenner and Molander, 1977; Donaldson and Preston, 1995) and how

companies are actually managed (Clarkson, 1995; Donaldson and Preston, 1995; Kreiner

and Bhambri, 1988). As such, stakeholder theory is often applied when discussing a

company’s sustainable strategy, since a company’s sustainable strategy and related

practices are influenced by different kinds of stakeholders, such as customers, suppliers,

line leaders, government, regulators, advisory boards, and NGOs (Donaldson and Preston,

1995).

3.3.3 Resource dependence theory

Resource dependence theory was first proposed by Emerson (1962) based on social

exchange theory, and further developed by Pfeffer and Salancik (1978, p. 26-27 ) to suggest

that “organizations depend on others in their environment for resources to ensure their long

run viability.” Within the field of strategic management and organizational theory, resource

dependence theory is considered to be one of the most prominent theories (Singh et al.,

2011).

Resource dependence theory assumes that organizations must depend on other

organizations to secure strategically significant resources (Heide, 1994; Singh et al., 2011).

Consequently, organizations structure their relationships with other organizations, either

formally or semiformally, so as to reduce uncertanity/risks and dependency on other

organizations, such as suppliers (Ulrich and Barney, 1984; Singh et al., 2011).

Consequently, a rational organization seeks to secure significant and limited resources,

particularly in competitive environments (Banaszak-Holl et al., 1996; Hollos et al., 2012).

Since closer relations with suppliers establishes greater interdependence (Aiken and Hage,

1968; Hollos et al., 2012; Pfeffer and Salancik, 1978), resource dependence theory suggests

that resource exchange between partners should be used as a mechanism to control

environmental risk.

29

Resource dependence theory has also been used to explain the role of manufacturing in

creating and sustaining ongoing competitive advantage (John et al., 2001). According to

resource dependence theory, partner companies across the supply chain, such as suppliers

and focal companies, should not only depend on but also cooperate with each other. Such

cooperation can lead to better performance in the long run, and is preferable to pursuing

short-term profits at the expense of others (Sarkis et al., 2011).

Thus, supplier involvement can impact the sustainable work of focal companies. Moreover,

organizational capabilities can be enhanced through green cooperation between focal

companies and suppliers.

3.3.4 Ecological modernization theory (“win-win” principle)

Ecological modernization theory was first suggested by Joseph Huber (2000). Since then,

environmental sociologists have widely adopted or adapted this theory to explain green

economics and green growth initiatives. Generally speaking, ecological modernization

theory can be seen as a systematic eco-innovation theory that can be applied at the micro

level, such as at the organizational or supply chain level. This theory supports the idea that

companies can invest in process/product innovation to decrease environmental degradation

and thus help with economic gains. Ideally, ecological modernization theory describes a

“win-win” scenario whereby technological development and innovation can help industries

and countries to achieve both economic and environmental benefits (Murphy and Gouldson,

2000; Sarkis et al., 2011). In effect, ecological modernization theory supports the idea that

there is a positive relationship between environmentalism and economic benefits.

A review of the related literature reveals additional research supporting and enriching the

ecological modernization theory. Zhu et al. (2012) applied ecological modernization theory

to the Chinese manufacturing industry, stating that manufacturers can implement

environmental and technological innovations, such as new, cleaner production equipment

and eco-design, in order to obtain economic benefits. More empirical evidence has come

from Demark, where Søndergård et al. (2004) investigated the Danish textile industry. They

concluded that environmental innovations can help companies to build innovative

competencies within the organization. Such competencies can even extend to the

30

companies’ supply chains. Another empircal study by Huber (2008) tested technological,

environmental innovations from a chain-analytical and life-cycle-analytical perspective.

Huber concluded that such innovations usually occur upstream of the supply chain, i.e.,

with suppliers, instead of downstream, i.e., with customers.

Ecological modernization theory explains companies’ motivations for improving

environmental practices, suggesting that green practices can help organizations to achieve

better performance in both environmental and economic outcomes.

Ecological modernization theory remains useful for future research. For example, one could

investigate how ecological modernization theory impacts the sustainable supply chain, or

whether there is a mechanism helping focal companies to have better green cooperation

with their suppliers, thereby transferring eco-innovation more efficiently.

31

4. Overview and Summary of Papers

The research objectives presented in Section 1.2 have been fulfilled through the studies

reported in the appended five papers. Table 3 provides an overview of the five papers.

Table 3: The five papers categorized according to the research questions,

methodological purpose, and research method Paper 1 Paper 2 Paper 3 Paper 4 Paper 5

Research objectives

RQ1

RQ2

RQ3

RQ4

X

X

X

X

X

X

X

X

X

X

X

Methodological purpose

Descriptive

Exploratory

Confirmatory

Theory development

X

X

X

X

X

X

X

Research method

Literature review

Secondary data analysis

Survey

X

X

X

X

X

In this part, the main results and managerial highlights of the five papers are compiled.

Therefore, the reader can get a concise overview of the research findings. The five papers

are appended in full later in the dissertation, and the author’s individual contributions and

responsibilities are clarified for each paper.

4.1 Paper 1 – Manufacturing facility location and sustainability–a literature review

and research agenda

This paper answers the first research question by reviewing the relevant literature on

sustainability and facility location. The paper highlights that sustainability is an area that

has recently gained growing interest in the manufacturing industry. The literature review

focused on peer-reviewed journal articles from 1990 to 2011 in related areas. Then, a

literature analysis scheme with respect to the research methodology and research focus was

developed. In addition, a systematic content analysis was conducted, and location decisions

32

related to economic, environmental, and social dimensions were classified. The findings

were used to develop a conceptual model to guide manufacturing facility location decision

making, especially over the long run. The accompanying research agenda was designed to

address gaps in the research and verify the conceptual model. In order to build a feasible

and comprehensive research agenda, strategic dimensions, practical perspectives, and social

concerns were discussed.

Several research gaps were identified in the course of this literature review. First, there

have been very few investigations taking the triple bottom line into consideration when

making facility location decisions. Second, the manufacturing strategy aspects of industrial

firms have remained absent from the current research on sustainable facility locations and

global operations footprints.

The main results of Paper 1 were:

o There has been an increasing interest in sustainable concerns related to manufacturing

locations, especially since 2005.

o Most current research has focused on sustainability in specific regions and in supply

chain settings.

o There has been a lack of research with an explicit focus on the sustainable location

problem.

o The majority of research has been about environmental and economic issues, while

social dimensions have often been missing.

o The paper developed a conceptual model for synthesizing different perspectives on

sustainability in the manufacturing industry.

4.2 Paper 2 –Applying GRI reports for the investigation of environmental

management practices and company performance in Sweden, China and India

The objective of this paper is to investigate the correlation between environmental

management practices (EMPs) and company performance in different manufacturing

industries in developed and developing countries. The research objective is achieved by

employing a combination of diverse methods, including literature review, content analysis,

and statistical assessment.

33

The first step was to conduct a literature review in order to establish the theoretical

background and research framework. Research hypotheses were developed based on

relevant organizational theories. Then, content analysis was applied to standard

environmental data from GRI (Global Reporting Imitative) reports. The levels of EMPs in

manufacturing firms were coded according to the content analysis. Financial performance

figures were obtained from the published annual reports of the sample companies. Finally,

statistical analysis was performed to test the hypotheses. The results were also compared

against those reported by Montabon et al. (2007). The results of Paper 2 indicate that

innovation performance strongly correlates to several EMPs in various companies.

Managers must be aware of several green environmental practices, such as eco-design, at

early stages of the production process in order to achieve innovation performance and

further improve financial performance. The results of paper 2 are also consistent with

ecological modernization theory, which states that sustainability practices can enhance

innovation opportunities, including product and process innovation in organizations, and

thus achieve economic profitability.

This research found that:

o Most EMPs did not correlate significantly with financial performance.

o Plenty of EMPs had positive, strong correlations with innovation performance for the

companies.

o Innovation should gain substantial attention when employing EMPs to improve long-

term financial performance.

o There were no significant differences between the process industry and other

manufacturing industries with respect to the EMPs employed.

o There were seven EMPs employed significantly differently among the manufacturing

industries in Sweden, China, and India.

4.3 Paper 3 – The relationship between disclosures of corporate social performance

and financial performance: Evidences from GRI reports in manufacturing industry

The aim of this paper was to investigate whether the disclosures of corporate social

performance affect financial performance, especially in the manufacturing industry.

34

The theoretical background was based on institutional theory, exploring the inherent

interrelationships among various aspects of CSR. Standard disclosures of corporate social

performance needed to be applied to measure all the sample companies’ CSR indicators in

a standard and consistent way. Since the GRI reports are considered to be the standard

format of CSR measurement, it was used as the principal data source for this research.

Structured content analysis was used as the primary method in making cross-company

comparisons of CSR. The coding process was undertaken by different researchers in order

to obtain data from the annual GRI sustainability reports of the case companies.

Seventy-five case companies met the research requirements across the following industries:

automotive industry (14 companies); metals products (24 companies); forest and paper (13

companies); chemical (10 companies); and health care products (14 companies).

Statistical analysis was conducted to analyze the correlations between the disclosure of

corporate social performance and financial performance. It was observed that several

specific social sustainability indicators that were easily quantifiable or measurable, such as

injury rates, had higher scores than others. The indicators that tend to receive high media

attention had higher mean values. The indicator protocols set for product responsibility got

more attention from companies since it is strongly correlated to the product’s reputation.

However, this research presented scant evidence of a relationship between different

categories of corporate social performance disclosures and financial performance.

Moreover, causality could not be shown in this paper.

The main results of Paper 3 were:

o Labor practices and work standards have received the most attention from the

manufacturing industry among the different categories of corporate social

responsibility.

o The CSR indicators that are most easily measured/quantified received more attention

than others from the manufacturing industry.

o There has been a parallel adoption of four categories of CSR indicators, instead of a

sequential progress

o Many CSR indicators had significant and positive correlations with return on equity.

35

o There was no significant difference in CSR practices across different manufacturing

sectors.

4.4 Paper 4 –An empirical evaluation of sustainable operations practices and

performance in the Swedish manufacturing industry

This paper investigated the relationships between sustainability improvement practices and

companies’ triple bottom line performance. The research constructs were derived from the

literature review and framework developed in Paper 1. Sustainable theory and a dynamic

resource-based view comprised the theoretical background. This research was mainly based

on a survey conducted in Swedish manufacturing companies during the first half of 2014.

Factor and cluster analyses were employed to investigate when companies implement

different sustainability improvement practices and to evaluate their performances.

Correlation analysis was employed to explore the relationship between the sustainability

improvement practices and company performance. The results of the survey and their

managerial implications indicated that economic, social, and environmental practices had

strong positive correlations with economic, social, and environmental performance,

individually. Nevertheless, companies’ economic performance was not improved by the

direct input of most social and environmental practices. Still, investments in environmental

health improvement, individual development, and education showed the possibility of

return, especially in the realm of product and process innovation. Thus, the company’s

economic performance can be improved in the long run.

The main results of Paper 4 were:

o Overall sustainability improvement practices are correlated positively with operational

performance, innovation performance, economic performance, environmental

performance, and social performance.

o Sustainable operations practices, including environmental health improvement,

individual development, and education, should receive special attention since they

positively correlate to innovation performance, thus contributing to a company’s

economic performance.

36

o In terms of the companies’ sustainability improvement practices, the economic

practices received the highest attention, followed by environmental practices and then

social ones.

o In terms of the companies’ sustainability performance, environmental and social

sustainability could be combined into one category.

4.5 Paper 5 – Does supplier involvement affect Swedish manufacturers’

sustainability?

Sustainable responsibility and initiatives do not only exist in focal companies, but extend to

the supply chain. Sustainability is a problem particularly for manufacturers in developed

countries that outsource their products overseas to low-cost regions. If their suppliers have

a poor record on sustainability issues, the focal companies’ reputation and related market

shares will be damaged. Therefore, it is important to analyze the indirect effects of

suppliers on the manufacturers’ sustainability.

In Paper 5, the samples were collected the same way as in Paper 4. Common method bias

was evaluated with Harman’s single factor test. Average variance extracted, composite

reliability, and Cronbach’s alpha were also employed to evaluate the reflective constructs’

convergent validity and internal consistency reliability. Furthermore, the discriminant

validity was tested using the heterotrait-monotrait ratio (HTMT). Indicator loadings were

tested to ensure indicator reliability. For the formative measurement model, indicator

weights and variance inflation factor were evaluated to confirm the validity and reliability

of the model.

For the data analysis, a second-generation multivariate analysis tool (Partial Least Squares

(PLS) structural equation modeling) was applied to test the moderating effect of supplier

involvement on the focal company’s sustainable work. The results showed a causal relation

between sustainability drivers, sustainability improvement practices, and overall sustainable

performance. Meanwhile, only supplier involvement in the focal company’s environmental

work moderated the focal company’s sustainable practices and performance. A further t-test

was performed in order to explore how supplier involvement affected the focal companies’

environmental focus. The main differences between the higher supplier involvement group

37

and lower supplier involvement group were due to environmental practices related to

ecosystem vitality and environmental health. The evidence from the Swedish

manufacturing industry showed that better sustainable practices can offer gains in overall

sustainable performance. Moreover, good cooperation with suppliers, especially with

respect to the environmental practices, can strengthen the organization’s green capabilities

through organizational learning. Thus, it is important to make sustainability an important

strategy that is integral to the whole supply chain, instead of simply an add-on.

The main results of Paper 5 were:

o A causal relationship between sustainability drivers and sustainable improvement

practices was found.

o A causal relationship between sustainable improvement practices and company

performance was found.

o Moderating effects were only found with respect to supplier involvement in the focal

companies’ environmental work.

o Considering environmental work involvement, the main differences between the higher

supplier involvement group and the lower supplier involvement group were in their

environmental practices with respect to ecosystem vitality and environmental health.

38

5. Discussions and Conclusions

This section offers a discussion of the research findings, drawing conclusions from the

study and presenting the direction for future studies.

5.1 Discussions

This dissertation’s overall objective was to explore the relationships between sustainability

practices and company performance with a special focus on the manufacturing industry,

using a triangulation method.

Developing a comprehensive view of sustainability in the manufacturing industry is an

important task. Such a view should consider economic, environmental, and social

dimensions. However, the empirical results from the Swedish manufacturing industry

showed that the consideration of social sustainability still lags behind economic

sustainability and environmental sustainability. This result indicates that the manufacturing

industry needs to place more emphasis on this area and should develop appropriate policies

so that social sustainability can be properly incorporated into the triple bottom line.

Achieving a better balance between environmental, social, and economic sustainability

requires a lot of work. Companies should incorporate the operations strategy perspective

into their sustainability aspects, employ the GRI reporting system, and develop better

collaboration with suppliers.

There is also a contextual dimension that is important from an institutional theory

perspective. Formal and informal institutional contexts may affect companies’ operational

choices. Although the results of this research do not suggest significant differences between

subsectors of the manufacturing industry, nor different countries such as Sweden, China,

and India, differences may exist between economic, environmental, and social dimensions

under other circumstances. One example is that the manufacturing industry and service

industry may have different focuses with regard to sustainability issues. For example, the

service industry may not focus on CO2 emissions in the production process as much as the

manufacturing industry. With the rapid development of the service industry, understanding

such differences has become even more important. Therefore, future research should look

at the different sustainability focuses and related strategies in the service industry.

39

According to stakeholder theory, stakeholders influence companies’ sustainability choices.

Considering that different industries have different stakeholders (Sweeney and Coughlan,

2008), sustainability focuses may vary as a result. Based on the empirical investigation of

this study, the main drivers for the Swedish manufacturing industry adopting sustainability

practices were found to be government and regulators, customers, advocacy organizations,

NGOs, and advisory boards. This situation can shift in other countries and other industries.

For example, Zhu and Sarkis (2007) found that the main drivers for Chinese manufacturers

were from governmental, market, and competitive sources.

This dissertation also supports some of the notions of the “win-win” discussion concerning

the relationship between sustainability and company performance. This result is in line with

ecological modernization theory. More specifically, there is a positive link between

sustainability practices and company performance in the manufacturing industry.

According to the findings of this study, employing environmental management practices

properly can help companies to achieve better innovation performance. In turn, the level of

process and product technology is often positively correlated to environmental performance

and innovation performance. As such, the suppliers’ involvement in the focal companies’

environmental work can strengthen the focal companies’ green capabilities. Therefore,

companies should allocate resources to improving their environmental management

practices, technology level, and cooperation with their suppliers.

The manufacturing strategy perspective is also useful for investigating sustainability issues

in the manufacturing industry. In exploring the configuration of sustainability strategy in

the Swedish manufacturing industry, this study showed that sustainability is indeed on the

Swedish manufacturer’s strategic agenda, particularly in manufacturing networks with

multiple locations. The level of centralization of the sustainability strategy decreases from

economic sustainability, to environmental sustainability, and to social sustainability. In the

literature, the centralized/decentralized orientation of an organization’s sustainability

strategy has not been explored in-depth empirically. This topic is definitely worth studying

in different contexts.

40

The moderating role of supplier involvement in the focal company’s sustainable initiatives

was confirmed in the Swedish manufacturing industry. More specifically, the suppliers’

involvement had the greatest effect on the focal company’s environmental sustainability.

This finding is in line with resource dependence theory (Emerson, 1962; Pfeffer and

Salancik, 1978), in that, focal companies and suppliers depend on each other to ensure their

long term competitive advantage. The empirical investigation of the Swedish

manufacturing industry indicates that focal companies should have better collaborative

relationships with their suppliers in order to both reduce risk and strengthen green

capabilities.

5.2 Conclusions

The following conclusions have been drawn in response to the research questions.

RQ1: What are the sustainability issues and factors considered to be important for

supply chain and operations management?

This study investigated sustainability concerns in the manufacturing industry, resulting in a

framework summarizing the perspectives, approaches, and factors related to different

aspects of sustainability (i.e., strategic, environmental, social, and economic) and decision

making processes in manufacturing operations. The main results are shown in Table 5 and

Figure 3 of Paper 1. These findings were subsequently used to design the survey

questionnaire, offering clear guidelines for understanding research in sustainable operations

management, especially in the manufacturing industry.

RQ2: What is the status of sustainable practices in the manufacturing industry, and

what general approaches are being used for implementing such practices, including

economic, environmental, and social ones?

This dissertation explored the approaches to implementing sustainable practices

considering different manufacturing environments, such as industrial sectors and

manufacturing locations. The results showed no significant difference in the

implementation of environmental management practices or social management practices in

different industrial sectors, such as the process industry and other manufacturing industries.

Moreover, environmental management practices differed (with limited significance, p <

41

0.05) among countries such as Sweden, China, and India. This result was less expected.

Among 33 environmental management practices, only seven were implemented differently

across these countries. These practices were particularly related to innovation and suppliers,

including waste reduction (reactive), product development and innovation, supply chain

management, environmental standards for suppliers, environmental participation, specific

design targets, and corporate policies and procedures.

Nevertheless, a general pattern for sustainable practices implemented in the manufacturing

industry across different sectors could be seen. When implementing sustainable

improvement practices, companies often place different levels of emphasis on these

practices. The first priority is often given to economic sustainability practices, followed by

environmental ones, and finally social ones. In addition, when suppliers are involved in

sustainable initiatives, they mostly affect the focal company’s environmental practices,

often in a positive manner.

RQ3: What is the relationship between sustainable practices and company

performance, with the latter including environmental performance, social

performance, economic performance, operational performance, and innovation

performance?

This dissertation used different data sources and applied different methods of analysis, yet

with a holistic view of sustainability. The results supported the claim that investments in

sustainable practices can lead to improvements in company performance. Positive causal

relationships were found between overall sustainable improvement practices and overall

company performance. Several environmental management practices had strong

correlations with innovation performance, which can further improve financial performance.

Meanwhile, those manufacturing companies with good GRI indicators were also more

likely to perform well financially, particularly in terms of ROE. A moderating effect was

found for supplier involvement in focal companies’ sustainable initiatives. In other words,

supplier involvement can enhance the relationship between sustainable practices (especially

environmental practices) and company performance.

42

RQ4: What are the current sustainable operations practices and performance in the

Swedish manufacturing industry? In particular, how are Swedish manufacturers

configuring their sustainability strategy, and does supplier involvement affect Swedish

manufacturers’ sustainability?

Examining the Swedish manufacturing industry showed that the triple bottom line

represents a valid outline for interpreting a company’s sustainability practices in this

context. Nevertheless, when implementing environmental sustainability and social

sustainability improvement practices, companies often adopt relatively weak practices with

respect to social sustainability. Meanwhile, the sustainability performance in the Swedish

manufacturing industry is less diversified than the sustainability improvement practices.

There are different levels in the configuration of sustainability strategy in a manufacturing

network with multiple manufacturing locations. Economic sustainability is often considered

in a centralized manner by the focal company, whereas social sustainability is more

localized. In addition, environmental sustainability is often managed in a mixed pattern,

with a combination of centralized and localized strategies. Moreover, Swedish

manufacturers often employ a relatively high level of technology in developing their

products and processes. This study found a strong positive correlation between a

company’s process and product strategy and its sustainable practice and performance. More

specifically, if companies had a higher level of product and process technology, they had

better environmental practices and performance. Furthermore, better social practices and

performance were also detected in these companies.

To conclude, this dissertation contributes to the literature on sustainability operations

management in the manufacturing industry by offering empirical evidence and theory

development. Compared to previous studies conducted in this field, this dissertation

contributes to the development of an empirical foundation in the Swedish context, which

has been dominated by case studies. Furthermore, this dissertation synthesizes the strategic

and sustainability perspectives by investigating the configuration of sustainability

strategy—a topic that has not been examined in prior literature. This dissertation shows that

there is a “win-win” opportunity for the manufacturing industry in terms of sustainable

43

practice and company performance. A company’s sustainability is becoming even more

critical to remaining competitive in the market. To remain competitive, manufacturing

companies should transform their products, process, technology, business strategies, and

models to meet this sustainability challenge. Innovation is crucial for this transformation,

just as green cooperation with suppliers can enhance sustainability opportunities. Thus,

manufacturing companies should extend their sustainability efforts from a single plant to

the whole supply chain.

5.3 Future research

Companies now face not only economic competition in the market, but also environmental

and social pressures (Wu and Pagell, 2011). The tradeoffs between economic interests,

environmental impact, and social influence represent a topic that has been investigated by

academics and practitioners for many decades, and remains critical in the contemporary

climate. Based on the results of this dissertation, the following issues are proposed for

further investigation.

Since this study was conducted over a limited period of time, a longitudinal study of the

research topic has not been carried out. In a manufacturing company, manufacturing

strategy affects operations, but may do so with a time lag. Therefore, the results of this

study may differ from a long-term perspective. Thus, a longitudinal study should be

conducted to further verify the results. Furthermore, as the results showed, the

implementation of sustainable practices often occurs sequentially—from economic

practices, to environmental practices, to social ones. Therefore, manufacturing strategy,

sustainability practices, and performance could dynamically influence one another. In light

of these observations, a longitudinal study using the same survey instrument would be of

great interest.

Moreover, due to limited accessible data, the survey only targeted the Swedish

manufacturing industry. With the development of global supply chains, sustainable

manufacturing should also be considered within the context of the global operations of

multinational companies. In this case, the operations strategies and sustainability concerns

may differ between countries and regions. Therefore, additional effort should be given to

44

expanding and developing a solid database with which to further explore sustainable

manufacturing issues from a global perspective. This task will not be easy, but the outcome

will be extremely useful for defining a sustainable operations strategy in multinational

companies.

The third possible avenue for future research is to examine the interrelationship between

sustainability strategy and operations strategy. Such an inquiry is necessary for

investigating whether sustainability factors can be integrated into a company’s overall

operations strategy. Often, a manufacturing company defines its operations strategy with a

main focus on economic performance. As environmental and social aspects are becoming

more important in manufacturing, these factors should be integrated into operations strategy

in order for companies to sustain their development. In future research, multi-case studies

could be conducted to examine the effects of such an integration.

Multi-tier sustainable supply chains could be another topic for future studies. Companies

have increasing interest in developing sustainability across the whole supply chain.

Nevertheless, most studies on sustainable supply chains have only focused on extending

sustainability beyond the focal company to its first-tier suppliers. As such, there is a need to

increase the supply chain scope to include sub-suppliers. A large-scale survey is needed to

identify the contingencies in this field, such as the difference between managing

environmental sustainability, which is easily measured, and managing other social

sustainability issues, which are largely intangible. The sample companies should contain

multi-tier suppliers, and if possible, should represent different industries in different

countries and regions. In doing so, the sustainability management capabilities of suppliers

can be explored. Another study could examine the critical contingencies that define how

customers impose their sustainability concerns on the focal companies.

45

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57

Appendix A-English translation of questionnaire

Dear Sir/Madam:

The purpose of this survey is to investigate issues related to sustainability in Swedish

manufacturing industry. This questionnaire is conducted by researchers from Linköping

University and Kungliga Tekniska Högskolan (KTH). The survey will only take you 10-15

minutes to fulfill, but will provide valuable input for research. The questionnaire is

voluntary and the data collected is strictly confidential. Answers from individual

participants will NOT be identified and you have the option not to answer a particular

question. The data collected will not be used for anything other than research. If you have

any questions for the survey please contact Lujie Chen with lujie.chen@liu.se or by phone

with 0765680008.

Your contribution is important for our research and the development of Swedish

manufacturing industry. We really appreciate your help!

Thank you!

Lujie Chen

lujie.chen@liu.se

Division of Production Economics, Department of Management and Engineering,

Linköping University, Sweden

Dr. Andreas Feldmann

andreas.feldmann@indek.kth.se

Division of Industrial Management, Department of Industrial Economics and Management,

Royal Institute of Technology, Sweden

Prof. Ou Tang

ou.tang@liu.se

Division of Production Economics, Department of Management and Engineering,

Linköping University, Sweden

58

A01 Which position do you hold at the company?_______________________

A02 For how many years have you been working in manufacturing industry?

☐Less than 2 years

☐3 to 5 years

☐6 to 8 years

☐More than 8 years

A03 Would you be interested in participating in future research in the area?

☐Yes

☐No

59

B01 What is the force of your competitive position?

☐Cost leadership (buyer needs are satisfied at the lowest cost on the market)

☐Differentiation (buyer needs are satisfied uniquely for which a price premium is realized)

☐Focus (ability to serve specific buyer groups better than competitors)

B02 What is the overall level of process technologies employed by your company?

☐very low

☐low

☐medium

☐high

☐very high

B03 What is the overall level of product technologies employed by your company?

☐very low

☐low

☐medium

☐high

☐very high

B04 What is the degree of your product customization?

☐very low

☐low

☐medium

☐high

☐very high

60

Describe your global footprint in term of share of employees per region? (The sum should

be 100 %)

B05_1 Europe_______

B06_1 America______

B07_1 Asia______

B08_1 Oceania______

B09_1 Africa______

B10_1 Others______

VAR07C Comment on global footprint______________________

How influential is each of the following in driving your company’s attention to

sustainability?

very

low

low medium high very

high

B11 Government and regulator ☐ ☐ ☐ ☐ ☐

B12 Advisory board ☐ ☐ ☐ ☐ ☐

B13 Line leaders ☐ ☐ ☐ ☐ ☐

B14 Advocacy organizations and NGOs (Non

Governmental Organizations) ☐ ☐ ☐ ☐ ☐

B15 Customers ☐ ☐ ☐ ☐ ☐

61

Do you have goals for the following areas?

No

goals

Goals Goals with

numerical targets

C01 Cost e.g: labor cost, energy cost, material

cost, facility cost, logistic cost ☐ ☐ ☐

C02 Economic stability e.g: favorable tax,

exchange rate fluctuations ☐ ☐ ☐

C03 Market

e.g: international markets and potential

demand

☐ ☐ ☐

C04 Growth

e.g: sales growth and growth in market share ☐ ☐ ☐

Where are these goals set? (Skip this question if you are in an organization with only one

site)

Locally Mostly locally Mixed Mostly centrally Centrally

C05 Cost ☐ ☐ ☐ ☐ ☐

C06 Market ☐ ☐ ☐ ☐ ☐

C07 Economic stability ☐ ☐ ☐ ☐ ☐

C08 Growth ☐ ☐ ☐ ☐ ☐

C09 To what degree are suppliers involved in the work related to the economic perspective

(cost, market, economic stability, growth)?

☐very low

☐low

☐medium

☐high

☐very high

62

Do you have goals for the following factors?

No

goals

Goals Goals with

numerical

targets

D01 Eco-system vitality

e.g: Air pollution and water quality related to the

ecosystem, biodiversity protection, climate change

performance

☐ ☐ ☐

D02 Environmental health

e.g: Air pollution, water quality, and other

environmental factors related to the health of

humans

☐ ☐ ☐

D03 Environmental factors within production

e.g: Material use, energy consumption, renewable

resources, waste generation, waste treatment, waste

disposal, recycling of material, energy and waste

☐ ☐ ☐

Where are these goals set? (Skip this question if you are in an organization with only one

site)

Locally Mostly

locally

Mixed Mostly

centrally

Centrally

D04 Eco-system vitality ☐ ☐ ☐ ☐ ☐

D05 Environmental health ☐ ☐ ☐ ☐ ☐

D06 Environmental factors

within production ☐ ☐ ☐ ☐ ☐

D07 To what degree are suppliers involved in the work related to the environmental

perspective (Eco-system vitality, Environmental health, Environmental factors within

production)?

☐very low

☐low

☐medium

☐high

☐very high

63

Do you have goals for the following areas?

No

goals

Goals Goals with numerical

targets

E01 Governance

e.g: Corruption, political stability, trade

and tariff barriers

☐ ☐ ☐

E02 Individual

e.g: Civil liberties, human rights ☐ ☐ ☐

E03 Education

e.g: General education level ☐ ☐ ☐

E04 Community

e.g: Equity, safety, cohesion ☐ ☐ ☐

Where are these goals set? (Skip this question if you are in an organization with only one

site)

Locally Mostly locally Mixed Mostly centrally Centrally

E05 Governance ☐ ☐ ☐ ☐ ☐

E06 Education ☐ ☐ ☐ ☐ ☐

E07 Individual ☐ ☐ ☐ ☐ ☐

E08 Community ☐ ☐ ☐ ☐ ☐

E09 To what degree are suppliers involved in the work related to the social perspective

(Governance, Education, Individual, and Community)?

☐very low

☐low

☐medium

☐high

☐very high

64

Rate the following areas based on the amount of effort put into improving them?

very

low

low medium high very

high

F01 Cost

e.g: labor cost, energy cost, material cost,

facility cost, logistic cost

☐ ☐ ☐ ☐ ☐

F02 Economic stability

e.g: favorable tax, exchange rate fluctuations ☐ ☐ ☐ ☐ ☐

F03 Market

e.g: international markets and potential

demand

☐ ☐ ☐ ☐ ☐

F04 Growth

e.g: sales growth and growth in market share ☐ ☐ ☐ ☐ ☐

F05 Eco-system vitality

e.g: Air pollution and water quality related to

the ecosystem, biodiversity protection, climate

change performance

☐ ☐ ☐ ☐ ☐

F06 Environmental health

e.g: Air pollution, water quality, and other

environmental factors related to the health of

humans

☐ ☐ ☐ ☐ ☐

F07 Environmental factors within production

e.g: Material use, energy consumption,

renewable resources, waste generation, waste

treatment, waste disposal, recycling of

material, energy and waste

☐ ☐ ☐ ☐ ☐

F08 Governance

e.g: Corruption, political stability, trade and

tariff barriers

☐ ☐ ☐ ☐ ☐

F09 Education

e.g: General education level ☐ ☐ ☐ ☐ ☐

F10 Individual

e.g: Civil liberties, human rights ☐ ☐ ☐ ☐ ☐

F11 Community

e.g: Equity, safety, cohesion ☐ ☐ ☐ ☐ ☐

65

How well does your company perform in relation to competition in the following areas?

very

poor

poor fair good excllent

G01 Cost

e.g: labor cost, energy cost, material cost,

facility cost, logistic cost

☐ ☐ ☐ ☐ ☐

G02 Return on Investment (ROI) ☐ ☐ ☐ ☐ ☐

G03 Economic stability

e.g: favorable tax, exchange rate flucations ☐ ☐ ☐ ☐ ☐

G04 Market

e.g: international markets and potential

demand

☐ ☐ ☐ ☐ ☐

G05 Growth e.g: sales growth and growth in market

share ☐ ☐ ☐ ☐ ☐

G06 Quality conformance to specification ☐ ☐ ☐ ☐ ☐

G07 Delivery e.g. delivery speed and on-time

deliveries ☐ ☐ ☐ ☐ ☐

G08 Flexibility e.g. volume, product mix ☐ ☐ ☐ ☐ ☐

G09 Product innovation e.g. rate of new product

introduction ☐ ☐ ☐ ☐ ☐

G10 Process innovation e.g. rate of process

improvement ☐ ☐ ☐ ☐ ☐

G11 Eco-system vitality e.g: Air pollution and

water quality related to the ecosystem,

biodiversity protection, climate change

performance

☐ ☐ ☐ ☐ ☐

G12 Environmental health

e.g: Air pollution, water quality, and other

environmental factors related to the health of

humans

☐ ☐ ☐ ☐ ☐

G13 Environmental factors within production

e.g: Material use, energy consumption,

renewable resources, waste generation, waste

treatment, waste disposal, recycling of

material, energy and waste

☐ ☐ ☐ ☐ ☐

G14 Governence e.g: Corruption, political stability,

trade and tariff barriers ☐ ☐ ☐ ☐ ☐

G15 Education e.g: General education level ☐ ☐ ☐ ☐ ☐

G16 Individual e.g: Civil liberties, human rights ☐ ☐ ☐ ☐ ☐

G17 Community e.g: Equity, safety, cohesion ☐ ☐ ☐ ☐ ☐

66

67

Appendix B-The author’s contributions to the appended papers

For this doctoral dissertation “Sustainability and company performance: Evidence from the

manufacturing industry,” the author Lujie Chen’s contribution to each appended paper is

summarized below.

Paper 1

Chen, L., Olhager, J. & Tang, O. 2014, “Manufacturing facility location and sustainability:

A literature review and research agenda”, International Journal of Production Economics,

vol. 149, pp. 154-163.

Paper 1 was co-authored with Prof. Jan Olhager and Prof. Ou Tang. Lujie Chen took

the leading role in initiating the research idea. The authors jointly contributed to the data

collection, data analysis, and writing process.

Paper 2

Chen, L., Tang, O. & Feldmann, A. 2015, “Applying GRI reports for the investigation of

environmental management practices and company performance in Sweden, China and

India”, Journal of Cleaner Production, vol. 98, pp. 36-46.

Paper 2 was co-authored with Prof. Ou Tang and Dr. Andreas Feldmann. Lujie Chen

took the leading role in initiating the research idea and was largely responsible for the

whole research process, analysis of the final results, and writing.

Paper 3

Chen, L., Feldmann, A. & Tang, O. 2015, “The relationship between disclosures of

corporate social performance and financial performance: Evidences from GRI reports in

manufacturing industry”, International Journal of Production Economics, Advance online

publication, doi:10.1016/j.ijpe.2015.04.004

Paper 3 was co-authored with Dr. Andreas Feldmann and Prof. Ou Tang. Lujie Chen

took the leading role in initiating the research idea and was largely responsible for the

whole research process, analysis of the final results, and writing.

Paper 4

Chen, L., Feldmann, A. & Tang, O. 2014, “An empirical evaluation of sustainable

operations practices and performance in the Swedish manufacturing industry”

Paper 4 was co-authored with Dr. Andreas Feldmann and Prof. Ou Tang. Lujie Chen

took the leading role in initiating the research idea and was largely responsible for the

whole research process, analysis of the final results, and writing.

Paper 5

Chen, L. & Tang, O. 2015, “Does supplier involvement affect manufacturers’

sustainability?”

Paper 5 was co-authored with Prof. Ou Tang. Lujie Chen took the leading role in

initiating the research idea and was largely responsible for the whole research process,

analysis of the final results, and writing.

68

IPAPER

Manufacturing facility location and sustainability: A literature reviewand research agenda

Lujie Chen a,n, Jan Olhager b, Ou Tang a

a Department of Management and Engineering, Linköping University, SE-581 83 Linköping, Swedenb Department of Industrial Management and Logistics, Lund University, SE-221 00 Lund, Sweden

a r t i c l e i n f o

Article history:Received 13 April 2012Accepted 6 May 2013Available online 22 May 2013

Keywords:Corporate social responsibility (CSR)EnvironmentFacility locationManufacturingSustainability

a b s t r a c t

The perspectives on the manufacturing footprint of global firms are widening from the economic aspectsto also include the environmental and social aspects. Thus, sustainability is becoming an important issuefor the location of manufacturing facilities. It is therefore timely to review the relevant aspects anddimensions in the extant literature to investigate the relationship between sustainability and facilitylocation. In this paper, we aim to understand how sustainability aspects are included in decision-makingconcerning manufacturing facility locations and the role of location in evaluating manufacturingsustainability. We examine the literature streams on sustainability and facility location. A comprehensivesearch includes peer-reviewed literature from 1990 to 2011. We propose a literature classification schemewith respect to focal area and research methodology. The content analysis identifies the environmental,social and economic perspectives and factors affecting location decisions. We synthesize the findings intoa framework for taking sustainability aspects into account in manufacturing facility location decision-making. We also propose a research agenda for further research on sustainable locations.

& 2013 Elsevier B.V. All rights reserved.

1. Introduction

The facility location problem has been around for a long time.In general, it concerns the geographical positioning of facilities fora specific organizational entity, such as a company. As such, it is astrategic decision related to the configuration of the manufacturingnetwork. As competition becomes global and the complexity of theenvironment in which companies operate is increasing, managingan integrated international network has become an increasinglyimportant task for managers (Ferdows, 1997, 2009). Traditionally,the objective has been to derive a cost-optimal distribution offacilities with respect to the location of markets (customers) andraw materials (suppliers). More recently, access to skills and knowl-edge has been added as a major strategic factor that affects locationdecisions (Ferdows, 1997; Vereecke et al., 2006; Feldmann andOlhager, in press). Manufacturing companies that have more thanone plant can gain insights on markets, products, and processes bymanaging a group of plants as a manufacturing network. In practice,this can lead to a complete reconfiguration of the manufacturingnetwork such as in the cases of Digital (Arntzen et al., 1995) andProcter & Gamble (Camm et al., 1997). In other cases, the changes tothe manufacturing network may be more incremental such as

opening up of a new facility or closing down an existing one. Theremay be different strategic reasons for the location decisions fordifferent manufacturing facilities, such as access to low-cost man-ufacturing, proximity to market, and access to skills and knowledge(Ferdows, 1997). Thus, deciding on the “optimal” set and location ofmanufacturing facilities is becoming increasingly difficult.

The literature on facility location can be broadly classified intotwo areas: factor assessment and mathematical approaches. Thefactor assessment approach often has a focus on strategic issues indecision making and it can be generalized into four steps:(i) establish the critical success factors of the business, (ii) assessoptions for regional manufacturing configurations, (iii) define anumber of potential sites, and (iv) rank the most suitable solutions(Reid and Sanders, 2010). Implicitly, economic performance hasbeen the driver for selecting critical success factors. Also, themathematical approaches are typically formulated as cost mini-mization and profit maximization problems; cf. e.g. Melo et al.(2009), Drezner and Hamacher (2004). Thus, the economic dimen-sion of sustainability has historically dominated the locationproblem.

However, environmental and social issues have gained impor-tance in recent years as organizations seek competitive advantage(Dou and Sarkis, 2010; Kleindorfer et al., 2005; Seuring and Müller,2008). Technology and geopolitics enable and accelerate thecompanies to extend their manufacturing network globally. Also,the customer and supply bases are increasingly global. With widermanufacturing footprint, global markets, and global supply base,

Contents lists available at ScienceDirect

journal homepage: www.elsevier.com/locate/ijpe

Int. J. Production Economics

0925-5273/$ - see front matter & 2013 Elsevier B.V. All rights reserved.http://dx.doi.org/10.1016/j.ijpe.2013.05.013

n Corresponding author. Tel.: +46 13 281770; fax: +46 13 281101.E-mail addresses: lujie.chen@liu.se (L. Chen), jan.olhager@tlog.lth.se (J. Olhager),

ou.tang@liu.se (O. Tang).

Int. J. Production Economics 149 (2014) 154–163

the question of location is becoming increasingly important,particularly for the facilities that are owned by the manufacturingcompany. The economic, environmental, and social dimensionsmake up the so-called triple bottom line (3BL) accounting reportconcerning the relationship of profit, people, and the planet (the3P's); cf. Kleindorfer et al. (2005). Many authors refer to the UNBrundtland Commission (WCED, 1987) concerning the overarchingobjective of sustainable development; i.e. “meeting the needs ofthe present without comprising the ability of future generations tomeet their own needs”.

Consequently, it is becoming increasingly necessary for manu-facturing firms to include all aspects and dimensions of sustain-ability in their manufacturing facility location decisions. Evenwhen a facility is selected locally, there is need to integratesustainability factors to reach economic, social, and environmentalbenefits from local innovation and collaboration with local custo-mers and suppliers (Theyel, 2012). The right location choice canhelp the company gain competitive advantages and improveoperational performance; not only in the short term but also inthe long term. For example, environmental degradation is becom-ing an important concern in manufacturing industry. Whenmanufacturers outsource to a low-cost countries, operations maybe halted for months due to water scarcity, earthquakes, andthunderstorms (Economy and Lieberthal, 2007). Economy andLieberthal (2007) propose that multinational companies shouldproactively implement environmental protection efforts, forinstance by introducing programs to build facilities and developtechnologies that are required for environmental protection. Also,corporate social responsibility (CSR) aspects concerning culturaldifference and ethical values should also be taking into considera-tion when a manufacturing network is extending into multiplecountries. Underage labor may be considered a normal means forsurvival in some countries, but is not ethically acceptable in manydeveloped countries.

The research literature on the combination of manufacturingfacility location and sustainability is still at an early stage butgrowing. Terouhid et al. (2012) found 38 papers in their review,focusing on location and siting models. Therefore, it is timely toconduct a broad analysis of the state of the art on sustainabilityaspects related to manufacturing facility location, by providing asystematic literature review, synthesize the findings into a frame-work and identifying areas for future research. In this review, weperform an independent and structured search strategy with abroader focus than Terouhid et al. (2012) and identify 81 papers(with only one common paper; Dou and Sarkis, 2010). We includeboth quantitative and qualitative research. An important feature inthis review is that sustainability is explicitly included, such thateconomic aspects as well as environmental and social factors aretaken into account in the decision-making process. Issues likereverse logistics and waste management are related to the facilitylocation problem, but these areas are adequately discussed andreviewed in the existing literature; cf. e.g. Pokharel and Mutha(2009), Chan et al. (2010), Dekker et al. (2012), Van der Wiel et al.(2012). Therefore, they are outside the scope of this paper.

We first present an overview of the literature review metho-dology. We then present the search strategy and the classificationscheme, based on a content analysis. Then, the results of theliterature review are presented. Finally, we present a conceptualframework and a research agenda.

2. Methodology

The core idea with a literature review is to summarize the stateof the art in the subject field, as a basis for identifying areas inwhich further research would be beneficial (Rowley and Slack,

2004). They state that literature reviews are important in:(i) supporting the identification of a research topic, question orhypothesis; (ii) identifying the literature to which the research willmake a contribution, and contextualizing the research within thatliterature; (iii) building an understanding of theoretical conceptsand terminology; (iv) facilitating the building of a bibliography orlist of the sources that have been consulted; (v) suggestingresearch methods that might be useful; and (vi) analyzing andinterpreting results. In conducting this literature review, we followthe general guidelines from Rowley and Slack (2004): (i) materialcollection, including (i) scanning documents, (ii) making notes,(iii) structuring the literature review, (iv) building the bibliogra-phy, and (v) writing the literature review. The research team,consisting of three researchers (two senior researchers and onedoctoral student) have collaborated and interacted on all aspectsof this literature review.

Below we discuss the key steps in conducting the literaturereview, in terms of (i) the search strategy, and the content analysisin terms of (ii) literature over time, (iii) literature across journals,and (iv) categorization with respect to topical areas as well asresearch methodologies; cf. Seuring and Müller (2008), Gold et al.(2010), Seuring and Gold (2012).

2.1. Search strategy

A comprehensive search of related research from 1990 to 2011was applied to produce a synthesis of peer-reviewed literature.The start of the time period was chosen such that the report of theUN Brundtland Commission (WCED, 1987) served as a startingpoint, similar to Seuring and Müller (2008). The search strategy isbased on selected databases (Business source premier, Scopus, andWeb of Science), selected keywords (“sustainability” in combina-tion with “facility location”, “supply chain”, or a combination of thefollowing: “global”, “international” or “network” in combinationwith “manufacturing”, “operations”, or “production”). For example,one such combination was “sustainability”+“global”+“production”.We also use back-tracking to find earlier relevant sources, andforward-tracking in Web of Science to find literature that arereferring to the central sources. Based on this, 140 papers wereidentified. Based on this list, all members of the research teammade individual content analyses and evaluations. The full inter-rater agreement among all three researchers was 75.0% (105papers). Consequently, 35 papers were subject to further analysisby all three researchers jointly. In the elimination process, weexcluded papers that focused on only one dimension of sustain-ability or did not relate to facility location at all. Finally, 81 paperswere identified. As a comparison, using only “sustainability” or“facility location” yields approximately 5.700 and 1.200 hits,respectively, in Business Source Premier. However, the 81 papersselected for this study have relevance for the relationship betweensustainability and manufacturing facility location.

2.2. Literature across journals

The 81 articles we finally reviewed are distributed among 46different international scientific journals. 10 journals account for45 articles (see Table 1), while the other 36 articles are from 36different journals. The highest numbers of articles are found inJournal of Cleaner Production, Ecological Economics, InternationalJournal of Physical Distribution & Logistics Management, andInternational Journal of Production Research. Thus, this researcharea is treated in specialized sustainability journals as well as ingeneral operations management journals.

L. Chen et al. / Int. J. Production Economics 149 (2014) 154–163 155

2.3. Literature over time

The literature on manufacturing facility location and sustain-ability started to appear in 1997. The first 8 years (1997–2004)exhibit an unstable pattern with low numbers and a few yearswith no articles. The average number of publications is 1.2 per yearduring this period. From 2005 and onwards the number ofpublications shows a positive trend, reaching 19 articles in 2011(Fig. 1).

2.4. Categorization of topic area and research methodology

When analyzing the content of the 81 articles, we couldidentify two dimensions for the fundamental categorization: focalarea and research methodology. These are two entirely separatedimensions, since all papers can be classified in both aspects. Thecontent analysis with respect to focal area leads us to identify fourcategories:

1. Papers that explicitly treat manufacturing facility locationissues taking sustainability aspects into account; typicallydiscussing and comparing alternative locations.

2. Papers that treat sustainability for a specific country or aspecific geographic region.

3. Papers that discuss sustainability from a supply chain perspec-tive; acknowledging multiple locations along a supply chain.

4. Papers discussing factors to consider for sustainable location;typically general discussions without specifically addressing aparticular location.

We find five groups for the classification with respect toresearch methodology:

1. Conceptual modeling (potentially including simple numericalexamples).

2. Case studies, including multiple case studies.3. Surveys, based on questionnaires.4. Mathematical modeling (or simulation).5. Country-level data (or regional data).

The result of the two-dimensional classification of the 81articles in this literature review is presented in Table 2. Thereare relatively few studies that explicitly study the relationshipbetween manufacturing facility location and sustainability.Instead, the majority of the papers are concerned with sustain-ability in specific regions and for supply chain settings. Sincesustainability is often related to governmental, regional, or indus-trial policy making, it is expected to find many papers in thiscategory. Also, supply chains are often global and can therefore beexposed to different aspects of sustainability in different stagesalong the supply chain. The final category on factors to considermay appear to be small, but it should be noted that all studies onsustainability in certain regions and in supply chains all deal withfactors to consider, wherefore this category only contains thosestudies that do not explicitly deal with specific regions or supplychains. Some papers cover supply chain issues in a specific region;these are classified here as papers concerned with sustainability ina specific region.

Each research methodology is primarily used for a particulartopical area. When using surveys and statistics the topical area istypically sustainability in a certain geographical region, while articlesthat use conceptual modeling, case research and mathematicalmodeling/simulation primarily focus on sustainability in supply chains.

3. Results

In this section we provide an overview of the literature in termsof coverage by journals, over time, and categorization.

Table 1Distribution of articles in journals.

Journal Number of papers Percentage (%)

Journal of Cleaner Production 18 22.2Ecological Economics 5 6.2International Journal of Physical Distribution & Logistics Management 5 6.2International Journal of Production Research 5 6.2International Journal of Production Economics 2 2.5Business Strategy and the Environment 2 2.5Corporate Governance 2 2.5International Journal of Operations & Production Management 2 2.5Journal of Business Ethics 2 2.5Journal of Supply Chain Management 2 2.5Others 36 44.4

Fig. 1. Distribution of articles over time.

Table 2Two-dimensional categorization of the relevant literature, with respect to contentanalysis and research methodology.

Topic area Research methodology Total

Concept Case Survey Math Country-level data

Sustainable locations 1 3 – 1 1 6Sustainability inspecific regions

5 7 7 1 11 31

Sustainability insupply chains

13 14 2 9 – 38

Factors to consider 2 3 – – 1 6Total 21 27 9 11 13 81

L. Chen et al. / Int. J. Production Economics 149 (2014) 154–163156

3.1. Sustainable locations

As mentioned previously, there are few studies with an explicitfocus on issues concerning sustainable location. In an early studyby Eagan and Joeres (1997), they present an assessment tool forevaluating the sustainability at a company level, which can beapplied to facility location problems. One important breakthrough,as the authors claimed, is due to its attempt to transfer the fuzzyconcept of sustainability by adopting and quantifying the 16principles for sustainable development defined by InternationalChamber of Commerce. Nevertheless such principles are stillmainly considering the environmental aspect of sustainability.

Even though sustainability has been raised as a strategic issuein many manufacturing companies, it is seldom built into thedecision model. In one recent work, Dou and Sarkis (2010) studiedthe location and sustainability problem with respect of offshoreoutsourcing. A decision process, based on analytical networkprocess framework was developed. More important, the authorspresented the location, environmental and social factors whichshould be considered in dealing with the problem. The latter ones,environmental and social factors have never been an emphasis infacility location literature. This study also illustrated the interde-pendence of the above mentioned factors. Such inter-dependencemay also reduce the transparency of the model and increase thedifficulties in understanding the decisions. Therefore, even thoughcreating a comprehensive list for all related factors is important, it isalso critical to filter the most important factors in order to reducethe complexity of the model.

Several case studies have been reported for investigating thesustainable location issues. These studies often limited to certainindustrial sectors, such as retailing industry (Bayat et al., 2011),biofuel production (Corbiere-Nicollier et al., 2011) and aerospacemanufacturing (Varga et al., 2009). In all these recent studies, onecommon concern is to develop comprehensive performance mea-sures which indicate the economic, environmental and socialaspects of sustainability. A system approach can simultaneouslyimprove the sustainability and other traditional key performanceindicators of a facility such as cost. We have to note that thepresented comprehensive performance measures in the abovestudies are very industrial-oriented. Developing a general frame-work for performance matrix and applying it to various industriesseem a challenge task but nevertheless important for locatingfacilities. Also according to the above studies, the economic andenvironmental aspects of sustainability are relatively easy to beinvestigated due the existence of related regulations and data.However, the social aspect of sustainability is more difficult to bedefined in different locations due to soft (intangible) measuressuch as culture difference.

In Reich-Weiser and Dornfeld (2009), the manufacturer loca-tion problem has been studied with the consideration of limitedaspects of sustainability, namely greenhouse gas emission and

consumption of water resources. Combining a quantitative model(input and output analyses) and life cycle analysis, the authorsexamined the tradeoffs between costs, flexibility and environmentimpacts. Such a model enhances the understanding of direct andindirect effects when selecting transportation modes and facilitylocation. This study also indicates the importance of includingresource availability (emission and water) in location decisionmaking.

3.2. Sustainability in specific regions

31 articles discuss sustainability aspects for specific regions.A region is typically a country, but may include a larger region ortwo specific countries that are compared. For example, Boons andMendoza (2010) discuss the definition of sustainability concerningpalm oil production in Colombia and the Netherlands. Somestudies use country-level statistical data to compare sustainabilityaspects between countries; see e.g. Andersson and Lindroth(2001), Bello et al. (1999), Gaughran et al. (2007) on ecologicalfootprint, and Proops et al. (1999) on degrees of sustainability.

Many articles that address sustainability in specific regions areconcerned with a specific industry or a few specific industries.Table 3 displays the articles that study explicit combinations ofindustry and region. The vast majority of these articles are quiterecent; all except two are from 2008 and later. This indicates thatindustry/country analyses are a recent phenomenon; no less thansix studies are from 2011. Therefore, this may be a stream ofliterature that will continue to expand. There are six studies on theoil, gas and bio-fuel industries in seven different countries orregions. However, the aspects that are highlighted in each studydiffer between the studies. This reduces the possibility to comparecountries. Three more industries have more than one countrystudy on that specific industry; these are automobile, food andtextile. Still, in general there are few specific studies on specificindustries in specific regions. However, the studies reported hereform a baseline for further comparative studies.

3.3. Sustainability in supply chains

There are numerous papers that address sustainability insupply chain settings. These papers do not explicitly discussalternative facility locations, but acknowledge that there arefacilities in different locations and that the supply chain needs totake various aspects of sustainability into account for long-termsuccess. Table 4 presents an overview of the aspects and specificissues that are treated in this literature. The analytic categorieswere derived in an inductive way based on the content analysis ofthe papers in this review, as suggested by e.g. Rowley and Slack(2004), Seuring and Müller (2008), Seuring and Gold (2012).

These papers discuss a variety of supply chain aspects forupstream as well as downstream operations. Life cycle assessment

Table 3Coverage of industries and countries (or regions) and reference to the literature.

Industry Country or region (source)

Oil/ Gas/ Bio-fuel Brazil (Hall and Matos, 2010), Brazil and Switzerland (Corbiere-Nicollier et al., 2011), Columbia and the Netherlands(Boons and Mendoza, 2010), Italy (Valente et al., 2011), UK (Stephenson et al., 2008), US (Kaffka, 2009)

Automobile Mexico (Vurro et al., 2009), North America (Xia and Tang, 2011), South Africa (Barnes and Morris, 2008)Food New Zealand (Flint and Golicic, 2009), Switzerland (Hamprecht et al., 2005)Textile Brazil (Abreu, 2011), Italy (Albino and Kuhtz, 2004)Agricultural USA (Kaffka, 2009)Consumer goods Indonesia (Hidayati, 2011)Remanufacturing India (Rathore et al., 2011)Mobile phones India (Rathore et al., 2011)Steel Brazil (Abreu, 2011)

L. Chen et al. / Int. J. Production Economics 149 (2014) 154–163 157

for supply chain design is treated in five papers, of which three arebased on case research. Three other papers present frameworks forsustainability in supply chains. All other perspectives on sustain-ability in supply chain are treated in individual papers. Thus, theliterature on sustainability in supply chains so far provides ascattered perspective, wherefore more research is needed.

3.4. Factors to consider

Even though only 6 articles were classified as discussing factorsto consider when dealing with manufacturing facility location andsustainability, all articles in this literature review do bring upissues to that the respective authors feel should be considered inthis context. One specific aspect is the dimensions of the conceptof sustainability, i.e. economic, environmental, and social sustain-ability. Fig. 2 captures the number of articles that consider two ofthese dimensions or all three. It is clear that the environmentaland economic issues dominate, and that the research on the socialaspects of sustainability with relevance for manufacturing facilitylocation is lagging. In the 48 papers covering all dimensions thesocial dimension is typically underrepresented.

The aspects that have some relevance for sustainability andmanufacturing facility location are many. In Table 5 we structureand summarize the factors as well as provide reference to theliterature sources. The structure is based on the Environmental

Performance Index (EPI, 2010), the Sustainability Reporting Guide-lines by the Global Reporting Initiative (GRI, 2012), and locationfactors by Dou and Sarkis (2010), Ramstetter (2011), Somlev andHoshino (2005). The table provides a three-level structure of the

Table 4Literature on sustainability aspects in supply chains.

Aspect Specific issue Source(s)

Purchasing/Sourcing Dynamic capabilities in supply management Reuter et al. (2010)—caseFuzzy multi-criteria evaluation framework Büyüközkan and Cifci (2011)—mathGray system and rough sets Bai and Sarkis (2010)—mathISO 14000 Chen (2005)—conceptualMulti-objective assessment based on AHPand fuzzy sets

Lu et al. (2007)—conceptual

Risk management for global sourcing Christopher et al. (2011)—conceptualSC design Closed-loop supply chain Kleindorfer et al. (2005)—conceptual

ISO 14001 Curkovic and Sroufe (2011)—caseLife cycle assessment Donnelly et al. (2006)—case; Facanha and Horvath (2005)—math; Hutchins and Sutherland

(2008)—case; Linton et al. (2007)—conceptual; White (2009)—caseMultistage optimization Huang et al. (2010)—math; Corsano et al. (2011)—mathQuality and safety aspects on network design andplanning

Akkerman et al. (2010)—conceptual

Reverse logistics El Korchi and Millet (2011)—mathSystem dynamics modeling Purnomo et al. (2009)—math

SC integration Collaborative governance Vurro et al. (2009)—conceptualImpact of collaborative green practices on productand process performance

Vachon and Klassen (2008)—survey

Impact of sustainability strategy on sustainabilityperformance

Wolf (2011)—case

Pollution control and prevention Vachon and Klassen (2007)—surveyResource efficiency, recycling and processoptimization

Schliephake et al. (2009)—case

Self-regulation through cooperation in the supplychain

De Man and Burns (2006)—case

SC management Adoption of sustainability initiatives inmultinational companies

Colicchia et al. (2011)—case

Analysis based on complex systems modeling Higgins et al. (2010)—conceptualBatch traceability and collaboration Hamprecht et al. (2005)—caseEco-efficiency and eco-intensity Schmidt and Schwegler (2008)—mathEnergy efficiency Van Hoek and Johnson (2010)—caseFramework Carter and Rogers (2008)—conceptual; Melnyk et al. (2010)—conceptual;

Seuring and Müller (2008)—conceptualNatural resource based view of the firm Markley and Davis (2007)—conceptualProductivity and quality and the effect onshareholder value

Mefford (2011)—conceptual

Relationship between multinational companiesand non-governmental organizations

Perez-Aleman and Sandilands (2008)—case

Relationship between innovation powerand sustainability strategies

Van Bommel (2011)—conceptual

Role of SMEs in global supply chain Moore and Manring (2009)—conceptual

29

Environmentalissues

Economic issues

Socialissues

2

48

2

Fig. 2. Distribution of articles with respect to coverage of the 3 sustainabilitydimensions.

L. Chen et al. / Int. J. Production Economics 149 (2014) 154–163158

three dimensions, identifying literature sources that take therespective factors and sub-areas into account. We find that someareas have received a lot of attention from researchers while other

areas have received considerably less attention. The average articleaddresses (only) 3.3 factors. Consequently, there is room forbroader perspectives. Still, it is important to investigate the impact

Table 5Sustainability factors to consider when choosing manufacturing facility location.

Area Factor Determinants oflocation

Source(s)

Environmental Ecosystem vitality Air pollution relatedto the eco-system

Abreu (2011), Curkovic and Sroufe (2011), Dou and Sarkis (2010), Ueda et al. (2009),Ukidwe and Bakshi (2005), Varga et al. (2009)

Water quality relatedto the eco-system

Dou and Sarkis (2010), Varga et al. (2009)

Biodiversity protection Bello et al. (1999), Carter and Rogers (2008), Hall and Matos (2010), Higgins et al. (2010), McClintock (1999),Mickwitz et al. (2011), Perez-Aleman and Sandilands (2008), Rathore et al. (2011), Ueda et al. (2009),Ukidwe and Bakshi (2005), Vachon and Mao (2008), Valente et al. (2011)

Climate changeperformance

Bello et al. (1999), Carter and Rogers (2008), Higgins et al. (2010), Huang et al. (2010), Linton et al. (2007),Rathore et al. (2011), Reich-Weiser and Dornfeld (2009), Stephenson et al. (2008), Ueda et al. (2009),Vachon and Klassen (2007), Vachon and Mao (2008), Valente et al. (2011), Varga et al. (2009)

Environmental health Environmental burdenof disease

Abreu (2011), Christopher et al. (2011), Closs et al. (2011), Dou and Sarkis (2010), Higgins et al. (2010),McClintock (1999), Perez-Aleman and Sandilands (2008), Ueda et al. (2009)

Air pollution relatedto humans

Abreu (2011), Dou and Sarkis (2010), Ueda et al. (2009), Ukidwe and Bakshi (2005)

Water quality relatedto humans

Dou and Sarkis (2010)

Environmental factorswithin production

Material use Abreu (2011), Lu et al. (2007), Mickwitz et al. (2011)Energy consumption Akkerman et al. (2010), Bello et al. (1999), Curkovic and Sroufe (2011), Donnelly et al. (2006), Kleindorfer

et al. (2005), Rathore et al. (2011), Reich-Weiser and Dornfeld (2009), Stephenson et al. (2008), Ueda et al.(2009), Vachon and Klassen (2007),Valente et al. (2011),Vurro et al. (2009)

Renewable resources Abreu (2011), Dou and Sarkis (2010), Linton et al. (2007), Mickwitz et al. (2011), Proops et al. (1999), Reich-Weiser and Dornfeld (2009), Ukidwe and Bakshi (2005), Wolf (2011)

Waste generation Dellink et al. (1999), Christopher et al. (2011), Curkovic and Sroufe (2011), Dou and Sarkis (2010), Eagan andJoeres (1997), Posch (2010), Rathore et al. (2011), Schliephake et al. (2009)

Waste treatment Chen (2005), Dou and Sarkis (2010), Posch (2010), Rathore et al. (2011), Schmidt and Schwegler (2008),Vachon and Klassen (2007), Zhu and Sarkis (2007)

Waste disposal Albino and Kuhtz (2004), Colicchia et al. (2011), Corsano et al. (2011), Curkovic and Sroufe (2011),De Man and Burns (2006)

Recycling of material,energy, and waste

Albino and Kuhtz (2004), Colicchia et al. (2011), Corsano et al. (2011), Higgins et al. (2010), Kleindorfer et al.(2005), Posch (2010), Rao and Holt (2005), Schliephake et al. (2009),Vachon and Mao (2008)

Social Governance Corruption Jorgensen and Knudsen (2006), Bai and Sarkis (2010), Barnes and Morris (2008),Closs et al. (2011), De Man and Burns(2006), Dou and Sarkis (2010), Hall and Matos(2010),Reuter et al. (2010),Wolf (2011)

Political stability Dou and Sarkis (2010)Trade and tariff barriers Chen (2005), Christopher et al. (2011), De Man and Burns (2006), Zhu and Sarkis (2007)

Education General education level Hutchins and Sutherland (2008), McClintock (1999), Perez-Aleman and Sandilands (2008),White (2009), Vurro et al. (2009)

Individual Civil liberties Perez-Aleman and Sandilands (2008)Human rights Jorgensen and Knudsen (2006), Carter and Rogers (2008), Perez-Aleman and Sandilands (2008), Reuter

et al. (2010), Vurro et al. (2009)Community Equity Carter and Rogers (2008), Hutchins and Sutherland (2008), Perez-Aleman and Sandilands (2008)

Safety Hutchins and Sutherland (2008)Cohesion Bai and Sarkis (2010), Dou and Sarkis (2010), Rathore et al. (2011)Local technology Barnes and Morris (2008), Bello et al. (1999), Christopher et al. (2011), Closs et al. (2011),

Dou and Sarkis (2010), Hall and Matos (2010), Milberg (2008), Rathore et al. (2011),Tate et al. (2010), Varga et al. (2009), Xia and Tang (2011)

Economic Cost Labor cost Carter and Rogers (2008), Hall and Matos (2010), Hutchins and Sutherland (2008), Kleindorfer et al. (2005),Mefford (2011), Valente et al. (2011), Van Hoek and Johnson (2010), Xia and Tang (2011)

Energy cost Bayat et al. (2011), Carter and Rogers (2008)Material cost Kleindorfer et al. (2005)Facility cost Christopher et al. (2011)Logistic cost Ueda et al. (2009)

Market International markets Boons and Mendoza (2010), Chen (2005), Curkovic and Sroufe (2011),Flint and Golicic (2009), Purnomo et al. (2009)

Potential demand Huang et al. (2010), Rathore et al. (2011), Reuter et al. (2010), Ueda et al. (2009)Economic stability Favorable tax Jorgensen and Knudsen(2006), Christopher et al. (2011), Colicchia et al. (2011), Closs et al. (2011), Donnelly

et al. (2006), Dou and Sarkis (2010), Hutchins and Sutherland (2008), Milberg (2008), Seuring and Müller(2008), Ueda et al. (2009), Vurro et al. (2009)

Exchange ratefluctuations

Akkerman et al. (2010), Barnes and Morris (2008), Christopher et al. (2011), Mefford (2011),Milberg (2008), Proops et al. (1999)

Suppliers Proximity to keysuppliers

Christopher et al. (2011), Schliephake et al. (2009), Wolf (2011)

Potential high qualitysuppliers

Dou and Sarkis (2010)

Growth Industry growth Milberg (2008)Competitiveness in thehost region

Jorgensen and Knudsen (2006)

L. Chen et al. / Int. J. Production Economics 149 (2014) 154–163 159

on particular factors thoroughly in order to fully understand thefactor and its role for sustainability in manufacturing facilitylocation decision-making.

4. Framework for sustainability in manufacturing facilitylocation decision-making

We propose a conceptual framework for synthesizing differentperspectives on sustainability and manufacturing facility locationfor industrial firms that combines two key elements. First, firmsshould evaluate sustainability on an integrated viewpoint on theeconomic, environmental and social perspectives and aspects; forexample the “triple-bottom-line”. However, only selected aspectsof sustainability have been highlighted in literature. Second, weadd the manufacturing strategy dimension of the industrial firm,that is largely absent in the current literature on sustainabilitywith relevance to facility location. Even though strategies for howto deal with sustainability per se or for separate dimensions suchas an environmental strategy (Yang and Sheu, 2007) are discussedin the literature, the corporate and business strategy perspective ismissing. Fine et al. (2002) present a framework for value chaindecision-making that synthesizes strategic value added based onqualitative models and economic value added based on quantita-tive models. Similarly, we believe that the strategic perspectiveconcerning e.g. competitive position, markets, and technologyshould be added to the sustainability aspects. To some extent inliterature, strategic issues may have been incorporated in theeconomic dimension of sustainability. However, as described byFine et al. (2002), the economic dimension is fundamentallyconcerned only with cost-related issues and lacks the long-termstrategic perspective. In particular, decisions on the global manu-facturing footprint of the industrial firm must include both thestrategy and sustainability perspectives. Also, the global footprintshould not be restricted to the manufacturing network of the firm,but should also incorporate the entire supply network. We use thebasic structure and idea of synthesis in Fine et al. (2002) fordeveloping our framework, and add the environmental and socialaspects; as illustrated in Fig. 3.

The framework in Fig. 3 includes two levels of synthesis. First, theeconomic, environmental, and social perspectives are synthesized tothe sustainability perspective. This is represented in Fig. 3 by arrows(a)–(c). As mentioned before, the aim of this synthesis is to providean integrated viewpoint on the sustainability perspectives. Based onthe important factors identified in previous research, Table 5 presentsa list of major factors to be considered during this synthesis process.

Even though many studies have integrated the three aspects ofsustainability, there are very few studies that have treated sustain-ability with facility location as a focus. In this literature review, weonly identified six papers (cf. Section 3.1). Eagan and Joeres (1997)provided a sustainability assessment tool at the company level.Dou and Sarkis (2009) researched sustainability and location pro-blems with an offshore outsourcing focus. Reich-Weiser and Dornfeld(2009) analyzed the environment impacts on emission and water inlocation decision-making. Other researchers have considered specificindustries, such as retailing (Bayat et al., 2011), biofuel production(Corbiere-Nicollier et al., 2011) and aerospace manufacturing (Vargaet al., 2009). This synthesis process—with facility location as a focus—apparently needs further development.

Second, the sustainability and manufacturing strategy perspec-tives are synthesized (arrow d) for making informed decisions onthe global manufacturing footprint. The aim of this synthesis is toestablish the strategic position so that manufacturing capability ofthe company fits the need from the market (or customer) side.This synthesis process could be even more of a challenge for theaverage manufacturing company, since the manufacturing strategyand sustainability perspectives should be carefully combined tobring added values to the market. This type of research withrelevance for facility location is largely missing.

The framework also suggests that there are multiple effects onthe performance of the firm, as well as multiple dimensions offirm performance. Arrows (e)–(h) represent the direct effects fromthe economic, environmental, social, and strategic perspectives,while arrow (i) represents the effect from the sustainabilitysynthesis and arrow (j) the effect from the second level ofsynthesis between strategy and sustainability. Firm performancecan be differentiated between business performance (e.g. marketshare, profitability, and growth), operational performance (notonly cost, but also including e.g. quality, delivery, and flexibility,i.e. the main competitive priorities), environmental performance,and social performance.

Both decision-making and performance measures need to bebalanced. It is important that all perspectives in Fig. 3 are takeninto account when making decisions that affect the global foot-print and it is important to have a balanced view on theperformance of the firm. The fundamental idea of the balancedscorecard (Kaplan and Norton, 1992) can be applied here, in that abalanced view is needed between all perspectives. Figge et al.(2002) extended the work of Kaplan and Norton (1992) byproposing a sustainability balanced scorecard, which can serveas a starting point for developing balanced views on strategy andsustainability.

CostMarketEconomic stabilitySuppliersGrowth

Eco-system vitalityEnvironmental healthEnvironmental factorswithin production

GovernanceEducationIndividual Community

Economicperspective

Environmentalperspective

Socialperspective

Sustainabilityperspective

Synthesis 1

Manufacturingstrategy

perspective

Competitive positionMarket positionTechnologyCustomersGlobal footprint

Performance BusinessOperationalEnvironmentalSocial

Synthesis 2

(a)

(e)

(b)

(c)

(f)

(d)

(g)

(j)

(i)

(h)

Manufacturing FacilityLocation Recommendations

Investments Supply chains

Fig. 3. Conceptual framework for sustainability in manufacturing facility location decision-making.

L. Chen et al. / Int. J. Production Economics 149 (2014) 154–163160

5. Research agenda

We have identified some areas which deserve further researchattention. In summary, these make up a research agenda forsustainability in manufacturing facility location decision-making.There are many answers yet to be found—and maybe evenquestions yet to be raised—concerning how to locate manufactur-ing facilities in a sustainable way, i.e. economically, environmen-tally, as well as socially in the long term.

5.1. The practical dimension

We encourage more case research to provide better under-standing of the enablers and barriers for sustainable global locationexperienced by industrial firms. Would this differ between differentgeographical regions? Would this differ depending on the origin ofthe company? Even though there are some studies that comparecountries at the country-level, there are very few studies that dothis for specific industries. Such studies are important to be ableto account for industry as a control variable, particularly if the setof industries varies considerably between the countries that arecompared. The benefits, limitations and challenges may well differin different regions of the world. An identification and analysis ofsuch factors would be beneficial for manufacturing firms in theirdecision-making processes for facility locations.

5.2. Social aspects relevant to manufacturing facility location

So far, the social perspective has been largely absent in frame-works with relevance to decision-making concerning manufactur-ing location. The other two dimensions of sustainability havereceived much more attention, while research on the socialaspects has been lagging, at least when it comes to includingthese in sustainability frameworks. Recently, Klassen and Vereecke(2012) discussed the social dimension for supply chain manage-ment in general, including the relationship with environmentalperformance, with some reference to geographical location.However, further studies on social factors and how these relateto location issues are needed. How should social factors bemeasured? Do companies and the society have the same viewon social factors, or is there a need for a distinction between theseentities?

5.3. Synthesizing the economic, environmental,and social perspectives

If a full sustainability perspective is to be developed formanufacturing facility location, all three dimensions need to besynthesized. There are three dimensions to this synthesis: content,process and context. Models that provide balanced approacheswith respect to content should be developed in order to properlyorganize the economic, environmental, and social perspectives,and indicate the interaction of these perspectives. The processdimension, i.e. how companies create the synthesis, is largelymissing. This indicates that research on organization aspects andimplementation models are needed. The context dimension isconcerned with external contingency factors, such as country andindustry (see also Section 5.1 and Table 3), that may affectoperational choices. There is a need for the identification ofcontingency factors that can explain why different circumstancesmay imply different balances between the three dimensions.

5.4. Adding the strategic perspective

The manufacturing strategy perspective is not included in thesustainability aspects. For example, what should be basis for the

competitive position of the firm, which markets or customersshould be targeted, which technologies should be mastered andpursued, etc. The strategy approach per se may be proactive,reactive or value-seeking, which may or may not influence theapproach to sustainability. Even though the literature on sustain-ability advocates a proactive or value-seeking approach (see e.g.Yang and Sheu, 2007), the reality may well be different. Studies onthe relationship between strategy and sustainability are of theutmost interest; see e.g. Carraher et al. (2008) and Baumgartnerand Korhonen (2010) for discussions on general strategic manage-ment perspective on sustainability. If sustainability is truly on thestrategic agenda, integrated approaches that aim at synthesizingcorporate and business strategy with sustainability should bepresent. In manufacturing networks with multiple locations, thedistribution of sustainability management is a concern. For exam-ple, should centrally-driven global approaches be used or shouldeach plant be allowed to build its own sustainability strategy? Andhow does this relate to the strategy formation of the companyconcerning decision-making on newmanufacturing locations? Thefundamental research question relates to the synthesis of thestrategic and sustainability perspectives. This area offers widepossibilities for new and important research.

5.5. Testing and expansion of the framework

The framework in Fig. 3 lends itself to empirical testing usingsurveys. The four perspectives (strategic, economic, environmen-tal, and social) and sub-areas can be converted to constructs. First,measurement models need to be developed and validated for eachconstruct. Then, practice-performance relationships can bestudied. The framework suggests that there are both direct andindirect effects on performance, which can be tested usingstructural equations modeling techniques. Empirical testing ofthe framework can also include elements that potentially canenrich the framework and provide a richer understanding of therelationships among sustainability, strategy, and performance.

6. Concluding remarks

The literature of relevance for manufacturing facility locationhas been classified and reviewed. We can conclude that sustain-ability is an area that is gaining interest. Still, more research isneeded, since there are very few studies that explicitly treatsustainability when making decisions on facility location. Thispaper contributes with a summary of perspectives, factors, andapproaches on all aspects on sustainability. We hope that thisreview can be a useful and inspirational source for further researchon sustainability, manufacturing facility location and global opera-tions footprints.

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L. Chen et al. / Int. J. Production Economics 149 (2014) 154–163 163

IIPAPER

Applying GRI reports for the investigation of environmentalmanagement practices and company performance in Sweden, Chinaand India

Lujie Chen*, Ou Tang, Andreas FeldmannDivision of Production Economics, Department of Management and Engineering, Linköping University, SE 58183 Linköping, Sweden

a r t i c l e i n f o

Article history:Received 15 January 2013Received in revised form29 January 2014Accepted 1 February 2014Available online 8 February 2014

Keywords:Environmental management practicesCompany performanceGlobal reporting initiativeManufacturing industryEmpirical research

a b s t r a c t

The relationship between environmental management practices (EMPs) and company performance hasrecently been debated in literature and is of interest for both industrial managers and political decision-makers. This paper investigates the relationship between EMPs and firm performance in manufacturingcompanies in Sweden, China and India. With the content analysis of Global Reporting Initiative (GRI)reports and financial reports of sample companies, the levels of EMPs and the companies’ financialperformances were coded. Further statistical assessment was conducted in order to identify patterns andcorrelations. The results indicate that only selected EMPs have been employed differently in threedifferent countries. Most EMPs clearly do not have a positive correlation with the financial performance;i.e. employing EMPs does not necessarily improve the economic consequence of companies. Neverthe-less, a number of EMPs do have a strong correlation with improving innovation performance in variouscompanies. It is also interesting to note that a negative correlation exists between the Environmentalstandard for suppliers and Sales growth. This is possibly due to increasing operational costs and a delay inmarket acceptance. This research illustrates the possibility of using standard environmental data fromGRI reports as a resource for future studies of EMPs. In order to improve long-term financial perfor-mance, this study also suggests that innovation should gain a substantial amount of attention when EMPsare employed.

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1. Introduction

Literature shows that operations management are increasinglyinterested in a relationship between environmental managementpractices (EMPs) and company performance (Donnelly et al., 2006;Jabbour et al., 2008 and Walls et al., 2012). In practice, manycompanies attempt to include an environmental issues strategy andagenda in order to address stakeholders’ needs and competitivepressures (Hofer et al., 2012). One case in point is that moremanufacturing facilities introduce an Environmental ManagementSystem (EMS) with the aim of improving their performance(Johnstone and Labonne, 2009). On the other hand, companies arefacing the common perception that green management will in-crease costs and reduce profits, which discourage green manage-ment efforts. Empirical research is relatively limited when it comes

to an investigation of the economic consequences of green man-agement at the company level.

One recent interesting study concerning this was conducted byMontabon et al. (2007). By analyzing the reports from US and non-US corporates, they investigated a link between EMPs and companyperformance. They concluded that a positive and significant rela-tionship exists between them. Also, by analyzing a sample of Stan-dard & Poor’s 500 companies, Khanna and Anton (2002) exploreddifferent motivations that drive corporate environmentalism. Theyfound that specific factors such as proxies for incentives, a desire fora competitive advantage and regulatory pressures will determinethe type of EMPs to be chosen by the companies. Moreover, somerecent research indicates that EMPs can lead to innovations withincompanies, which should have a potential to further reduce costs orincrease demands (Russo and Fouts, 1997; Montabon et al., 2007;Hall and Matos, 2010; Wolf, 2011; Wu and Pagell, 2011; Hoferet al., 2012). In other words, EMPs can first improve the innova-tion performance and then seek to enhance the financial perfor-mance. However, the interaction between innovation performanceand financial performance has not been fully investigated.

* Corresponding author.E-mail address: lujie.chen@liu.se (L. Chen).

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http://dx.doi.org/10.1016/j.jclepro.2014.02.0010959-6526/� 2014 Elsevier Ltd. All rights reserved.

Journal of Cleaner Production 98 (2015) 36e46

Despite the above positive results, there are also studiesshowing opposite outcomes. For example, Yang et al. (2011) testedrelationships between lean manufacturing practices, environ-mental management entities and business performances by usingthe existing data from the International Manufacturing StrategySurvey, collected in 2005. They find that EMPs alone are negativelyrelated to market and financial performances. However, improvedenvironmental performance substantially reduces the negativeimpact of EMPs on market and financial performance.

According to the discussion above, there is still a limited amountof research that explores the relationship between EMPs andcompany performance. Furthermore, the study results are contro-versial. Additionally, the aforementioned studies do not distinguishbetween sample companies with external factors. Nevertheless,nowadays there are several emerging and continuing trendsincluding green management efforts and globalization that lead toa variety of fundamental changes in the manufacturing environ-ment. In order to conform to these trends, the academic area andmanagement fields need to develop a better understanding of therelationship between EMPs and company performance. This shouldnot only be the case for their countries, but also for other parts ofthe world. A comparison of various industrial sectors could also beof great interest.

Motivated by this background, the current study aims to explorethe link between EMPs and its company’s performance. One dif-ference compared to previous studies is that the current researchattempts to investigate this link within different contexts, i.e.different industries as well as different countries. An evaluation oftheir performance includes financial, innovative, and environ-mental considerations. Additional efforts will also be given to theinteraction between innovation and financial performance in orderto better understand EMPs and their impact. Previous studies suchas Montabon et al. (2007) indicate correlations between a com-pany’s performance and some specific EMPs and will serve as theprimary focus of this investigation. In short, this research seeks to:

➢ Explore the relationship between environmental managementpractices and a firm’s financial performance. More specifically, itwill compare any results found against those reported inMontabon et al. (2007);

➢ Compare if selected industries (for example, the process in-dustry) are employing different environmental managementpractices than the rest of the manufacturing industry;

➢ Compare the companies’ environmental management practicesand environmental performance in developed and developingcountries.

In order to achieve the above study objectives, several hypoth-eses were developed using organizational theory with details thatare presented and explained in Section 2. In this study, data iscollected from the published annual reports of the sample com-panies, i.e. Global Reporting Initiative (GRI) and financial reports.The levels of EMPs and their performance are coded using contentanalysis.

This paper will also contribute to the development of knowledgein several ways. It adds to the current literature by introducing acoherent theory building approach to investigate any link betweenEMPs and a company’s performance. Institutional theory, winewinprinciple, complexity theory and diffusion theory of innovation areapplied to develop hypotheses that will explore the links. More-over, it examines the different EMPs that are employed and re-ported by manufacturing companies in developed and indeveloping countries. In this way, it enriches a discussion aboutenvironmental management and company performance whileconsidering a facility’s location. From a practitioner’s point of view,

this research helps managers predict any possible interactionsamong EMPs and the financial performance. It will also explorehow they can integrate environmental management into theirstrategy development process.

2. Theoretical background and research framework

A recent literature review by Sarkis et al. (2011) illustratesorganizational theory and its potential for advancing emergentenvironmental management or anything regarding the green sup-ply chain management field. Based on the viewpoints of theseauthors, organizational theory provides a solid background fordeveloping a research hypothesis. In the following, the researchhypotheses in the current study and for relevant theories will bepresented.

2.1. Institutional theory

Institutional theory is used to justify the sample selection in thisresearch. Institutional theory explains how external pressures in-fluence organizational actions (Hirsch, 1975; Sarkis et al., 2011).According to institutional theory, normative, coercive and mimeticdrivers act as different isomorphic forms (DiMaggio and Powell,1983; Sarkis et al., 2011). This means that governmental agencies,laws, regulations and requirements from society (those from cus-tomers and markets) will drive manufacturers to implementenvironmental management practices.

In European countries, manufactures have to be environmentalfriendly where this concept has lasted a long time. They havenormative, coercive and mimetic pressures from governments,local communities, customers and other external stakeholders.Sustainable development was introduced as a specific goal of theEuropean Community in the Single European Act of 1987. Further-more, the integration of environmental requirements into fullcommunity policies was further included in theMaastricht Treaty of1992 (Montgomery and Sanches, 2002). Moreover, a range ofenvironmental policies have been established by the EuropeanUnion, such as the restriction of hazardous substances (RoHS). Thisapplies to product design and a waste electrical and electronicequipment (WEEE) directive, which is directed at product life cycles(Tseng, 2013). These regulations have an impact on some specificEMPs like environmental risk analysis, the use of life cycle analysisand an environmental design. For instance, the Swedish centralgovernment has a specific environmental requirement systemwhere local communities also have programs that focus on envi-ronmental issues. Customers, including those in business, are oftengreen-awarded. Therefore, Swedish companies and companiesoriginating from Sweden are often considered to have well-developed environmental programs, including well-documentedreports for their programs. Thus in this study, some Swedishcompanies were sampled to represent the developed countries.

Conversely, the need to export to foreign countries provides acertain amount of pressure for manufactures in developing coun-tries, such as China and India, to improve their environmentalperformances. In these developing countries, economic perfor-mance is typically the most influential driver for companies toimplement environmental management practices (Zhu and Sarkis,2004). It is also particularly important to understand the relation-ship between environmental practices and a firm’s economic per-formance in these rapidly developing countries. China and India aregood examples. Their manufacturing industries make up largeportions of their economies. Thus, sample companies from Indiaand China were selected and compared for this study.

The study also found that differences in other distinguishedindustries are also interesting. In Sweden, Indian and China,

L. Chen et al. / Journal of Cleaner Production 98 (2015) 36e46 37

process industry and the mechanical/machinery industrycontribute significant economic outputs. Most of the process ori-ented manufacturing industries consume more energy and areresource intensive. They include the pulp and paper industry,chemical industry, food process industry and mining companies.Compared with other industries, they face relatively high regula-tory pressures from an internal and external stakeholders’perspective. According to the institutional theory (Zhu and Sarkis,2007; Sarkis et al., 2010, 2011; Tate et al., 2010; Sarkis et al., 2011;Walls et al., 2012), regulatory pressures should also motivatecompanies to apply specific EMPs. Therefore, a comparison be-tween a process industry and a non-process manufacturing in-dustry was another focus of this study. Based on the abovediscussion, the following hypotheses were developed.

Hypothesis 1. There are significant differences in environmentalpractices employed amongmanufacturing companies in Sweden, Indiaand China.

Hypothesis 2. There are significant differences in environmentalpractices employed between the process industry and othermanufacturing industries.

2.2. Winewin principle

The winewin principle is developed from an ecologicalmodernization theory with the aim to explain the relationshipbetween environmental performance and other performances in afirm. Researchers that support the winewin hypothesis have thefollowing arguments: i) Environmental regulations and standardscan help companies achieve innovations, which can offset regula-tory costs (Montabon et al., 2007; Sarkis et al., 2011). In this way,environmental practices adopted due to regulations can have apositive impact on a company’s performance. ii) Environmentallyproactive manufacturers put more efforts on technological inno-vation, which helps them to not only decrease their operationalcosts (for example by recycling wastes), but also to increase a de-mand for eco-friendly products. In this way, manufactures can gainmore opportunities in their operations and improve their com-pany’s performance (Montabon et al., 2007; Sarkis et al., 2011).

Based on the abovewinewin principle, the following hypothesisis developed in order to contribute to the previous debate on EMPs,a company’s performance and its sustainability strategy.

Hypothesis 3. There are correlations between environmental prac-tices and innovation/ financial performance in the manufacturingindustry.

2.3. Complexity theory

In an organizational context, complexity theory can be explainedthrough environmental factors such as customers, suppliers,governmental regulations, and technological advancements(Chakravarthy, 1997). Practices and performance in a firm are influ-enced by both internal and external factors. Some early studiesindicate the importance of a supply chain environment in imple-menting EMPs. The implications for complexity theory in these kindsof studies state that some activities like an early supplier’s involve-ment in neweco-product designs can influence afirm’s performance.Additionally, standardizing and auditing a suppliers’ environmentalmanagement system, communications with customers for eco-design, and the handling of product returns from customers canalso influenceafirm’s performance (Koufteros et al., 2007, Sarkis et al.,2011; Vachon and Klassen, 2006). Moreover, according to Tseng(2011a, b), productivity and competitive advantage can be

enhanced throughaproposed framework for theassessmentofGreenSupply Chain Management (GSCM), since GSCM criteria can helpreviewand improvedevelopmentplansandperformanceevaluationsstrategically. Hence the following hypothesis was developed.

Hypothesis 4. Early supplier involvement, environmental standardsand audits for suppliers correlate well with a firm’s performance.

2.4. Diffusion theory of innovation

The diffusion theory of innovation claims that innovation can becommunicated by social members. Early adopters of it can alsooften have more benefits (Sarkis et al., 2011). The diffusion ofenvironmental friendly operations can be seen as an innovationprocess. According to an eco-innovation and global diffusion modelby Huber (2008), a pioneering country and its rooted industriesoften develop regulatory and innovation technologies in a globalinnovative competition. Subsequently, other countries will eitheradopt these regulations or have the intention to do so. The pioneeradopters often gain more of an improvement in performance thanlater ones, namely imitative adopters. Sweden has long beencredited with employing good environmental practices, whereasother countries like China and India are often considered by the restof the world as just starting to develop environmentally friendlymanufacturing practices. Thus, the last hypothesis is introduced.

Hypothesis 5. Sweden’s environmental performances inmanufacturing are different compared to the similar industry in Indiaand China.

3. Research methodology

3.1. Sample companies

This study has a focus on the manufacturing industry withselected samples from Sweden, China and India. For each samplecompany, the selection criteria include:

➢ The company should belong to a manufacturing industry;➢ The company should originate from Sweden, China or India;➢ The company should have a GRI report in 2010.

First, a potential list that includes 109 manufacturing plants inSweden was obtained. This is the same list that was presented in aprevious study (but with different study objectives) conducted in2006 by one of the authors (Feldmann, 2011). However, while thatstudy focused on manufacturing plants, this one concentrates onmanufacturing companies and was difficult to collect a large size ofsamples from. In fact, in many cases, several manufacturing plantsbelong to the same company. Thus, more potential sample com-panies from Sweden are drawn from the following sources: TheDow Jones Sustainability World Index 2010 and the sustainableoperations ranking list for companies by the global investmentbanking and securities company Goldman Sachs as well as thefinancial services company UBS in 2010.

Using the selecting criteria of a manufacturing company originalfrom Sweden, these sources provide a list of Atlas Copco, Electrolux,Sandvik, SKF, SCA, Volvo Group, Assa Abloy and ABB. Combinedwith a list from a previous survey study (Feldmann, 2011) anddeleting duplications, finally 16 manufacturing companies thatserve as research samples for Sweden were obtained. Additionally,data was collected from published sustainable reports (GRI) on theofficial website of the sample companies.

As stated before, the original Swedish samples can be obtainedfrom the above lists while the Indian and Chinese ones are notlisted in the Dow Jones Sustainability World Index 2010 or in the

L. Chen et al. / Journal of Cleaner Production 98 (2015) 36e4638

sustainable rankings from Goldman Sachs or UBS. Thus, concerningthe Chinese and Indian samples, only the manufacturing com-panies who are registered to the Sustainability Disclosure Database(Global Reporting Imitative, 2012) have been selected. In order toavoid non-standard environmental reporting data, only thosecompanies that have introduced a GRI reporting system are chosen.If the GRI report in 2010 cannot be found on the official website ofthe company, the Sustainability Disclosure Database (GlobalReporting Imitative, 2012) is used for a double check. As the result,9 Chinese and 12 Indian companies meet the criteria.

Finally, 37 companies satisfy the selection criteria and areincluded as examples in this study. Recall that one research purposeis to investigate the existence of mechanisms behind the relation-ships between EMPs and a company’s performance, especially in themanufacturing industry. As stated before, most process orientedmanufacturing companies consumemore energy and resources andfeel more regulatory pressure. One hypothesis indicates that thereare significant differences in environmental practices employedbetween a process industry and another manufacturing industry.Thus, the 37 selected companies are divided into two groupsdepending on their manufacturing branches, i.e. Process IndustryandNon-Process Industry. The latter includes automotive, electronicsand capital goods, etc. The samples are summarized in Table 1.

In order to evaluate the impact of EMPs on financial measures, itis also necessary to define some financial variables. According to aliterature review and annual financial reports by sample companiesin Sweden, China and India, a Return on capital employed by (ROCE)and Sales growth are used as financial measurements. These are the

same that were used inMontabon et al. (2007) except that they alsouse operating earnings as a financial indicator. Since most Chineseand Indian companies do not publish operating earnings in theirannual financial reports, this study’s operating earnings areexcluded from financial performance indicators. The informationfor ROCE and Sales growth can often be obtained in the annualreport of the sample companies. Additionally, these measuresefficiently reflect the aggregate financial performance at the com-pany level. Details of the definition are presented below.

3.1.1. Return on capital employed (ROCE)This is an objective financial measure, which reflects the success

of a business in realizing its goal. It is often applied to indicate theoverall efficiency and profitability of the business (Devinney et al.,2010).

Return on Capital Employed ¼Net Operating Profit After Tax=Capital Employed

3.1.2. Sales growthThis states an increase in sales over a specific period of time. In

this research, we only calculated the sales growth for the 2010 fiscalyear.

The financial data is collected from published 2010 annual re-ports of sample companies. The data for Swedish companies wasalso taken from Affärsdata (Business data) a database for a doublecheck.

3.2. Content analysis

Instead of using an existing database, the data is collected fromthe published reports of sample companies in this study. The mainmethodology applied in this research is content analysis based.Content analysis has been recognized as a systematic, structural,replicable methodology for compressing long texts into fewercontent categories based on an explicit coding process(Krippendorff, 2012; Shorideh et al., 2012). It is also a literaturereview method of a systematic, quantitative and qualitativedescription of a manifest content of literature in our specific area(Marasco, 2008). Moreover, research in accounting has shown theopportunity to classify disclosures as favorable or unfavorable, withquantitative measures that reflect the intensity or degree offavorableness, especially based on the published annual reports ofcompanies (Moneva et al., 2006).

According to Krippendorff (2012), six questions have beenaddressed for content analysis:

➢ Which data are analyzed?➢ How are they defined?➢ What is the population from which they are drawn?➢ What is the setting relative to which the data are analyzed?➢ What are the boundaries of the analysis?➢ What is the essence of the inferences?

The analysis is restricted in the following four-step framework(Gold et al., 2010):

➢ Material collection➢ Descriptive analysis➢ Category selection➢ Material evaluation

In this study, the relationship between one set of independentvariables and dependent variables corresponding to a company’s

Table 1Summary of the samples.

Company name Country Industry

BTa Sweden AutomobileScania Sweden AutomobileVolvo Cars Sweden AutomobileABB Sweden Capital goodsSKF Sweden Capital goodsAlfa Laval Sweden Capital goodsAssa Abloy Sweden Capital goodsElektrolux Sweden Capital goodsEricsson Sweden ElectronicsAAK Sweden ProcessBillerud Sweden ProcessHolmen Sweden ProcessStora Enso Sweden ProcessSCA Sweden ProcessSandvik Sweden ProcessSSAB Sweden ProcessBYD China AutomobileDongfeng Peugeot China AutomobileWeichai Power China AutomobileChina National Machinery

Industry CorporationChina Capital goods

China National Erzhong Group China Capital goodsHuawei China ElectronicsFoxconn China ElectronicsAlumium Corporation China China ProcessBao Steel group China ProcessTata motors India AutomobileMahindra India Capital goodsReliance Industries India Capital goodsITC Ltd. India Capital goodsJSW steel India ProcessACC(cement and Contrete) India ProcessAmbuja Cements India ProcessTata Metaliks India ProcessSail Mental India ProcessShree cements India ProcessChambal Fertilizers and Chemicals Limited India Process (chemicals)Jubilant Life Sciences Ltd India Process (chemicals)

a Swedish origins, but currently owned by foreign company.

L. Chen et al. / Journal of Cleaner Production 98 (2015) 36e46 39

performance is tested. The independent variables are 33 EMPs (seethe Appendix), which are the same as in Montabon et al. (2007).Some previous studies indicate that environmental regulations canlead to innovations, and that the resulting profits may offset thecost of complying with the regulation (Montabon et al., 2007;Porter and van der Linde, 1995). Thus, company performance isalso measured by innovation performance in addition to thefinancial performance indicated previously. Furthermore, innova-tion performance is measured by variables of product innovationand process innovation. As was previously mentioned, ROCE andSales growth are used as variables to measure the impact of thefinancial performance of EMPs. Data is collected from GRI reportsand annual financial reports of the sample companies.

3.3. Data processing and validity

The company’s annual GRI reports have been coded on the sametime basis in 2010. Content analysis is limited as far as clarifying thereliability and validity of the information. In order to overcome this,several independent researchers should conduct the search andcoding. This helps to reduce any restrictions that are found and willalso serve to strengthen it scientifically (Gold et al., 2010). In thisstudy, besides the authors, assistance was obtained from twomaster’s degree students that conducted the content analysis inorder to enhance the reliability of the study. Each report wasevaluated by at least two designated raters and the coding processwas finished in seven weeks.

Through a systematic approach and a structured process,research objectivity was ensured (Seuring and Müller, 2008).Hence, the researchers had a discussion in a seminar with theseaims:

➢ To identify the objectives of this research➢ To design a standard coding process➢ To ensure a consistent usage of the code sheet

At thefirst seminar, all of the EMPs and their performances exceptfor the financial performances are coded and tested for a samplecompany to establish the validity and reliability of the scales used inthis analysis. The Appendix shows the coding matrix for the samplecompanies. The raters rated some reports as much as three times inorder to understand inconsistencies. In these cases, different judg-ments have been accessed and resolved one at a time. With eacheffort, consistency is improved in the evaluation process and thisfurther increases the reliability of the data (Kassarjian, 1977).

One of the current research’s purposes is to compare the resultsof Montabon et al. (2007). The current study uses a standardenvironmental report, i.e. a GRI report, which was not used byMontabon et al. (2007) since such a standard environmental reportwas much less popular at the time. However, the same scales fromtheir experiment are used in this research. These scales includeEMPs and performance measurements (see the Appendix). Onlyone financial performance measurement, operating earnings, isexcluded since annual reports of companies in China/India do notrelease them often. The validity of these scales has been approvedby Montabon et al. (2007) in the following ways: employing aliterature review, anecdotal accounts in the business press, in-teractions with managers from the industry by researchers andprojects on environmental management.

In order to further test the validity of the data in this study, thecorrelations between operational, tactical, strategic, total EMPs andenvironmental performance have been explored. In principle, EMPsshould directly improve their environment performance. A Spear-man’s Rho test is used here since the EMPs and the companies’environment performance both involve ranked scales. The results in

Table 2 indicate a strong and positive correlation between the totalnumber of EMPs and the environment performance. The correlationcoefficient r¼ .515, (N¼37,p<0.01) indicates that high levels of totalEMPs are associatedwith high levels of environmental performance.Meanwhile, there are some moderate positive correlations betweentactical EMPs and the environmental performance (correlation co-efficient r¼ .416,N¼ 37, p< 0.10).We can also see that this is true forstrategic EMPs and the environmental performance (correlationcoefficient r ¼ .484, N ¼ 37, p < 0.01). The above test illustrates thatour data supports a correlation between EMPs and the environmentperformance. The coded data is therefore validated.

4. Data analysis

In this section, the first hypotheses will be tested. Hypothesis 1states that there are significant differences in EMPs employedamong manufacturing companies in Sweden, China and India.Since there are three groups, a non-parametrical KruskaleWallis 1-way ANOVA has been applied for each of the individual practices,for the total amount of operational EMPs, total tactical EMPs, totalstrategic EMPs as well as for all of the EMPs. The results indicatethat a majority of EMPs do not have any significant differences forall three countries. Significant differences (p < 0.05) are onlydiscovered in seven specified environmental management prac-tices when comparing companies in Sweden, China and India:

➢ Waste reduction (reactive)➢ Supply chain management➢ Environmental standards for suppliers➢ Environmental participation➢ Product development and innovation➢ Specific design targets➢ Corporate policies and procedures.

According to Table 3, it is interesting to see that Sweden is betterthan China and India when it only concerns the EMP of Supply chainmanagement (SCM). Regarding the other six EMPs the only signifi-cant difference is that Sweden is worse than China or India. Addi-tionally, the EMPs of Environmental audits for suppliers and Strategicalliances indicate a potential difference between country groups, butonly on a significance level of 10% (p < 0.10). Again, with these twoEMPs, Sweden is not better than India or China. One possible reasonfor this is its impact from globalization. As Christmann and Taylor(2001) indicate in their research, globalization has positive

Table 2A Spearman’ rho test for correlations between EMPs and the environmentalperformances.

Environmental performance

Operational Correlation coefficient .220Sig. (2-tailed)a .191Nb 37

Tactical Correlation coefficient .416*Sig. (2-tailed) .010N 37

Strategic Correlation coefficient .484**Sig. (2-tailed) .002N 37

Total Correlation coefficient .515**Sig. (2-tailed) .001N 37

*Correlation is significant at the .05 level (2-tailed).**Correlation is significant at the .01 level (2-tailed).

a Two-tailed significance test is used since a difference in direction is notspecified.

b N is the sample size.

L. Chen et al. / Journal of Cleaner Production 98 (2015) 36e4640

environmental effects because global ties increase self-regulatorypressures on firms in low-regulation countries. Even though In-dian and China have less strict environmental regulation thanSweden, the global tie still pushes the big manufactures to increaseself-regulatory pressures and helps them to implement betterenvironmental management practices. In this way, the largemanufacturing companies in India and China may reach the sameenvironmental standard as their international competitors.

The next analysis explores Hypothesis 2, which states: there aresignificant differences between process industries and the othermanufacturing industries in terms of their employment of EMPs. Allof the EMPs are on non-parametric scales where the sample com-pany for process one is 17 and non-process ones are listed at 20.Since the sample size for both groups is less than 30, a non-parametrical Mann-Whitney-U-test is performed for each individ-ual EMP, as well as a total number of operational EMPs, tacticalEMPs, strategic EMPs and EMPs in their entirety. When a test isconducted at a significance level of 5% (p < 0.05), there is not asignificance between these two groups. Furthermore, since theresult can be caused by relative small samples, a further test at the10% level is applied. There are minor differences between processand non-process industries at a 10% level (p < 0.10) in terms of thefollowing EMPs:

➢ Creating a market for waste products which belongs to theoperational EMPs. Process manufacturing companies do betterwith this EMP.

➢ Environmental audits of suppliers and Use of life cycle analysis ordesign for environment which belong to tactical EMPs. Non-process manufacturing companies do better in both of thesetwo EMPs.

Corporate environmental standards and environmental audit-ing are often motivated by regulatory pressures (Khanna andAnton, 2002). Process industries including pulp and paper pro-ducers as well as chemical producers often face more pressures

from external stakeholders and have more regulatory pressures.Moreover, the pulp and paper industry has a mature waste prod-ucts market. For example, the European pulp and paper industryproduces eleven million tons of waste where 70% of it is recycled(Monte et al., 2009). Additionally, Azapagic (1999) stated in herreview paper that an increasing pressure on the chemical andprocess industries will improve their environmental performance.As a result a more acceptable life cycle analysis coupled with amulti-objective optimization as a process design tool will optimizethe environmental, economic, technical and other miscellaneousaspects of this industry simultaneously. However, it is interesting tonote that according to the current study, a process industry is notnecessarily better in EMPs compared to a non-processmanufacturing industry. Previous studies are often limited to justanalyzing one individual industry rather than a comparison of oneindustry to another. As a result, empirical research is limited in thisarea and more research should concentrate on this in the future.

At the next stage of data analysis, a correlation between envi-ronmental practice, firm innovation and financial performance isinvestigated. For all companies, the sum of all environmentalpractice scores has been calculated as well as the aggregate scoresfor operational, tactical and strategic practices. These scores(shown in Table 4) have then been compared as far as their ROCEand Sales growth is concerned. Since EMPs are known as rankedscales, a correlation between EMPs and the financial performance istested by Spearman’s Rho test, which is a nonparametric correla-tion analysis that is capable of both ranked and continuous scales.Some tests have a reduced number of sample sizes due to an un-availability of certain financial performance measures. As can beseen in Table 4, neither the total amount of environmental man-agement practices, strategic EMPs, tactical EMPs or operationalEMPs have significant correlations with these two measures offinancial performance e namely the ROCE and in their Sales growth.

In order to further compare the results with ones in Montabonet al. (2007), the Spearman’s rho correlation tests have beenapplied looking at the financial performance and six other selectedvariables, which have been identified to be significant according toa conclusion reached by Montabon et al. (2007). These six EMPsare: Recycling, Proactive waste management, Remanufacturing,Environmental design, Specific design targets and Surveillance of themarket for environmental issues. The results can be found in Table 5.According to a current study, there are not any significant corre-lations between these EMPs and the financial performances.

At this point, a further test between the rest of the 27 EMPs andthe financial performances was conducted. Four specific EMPs havesignificant correlations with the financial performances andinclude Environmental information, Supply chain management,Environmental statuses for suppliers and Environmental risk analysis,

Table 3Ranks for EMPs between Sweden, China and India (p < 0.05).

Country N Mean rank

Waste reduction (reactive) Sweden 16 20.50India 12 15.88China 9 20.50Total 37

Supply chain management Sweden 16 24.31India 12 9.58China 9 22.11Total 37

Environmental standard for suppliers Sweden 16 21.75India 12 12.29China 9 23.06Total 37

Environmental participation Sweden 16 19.81India 12 24.33China 9 10.44Total 37

Product development and innovation Sweden 16 15.72India 12 17.75China 9 26.50Total 37

Specific design targets/goals Sweden 16 21.31India 12 11.29China 9 25.17Total 37

Corporate policy/procedure Sweden 16 17.75India 12 24.88China 9 13.39Total 37

Table 4Spearman’s rho test for the correlations between operational, tactical, strategic andtotal EMPs as well as for financial Performance.

Return on capitalemployed

Salesgrowth

Operational Correlation coefficient -.126 .227Sig. (2-tailed) .532 .197Sample size N 27 34

Tactical Correlation coefficient �.031 �.256Sig. (2-tailed) .879 .144N 27 34

Strategic Correlation coefficient �.118 �.076Sig. (2-tailed) .558 .669N 27 34

Total Correlation coefficient .005 �.070Sig. (2-tailed) .979 .694N 27 34

L. Chen et al. / Journal of Cleaner Production 98 (2015) 36e46 41

as seen in Table 6. Only Environmental informationwas observed tohave a positive strong correlation with Sales growth (r ¼ .501,N ¼ 34, p < 0.05) which indicates higher levels of environmentalinformation that was disclosed and was also associated with higherlevels of Sales growth. Sufficient environmental disclosure can in-crease an external stakeholder’s confidence, and thereby, increase aheightened market acceptability of the products. This can, in turn,also favor Sales growth. Furthermore, the three other EMPsexhibited negative correlations with regards to Sales growth (seeTable 6). Therefore, regarding Hypothesis 3, we conclude that onlyspecifically selected EMPs (which differ from the ones in Montabonet al., 2007) have correlations with the financial performances, andsuch correlations can be seen as either positive or negative.

When searching for correlations between environmental prac-tices, the performances and the process and product innovations,again a Spearman’s Rho test was applied since the EMPs and theinnovation performance rankings are on both scales. As was con-ducted previously, the test starts with obtaining the overall scoresfor environmental practices (operational, tactical, strategic andtotal) in order to identify whether any specific level of practiceseems to have a greater impact. The results in Table 7 indicated thatthere is not a correlation between operational EMPs and the level ofinnovation performance. However, there is a strong positive

correlation between two other variables, i.e. a correlation coeffi-cient of r ¼ .570 (N ¼ 36, p < 0.001) indicates that higher levels oftactical EMPs are associated with higher levels of innovation per-formance (products). Meanwhile, there is medium correlation be-tween strategic EMPs and their innovation performance (products)with a correlation coefficient of r ¼ .489 (N ¼ 36, p < 0.001). Acorrelation between total EMPs and the innovation performance(products) are strong and positive with a correlation coefficient ofr ¼ .556 (N ¼ 36, p < 0.001). One reason for this phenomena is thatEMPs can be treated as an overall strategic organizational approach,which plays an important role in planning the product/processdesign nowadays (Tseng et al., 2008a, 2008b; Tseng, 2011a, b). Anempirical research on German manufacturing companies alsoshows a positive correlation with the implementation level ofenvironmental management systems and environmental product/process innovation (Wagner, 2007). In EU countries, there areunique standards for environmental management systems such asthe EU Environmental Management and Auditing Scheme (EMAS).Rennings et al. (2006) conducted a study that gathered data on a setof German EMAS-validated facilities. Their research indicates thatthere is a positive impact on the maturity of environmental

Table 5Spearman’s rho test for correlations between six specific EMPs and the financialperformances.

Return onemployedcapital

Sales growth

Recycling Correlation coefficient �.026 �.200Sig. (2-tailed) .899 .256N 27 34

Waste reduction(proactive)

Correlation coefficient �.022 .142Sig. (2-tailed) .915 .423N 27 34

Remanufacturing Correlation coefficient .325 .209Sig. (2-tailed) .098 .235N 27 34

Environmental design Correlation coefficient .246 �.091Sig. (2-tailed) .217 .607N 27 34

Specific design targets/goals

Correlation coefficient .077 �.316Sig. (2-tailed) .702 .068N 27 34

Surveillance of market Correlation coefficient .068 .034Sig. (2-tailed) 34 .847N �.122 34

Table 6Spearman’s rho test indicating correlations between selected EMPs and the financialperformances.

Return on capitalemployed

Salesgrowth

Environmentalinformation

Correlation coefficient �.287 .501**Sig. (2-tailed) .147 .003N 27 34

Supply chainmanagement

Correlation coefficient �.079 �.341*Sig. (2-tailed) .697 .048N 27 34

Environmentalstandard forsuppliers

Correlation coefficient �.160 �.358*Sig. (2-tailed) .427 .038N 27 34

Environmental riskanalysis

Correlation coefficient .073 �.424*Sig. (2-tailed) .718 .012N 27 34

*Correlation is significant at the .05 level (2-tailed).**Correlation is significant at the .01 level (2-tailed).

Table 7Spearman’s rho test for correlations between EMPs and the innovationperformances.

Innovationperformance(products)

Innovationperformance(process)

Operational Correlation coefficient .079 .191Sig. (2-tailed) .648 .265N 36 36

Tactical Correlation coefficient .570** .046Sig. (2-tailed) .000 .791N 36 36

Strategic Correlation coefficient .489** .186Sig. (2-tailed) .002 .277N 36 36

Total Correlation coefficient .556** .098Sig. (2-tailed) .000 .568N 36 36

*Correlation is significant at the .05 level (2-tailed).**Correlation is significant at the .01 level (2-tailed).

Table 8Spearman’s rho test for the correlations between six specific EMPs and their inno-vation performances.

Innovationperformance(products)

Innovationperformance(process)

Recycling Correlation coefficient .213 .140Sig. (2-tailed) .212 .415N 36 36

Waste reduction(proactive)

Correlation coefficient .073 .044Sig. (2-tailed) .674 .798N 36 36

Remanufacturing Correlation coefficient �.048 �.114Sig. (2-tailed) .781 .509N 36 36

Environmentaldesign

Correlation coefficient .541** .449**Sig. (2-tailed) .001 .006N 36 36

Specific designtargets/goals

Correlation coefficient .525** .123Sig. (2-tailed) .001 .473N 36 36

Surveillance ofmarket

Correlation coefficient .679** .150Sig. (2-tailed) .000 .381N 36 36

*Correlation is significant at the .05 level (2-tailed).**Correlation is significant at the .01 level (2-tailed).

L. Chen et al. / Journal of Cleaner Production 98 (2015) 36e4642

management systems as far as their environmental process in-novations are concerned. Furthermore, environmental manage-ment systems have a positive impact on environmental productinnovations and learning processes. Most Indian and Chinesecompanies do not comply with EMAs and are currently in themiddle of a learning process when it comes to these standards. Dueto the inclusive nature of these examples, it is reasonable to notethat a significant correlation exists between innovation and per-formance in products rather than when it comes to process, oper-ations, tactics, various strategies and the total amount of EMPs.

At this point, correlations between the previously selected sixselected variables (identified with the financial performances inMontabon et al., 2007) and the innovation performances have beentested. From Table 8, it can be seen that Environmental design ispositively correlated significantly to both product and processinnovation. Additionally, Specific design targets and the Surveillanceof markets are both positively correlated significantly to productinnovation. Environmental considerations will also affect a com-pany’s research and design practices and drive them to designmoreeco-efficient products and create more product innovations (Nociand Verganti, 1999). This result can also be supported by an envi-ronmental modernization theory and empirical research byRennings et al. (2006). According to their study, the implementa-tion of environmental policies connects environmental manage-ment to technical/environmental innovations including productand process innovations.

At this point, correlations, between 27 other EMPs and theinnovation performanceswere tested. They found both positive anddirect connections between several different EMPs and theirinnovation performances both in product and in process. Forexample, Product Development, Innovation, Design, and Strategicalliance all correlate positively to their innovation performanceswith respect to both product and process. Life cycle analysis, Specificdesign targets, Communication, Integration with long-term businessstrategy, and Surveillance of market also correlate positively toinnovation performance of product. The Environmental missionstatement correlates positively to innovation performance of pro-cess. Again, these EMPs belong at tactical and strategic levels. Theresults are also in line with those of Theyel (2000), where theyfound that several EMPs will improve environmental innovation,performance and possibly reduce costs.

In order to test Hypothesis 4, the Spearman’s Rho analysis isapplied to examine Early supplier involvement, Environmentalstandard for suppliers, an Environmental audit for suppliers and theircorrelation with a firm’s financial performances. Not every com-pany’s financial data can be obtained, thus these companieswithout data on ROCE or Sales growth were excluded. The resultsare presented in Table 9, which indicates that there are significant

negative correlations between Environmental standard for suppliersand Sales growth. It also means that that higher Environmentalstandard for suppliers leads to lower Sales growth. These Environ-mental standards for suppliers can approve of the environmentalfriendly quality of the product, and thereby, meet an everincreasing market demand for environmentally friendly products.However, on the other hand, it may increase costs, not only forsuppliers, but also for the company itself. Additionally, it mayprolong the design and production process and further delay thetime of introducing products to the market. A positive impact formarkets might only be realized in the long-term as the marketneeds time to accept a greener product and possibly at a higherprice. On a short-term scale, a stricter Environmental standard forsuppliers will increase the purchasing cost and then increase thefinal price, which will be negative to Sales growth.

In order to test Hypothesis 5, the environmental performanceamong manufacturing companies in Sweden, India and China arecompared. According to Montabon et al. (2007), the Environmentalperformance is measured using the following indicators: Reductionin significant environmental incidents, Environmental certification,Continuous improvement, Recycling performance, Customer andshareholder perception of environmental performance, Independentaudits of environmental performance, Waste reduction, Resourceconsumption (water, energy, steam, solids, fuel) and Cost savings forenvironmental projects and activities. These factors are also scoredbased on the content analysis of a company’s GRI report.

A non-parametrical KruskaleWallis 1-way ANOVA has beenperformed and the results show only two factors, Customer andShareholder Perception and Cost savings for environmental projectsand activities have a significance difference level of5% (p < 0.05)among manufacturing companies in Sweden, India and China forenvironmental performance. It is also interesting to note that inCustomer and shareholder perception, India ranks highest while inCost savings for environmental projects and activities, China ranks thehighest. This indicates that in India, the public requirement forenvironment performance is high, whereas in China, recent quickeconomic developments, costs and profits are still the main drivingforces for evaluating performance. In fact, other environment per-formances do not show any significant differences. As stated before,globalization creates pressure for large manufacturing companiesin developing companies such as China and India to improve theirenvironmental performance in order to catch up with their globalcompetitors. This could be the reason for why a difference ofenvironment performance between these countries is diminishing.

5. Results

A growing number of companies publishing GRI reports indicatean increasing engagement in standardized and effective measuresfor environmental practices and performance. In this study, the GRIreport has been applied as an innovative approach for collectingdata and comparing the EMPs between different industries andcountries. A total of 37 companies were selected from Sweden,China and India in order to investigate the links between EMPs anda company’s performances.

According to the results of the statistical analysis, there exists nosignificant difference in EMPs between a process industry versusother manufacturing industries at the 5% level (p < 0.05). There areseven EMPs employed differently by Sweden, China and India at the5% level (p < 0.05). These seven EMPs include Waste reduction(reactive), Supply chain management, Environmental standards forsuppliers, Environmental participation, Product development andinnovation, Specific design targets and Corporate policies and pro-cedures. One interesting finding is that in most of these EMPs,Sweden is not necessarily better than China or India except in

Table 9Spearman’s rho test for correlations between an early supplier’s involvement, anEnvironmental standard for suppliers and an environmental audit for suppliers andthe financial performance.

Return on capitalemployed

Sales growth

Early supplierinvolvement

Correlation coefficient �.014 .009Sig. (2-tailed) .945 .958N 27 34

Environmentalstandard forsuppliers

Correlation coefficient �.160 �.358*

Sig. (2-tailed) .427 .038N 27 34

Environmentalaudits ofsuppliers

Correlation coefficient .103 �.236Sig. (2-tailed) .608 .180N 27 34

*Correlation is significant at the .05 level (2-tailed).**Correlation is significant at the .01 level (2-tailed).

L. Chen et al. / Journal of Cleaner Production 98 (2015) 36e46 43

Supply chain management. The small and medium sized companiesin Sweden, China and India still did not provide for any sustain-ability disclosure. Most of the sample companies in these threecountries are top companies in the world or at least in their owncountry due to one sample selection criterione the GRI report. Alsothose large companies who have standards such as EMAS and ISO14001 often transfer their environmental management practices toother facilities worldwide. This could be one reason for explainingwhy there are not many significant differences concerning theperformance in sample companies in these countries. Nevertheless,the study result still shows that globalization and the changingmanufacturing environment have an impact on reducing the dif-ference in the employment of EMPs in these countries, particularlywith these large companies.

Furthermore, direct correlations have not been found betweentactical, strategic, total EMPs and a company’s financial perfor-mance according to these samples. However, when investigatingthe correlation between EMPs and the innovation performance, itcan be found that higher levels of tactical EMPs, strategic EMPs andtotal EMPs are associated with higher levels of innovation perfor-mance (products). Concerning the 6 EMPs which are identified assignificantly correlating to financial performance and innovationperformance in Montabon et al. (2007), a significant correlationcannot be seen between these 6 EMPs and the financial perfor-mances in these 37 samples. However, Environmental design ispositively and significantly correlated to innovation performance,both in product and in process. Additionally, some special EMPsincluding Specific design targets and Surveillance of Markets are bothsignificantly correlated to product innovation in a positive way. It isinteresting to note that there is a negative correlation betweenEnvironmental standard for suppliers and Sales growth. One possi-bility is that stricter Environmental standards for suppliers will in-crease purchasing costs, which will lead to less market acceptance.Four specific EMPs have correlations with the financial perfor-mances and these include Environmental Information, Supply chainmanagement, Environmental for Suppliers and Environmental riskanalysis. Moreover, only Environmental Information category wasshown to have a strong and positive correlation with Sales growth.This shows that a sufficient and efficient environmental informa-tion disclosure to the public will have the potential to increase amarket acceptance for products and then increase Sales growth.

After comparing the environmental performances of Sweden,China and India, only Customer and shareholder perception and Costsavings for environmental projects and activities display a significantdifference (p < 0.05) between these three countries. Again, ac-cording to these samples, Sweden is not necessarily doing betterthan China or India with respect to environmental performance.

6. Conclusion and managerial implications

The research results have managerial implications for envi-ronmental management within the field of operations manage-ment. First of all, the research findings clearly indicate thatenvironmental management at tactical, strategic and at all levelshave positive correlations with product innovations. Thus, in orderto improve product innovation and keep a competitive advantage,the decision makers of companies have to consider the strategicimportance of environmental friendly operations. Moreover,Design and Design for Specific design targets are strongly correlatedwith innovation performance (products) in a positive way. Thisindicates that managers must be aware that in order to achieveinnovation performance, it is important to put more efforts at theearly stages of a production process. For example, a companyshould have an environmental consideration for eco-efficiency atthe research and design stage.

Regarding the 33 EMPs, only environmental information hasstrong and positive correlation with Sales growth. This shows theimportance of environmental information disclosure. Managersshould put more efforts into announcing environmental informa-tion that can improve their relationship to external stakeholders,including customers. In general, operational, tactical, strategic andtotal EMPs are statistically insignificant with regards to financialperformance. This result is almost consistent with findings in Hoferet al. (2012). Therefore, companies perceiving investments inenvironmental management and further improving their EMPsmay not immediately gain economic profit. For example, one resultthis study shows is that a stricter Environmental standard for sup-pliers will increase purchasing costs, which will lead to less marketacceptance and reduce Sales growth. These potentially high upfrontcosts and their uncertain payoffs will discourage a company’sattempt to improve their environmental practices (Hofer et al.,2012). However, according to this research, the improved EMPscan still have a positive impact on environmental performance. Inthis case, there are positive correlations with innovation perfor-mance, which may lead to a favorable financial performance in thefuture.

This research also indicates that there is a lacking of manage-ment awareness concerning environmental management perfor-mance audits and their available procedures are still uncertain.From a managerial perspective, the findings of this paper shouldfurther raise awareness of standardized formats for reportingenvironmental management practices like following the GlobalReporting Initiative guideline. In this way, it enables companies toobtain a transparent internal and external communication systemas well as a visual control of the triple bottom line on a companylevel (Hedberg and von Malmborg, 2003). Also, this researchshould further raise awareness of potential business performanceimprovements, especially in the manufacturing industry. Thisawareness should help decision makers to make better choices asfar as their environmental practice strategies and implementationsare concerned. In this study, the investigation is mainly based ondata from GRI reports. Due to a time lag between an EMPsimplementation and its effect on a company’s performance, thecompanies who follow the GRI reporting system may not neces-sarily perform better than others in the short run. However, thetransparency in a sustainability reporting system should enhancethe opportunity to gain a potential competitive advantage andimprove long term relationships with internal and externalstakeholders.

7. Limitations

In this study, all of the data is collected based on GRI andfinancial reports in 2010. One limitation is the time lag betweenenvironmental management practice implementation and its spe-cific effect on a company’s performance. One future extension willbe to investigate companies using a GRI reporting standard forseveral years. This should definitely be interesting, but a limitationto this is a further reduction of the potential sample, since only alimited number of companies have adopted a GRI reporting stan-dard and have a history over several consecutive years.

In this research, the total sample consists of 37 companies,which are split into three different groups based on regions. Thesample size is another limitation of this paper, since advancedstatistical methods often require larger sample sizes. An increasedsample size could also help achieve significant results for some ofthe tests that were borderline significant. Nevertheless, as a GRIreport often exceed 100 pages, a large sample size increases thedifficulties in the content analysis and it also requires a more rigidmethod for clarifying reliability and validity in the content analysis.

L. Chen et al. / Journal of Cleaner Production 98 (2015) 36e4644

Appendix. List of variables for raters

This list is adopted and modified from Montabon et al., 2007.Details of the definition can be found in Montabon et al., 2007.Grading scale should follow 1: not doing it, 3: alludes to doing it.5: quantitative measures, categories, and targets.

1. Environmental practices

1A. Operational practices

1. Recycling2. Waste reduction (proactive)3. Waste reduction (reactive)4. Remanufacturing5. Substitution6. Consume internally7. Packaging8. Spreading risk9. Creating a market for waste products

10. Energy11. Money spent on environmental initiatives12. Environmental information13. Rewards as an incentive for an environmental project

1B. Tactical practices

14. Supply chain management15. Early supplier involvement16. Environmental standards for suppliers17. Environmental audits of suppliers18. Environmental awards/recognition19. Environmental participation20. Use of life cycle analysis or design for environment21. Product development and innovation22. Environmental design23. Specific design targets24. Environmental risk analysis25. Environmental management systems (EMS)26. Communication

1C. Strategic practices

27. Integration with long-term business strategy28. Corporate policies and procedures29. Environmental mission statement30. Employee programs31. Environmental department/teams (existence/extent of

formal organizational structure)32. Surveillance of the market for environmental issues33. Strategic alliances

2. Performance measures

2A. Environmental Performance measures

34. Reduction in significant environmental incidents35. Environmental certification36. Continuous improvement37. Recycling performance38. Customer and shareholder perception of environmental

performance39. Independent audits of environmental performance

40. Waste reduction41. Resource consumption (water, energy, steam, solids, fuel)42. Cost savings for environmental projects and activities

2B. Financial performance measures

43. Return on capital employed (ROCE)44. Sales growth

2C. Innovation Performance Measures

44. Innovation performance (products)45. Innovation performance (process)

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IIIPAPER

The relationship between disclosures of corporate social performanceand financial performance: Evidences from GRI reportsin manufacturing industry

Lujie Chen a,n, Andreas Feldmann b, Ou Tang a

a Division of Production Economics, Department of Management and Engineering, Linköping University, SE-581 83 Linköping, Swedenb Division of Industrial Management, Department of Industrial Economics and Management, Royal Institute of Technology, SE-100 44 Stockholm, Sweden

a r t i c l e i n f o

Article history:Received 15 April 2014Accepted 4 April 2015

Keywords:Corporate social responsibilityDisclosures of social performanceFinancial performanceGlobal Reporting InitiativeEmpirical research

a b s t r a c t

Whether the corporate social performance affects the financial performance is still unclear in manymanufacturing companies. We commonly expect, on one side, that profitable corporations have strongerincentives to reveal information on the social performance in order to improve their publicity; on theother hand, companies may face the fear of rising costs due to Corporate Social Responsibility (CSR)activities. With increasing concerns of CSR, it is timely to investigate the relationship between thedisclosure of corporate social performance and the financial performance. In this paper with the abovestudy objective, we use Global Reporting Initiative (GRI) reports of 75 sample companies, collectevidences by applying the method of structured content analysis of the cases and attempt to identify thisrelationship. The corporate social performance is measured by the indicators according to the GRIguidelines, i.e. within the categories of Labor practices and decent work, Human Rights, Society as wellas Product responsibility. Financial performance is measured by return on equity, sales growth and cashflow/sales ratio. Using statistical evaluation methods, our results indicate that the categories of HumanRights, Society as well as Product responsibility display a significant and positive correlation with thereturn on equity. Same conclusion also holds for many CSR indicators. Nevertheless, when examining theCSR practices across different manufacturing sectors, we have not observed significant differences. Thestudy results are important for understanding the development and implementation of CSR practices inthe manufacturing industry.

& 2015 Elsevier B.V. All rights reserved.

1. Introduction

The common definition of sustainability by the BrundtlandReport (WCED, 1987) is under three umbrellas: economic accom-plishment, social justice and environmental stability. According tothe reports of EC (2002), Bansal (2005) and Moneva et al. (2007),the corporate social responsibility (CSR) is considered as contribu-tions of companies to sustainable development. The CSR conceptshould be included in the corporate strategies concerning theareas of environmental influence, as well as the society livingconditions development, willing behavior and business ethics.Such strategies will then define the codes of conduct based onwhich the companies implement their operations (AECA, 2004).

In recent decades, companies are paying increasing attentionsto CSR and its related performances. Different stakeholders raise

pressures to companies to improve their CSR performances andrelease the related reports. Such pressures include for example,public concern, regulatory forces, consumer pressure, industrypeer pressures, reputation concerns, media interest and perceivedmarket advantage (Gallear et al., 2012). For company itself,improving and reporting their CSR work are one kind of invest-ments for sustainable development, and thus an evaluation oftheir consequence should be relevant.

The debates on the relationship between CSR and corporateperformances are not new. There are some studies in this concern.Carroll (1979) provides a comprehensive conceptual model forpresenting the key aspects of corporate social performances.Clarkson (1995) applies the stakeholder theory to establish aframework for analyzing corporate social performances.

If we examine the relationship between CSR and more speci-fically the associated financial performances, there are controver-sial results. Some researchers argue that there should be a positiverelationship between the disclosure of CSR performances andcompany financial performances. The reasoning is that by report-ing and improving their CSR work, companies can receive the

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Int. J. Production Economics

http://dx.doi.org/10.1016/j.ijpe.2015.04.0040925-5273/& 2015 Elsevier B.V. All rights reserved.

n Corresponding author. Tel.: þ46 13 281770; fax: þ46 13 281101.E-mail addresses: lujie.chen@liu.se (L. Chen),

andreas.feldmann@indek.kth.se (A. Feldmann), ou.tang@liu.se (O. Tang).

Please cite this article as: Chen, L., et al., The relationship between disclosures of corporate social performance and financialperformance: Evidences from GRI.... International Journal of Production Economics (2015), http://dx.doi.org/10.1016/j.ijpe.2015.04.004i

Int. J. Production Economics ∎ (∎∎∎∎) ∎∎∎–∎∎∎

reputation as good company citizens thus can attract investors aswell as other stakeholders (e.g. Berman et al., 1999; Brammer andPavalin, 2006; Weber et al., 2008; Tang et al., 2012). As a result,CSR performances further help the companies to achieve a goodfinancial performance. In addition, McGuire et al. (1988) suggestthat the corporates with lower CSR performances are oftenassociated with lower stock market returns and higher risks (suchas fines and lawsuits) than those corporates with higher CSRperformances.

On the contrast, another group of researchers, especially theneoclassical economists argue that, when the companies spendefforts and allocate resources in improving the CSR performances,the operational costs as well as the product price should increase.Thus, there should be a negative impact on the product marketand stock market (Friedman, 1970; Cornell and Shapiro, 1987;Brammer and Millington, 2008; Tang et al., 2012). In other studies,McWilliams and Siegel (2000, 2001) indicate that there is neitherclear positive nor negative relationship between CSR and financialperformance.

One possible reason for such controversial results could be dueto the different measures of corporate social performances used invarious studies (Orlitzky et al., 2003). We illustrate here fourstreams of measures. Firstly, the measure of corporate socialperformance can be based on reputation ratings, for example inthe work by Vance (1975), Alexander and Buchholz (1978),Cochran and Wood (1984), Spencer and Taylor (1987), McGuireet al. (1988), Herremans et al. (1993) and Luo and Bhattacharya(2006). The second alternative is measuring corporate socialperformance by social audits and observations, for example thestudies by Belkaoui (1976), Chen and Metcalf (1980), Fombrun andShanley (1990) and Russo and Fouts (1997). Thirdly, the corporatesocial performance is measured by managerial principles andvalues, for example, the research works conducted by Reimann(1975), Ingram and Frazier (1980), Aupperle et al. (1985), Dooleyand Lerner (1994) and Agle et al. (1999). Finally, there are alsomeasures of corporate social performance by disclosures, forexample, the research works done by Abbott and Monsen(1979), Anderson and Frankle (1980), Patten (1990), Wolfe (1991)and Brammer and Millington (2008).

Nevertheless, there are very limited research in using aninternationally accepted and standard corporate social perfor-mance disclosure, such as Global Reporting Initiative (GRI) toexplore the link between corporate social performance and finan-cial performance. In fact, GRI reports can be viewed as the mostpopularly recognized set of voluntary guidelines for corporatesustainability reporting (Moneva et al., 2007, Brown et al., 2009,

Marimon et al., 2012; Chen et al., 2014). Moreover, GRI reports alsoare an efficient assessment tool to measure and report thecorporates' environmental, social and economic performances.Thus, GRI reports provide an alternative source for collecting astandard set of data which can be further used for investigatingthe relationship between disclosures of corporate social perfor-mance and financial performance.

We also would like to note that up to recent time, there is a largeamount of studies on sustainable operations with focus specificallyand individually on subjects such as safety, environment and humanrights, but without investigating the inherent interrelationshipsamongst the different aspects of social responsibility.

Moreover, according to institutional and stakeholder theory,since there will be different stakeholders in different industries, itshould be a ‘specialization’ of social interests in different industries(Griffin and Mahon, 1997; Sweeney and Coughlan, 2008). Thus itwill affect the way of companies to report their CSR practices andperformance. Trying to explore whether there are differences inreporting CSR in different industries, Sweeney and Coughlan(2008) analyze the annual CSR reports from twenty eight FTSE4-Good firms with a focus on seven different industries. Their resultsshow that there will be significant different in the CSR reports indifferent industries including Financial Services, Pharmaceutical–Medical, Pharmaceutical–Health and Beauty, Telecommunications,Automobile, Oil and Gas as well as Retail. But it is still unclearwhether such difference still exists among different sectors of themanufacturing industry.

From the above discussion, we conclude that when we inves-tigate the relationship between CSR and corporate financialperformances, we prefer to have the institutional theory andstakeholder theory as a background in order to capture theinherent interrelationships. In addition, we would like to usestandard corporate social performance disclosure, such as GRIreports as the data source. When we collect the studies mostrelevant to our research topics and methods, i.e. the studies havinga focus on CSR and corporate financial performance, and adoptingstakeholder/institutional theory with or without the data sourcefrom GRI reports, we have a summary of articles presented inTable 1. It shows that three papers use GRI reports as data sourcefor empirical research. All these papers use institutional theory astheir theoretical background. However, these studies are verydescriptive and they do not have corporate financial performancesas the study focus. Also in Table 1, we see that 7 out of 10 studiesinvestigate the relationship between CSR and corporate perfor-mances including the financial performance. Nevertheless, thesestudies do not apply GRI reports as the data source, and again we

Table 1Selected articles in the field of relationship between CSR and corporate performances.

Sources Theoretical aspects Research method FinancialPerformance

GRIreports

Agle et al. (1999) Stakeholder theory Survey in 80 large U.S. companies IncludedMcGuire et al. (1988) Stakeholder theory Empirical research by Fortune magazine's ratings of corporate

reputationsIncluded

McWilliams and Siegel(2001)

Agency theory, stakeholder theory andconventional theories

Framework building Included

Orlitzky et al. (2003) Stakeholder theory Meta-analysis IncludedLuo and Bhattacharya(2006)

Institutional theory and stakeholder theory Empirical research by multiple secondary data sets that compriseratings of large companies

Included

Marom (2006) Stakeholder theory Theoretical development IncludedBrammer andMillington (2008)

Instrumental stakeholder theory Empirical model based on annual reports of the companies Included

Brown et al. (2009) Institutional theory Empirical data on interviews and documentary analysis on corporatesocial responsibility reports

Used

Chen and Bouvain(2009)

Institutional theory Empirical data on corporate social responsibility reports in USA, UK,Australia, and Germany

Used

Tate et al. (2010) Institutional theory Content analysis on corporate social responsibility reports Used

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need to mention that the study results are controversial concern-ing the relationship between CSR and corporate financial perfor-mances. Apparently, there is a research gap in our concerns.

Current study is motivated by the above discussion. Theresearch objectives in this paper are: firstly, investigating theinherent interrelationships amongst different aspects of socialresponsibility by conducting the descriptive analysis on differentsocial performance indicators; secondly, comparing CSR perfor-mance in different industries; and thirdly, investigating therelationship between CSR performance and company financialperformance.

To achieve the above research objectives, content analysis andstatistical analysis are used respectively for collecting data andanalyzing data. The GRI report has been selected as the datasources for this research, since it is expected to be commonlyadopted global criterion for CSR and sustainability reportingaccording to the literature (Skouloudis et al., 2009; Prado‐Lorenzo et al., 2009; Tsang et al., 2009; Brown et al., 2009;Rasche, 2009; Levy et al., 2010; Marimon et al., 2012). The GRIreport itself provides assessments on economic, environmentaland social performance. Concerning the social performance, itprovides four categories which include labor practices and decentwork performance indicators, human rights performance indica-tors, society performance indicators and product responsibilityperformance indicators. In our study, the levels of CSR and theirperformance are coded using the content analysis on GRI reports.The financial data is collected from annual reports of the samplecompanies. We have to mention that traditionally, the companies'CSR practices and performance should include both the environ-mental and social aspects. In this paper, we only investigate thecorporate social performance whereas environmental aspect hasbeen discussed in previous research by the same authors (Chenet al., 2014).

The contribution of this paper is to bring some insights to theresearchers in academia and managers in industry to understandthe CSR and its practices based on GRI guidelines. The differenceson reporting CSR performance between different sub sectors inmanufacturing industry are also tested. Moreover, the relationshipbetween the disclosure of CSR performance and financial perfor-mance is analyzed by building four constructs from GRI socialperformance indicators.

The paper is organized as follows: Firstly, we will establish atheoretical background for this research based on related litera-ture. Following that the main methodology will be introduced,rational sample choosing, content analysis as well as constructbuilding will be our main focus in this part. Then the researchfindings will be presented. Finally, the conclusions, managementimplications as well as future research agenda will be drawn anddiscussed.

2. Theoretical background and research framework

In order to achieve the research objective which is investigatingthe inherent interrelationships amongst different aspects of cor-porate social responsibility, we apply descriptive analysis ondifferent CSR performance indicators in various categories. Mean-while, institutional theory can provide a solid framework fordeveloping research hypothesis concerning the other two researchobjectives. Details and research hypothesis are presented below.

2.1. Institutional theory

As defined by Gray et al. (1987), corporate social reporting is “theprocess of communicating the social and environmental effects oforganizations' economic actions to particular interest groups within

society and to society at large”. Thus organization should be thecentral focus in the study of CSR. In the meantime, Baum (1996)defined in his book that institutional theory can be applied in theresearch on organizations. The established rules and norms ofdominant institutions must be confirmed by the organizations, andconsequently the organizations can gain support and be perceived aslegitimate. John et al. (2001) also have a similar discussion concerningparticular the manufacturing industry. They further state that for themanufacturing companies, intuitions mainly include agencies thatestablish industry regulations, quality norms for example suppliers,customers, competitors, industry certifications such as ISO certifica-tions, and professional organizations.

Moreover, McWilliams et al. (2006) discuss in their research,institutional difference can lead to different activities and expecta-tions for companies. For companies in different industry, theirexternal pressures can lead to different processes for determiningwhich activities to engage in and how much to invest. In otherwords, based on different institutional needs, the companies indifferent industries can decide whether they want to and howthey want to invest in reporting their sustainable work. The studyof CSR performance of different industries should be of interesting.

There are in fact several studies of CSR performance reported indifferent countries and industries. These studies suggest differ-ences regarding reporting CSR performance among differentindustries. For example, Wanderley et al. (2008) examine CSRinformation disclosure based on the Webs from different countriesand various industries. Their results show that both the industrysector and the country of origin have a significant impact on CSRinformation disclosure. Tsang (1998) conducts a longitudinal studyof corporate social performance disclosures in Singapore forbanking, food and beverages and hotel industries. He finds thatthe bank industry has disclosed significantly less social informa-tion than the hotel industry.

The literature shows that it is important to take into accountthe industry categories when studying the CSR since differentindustries may have different stakeholders (Sturdivant and Ginter,1977; Sweeney and Coughlan, 2008). As stated by Boutin-Dufresneand Savaria (2004), in some particular industries, companies maybe more socially responsible than others due to the nature of theirbusiness activities.

In literature, one manufacturing industry, automotive industryhas been emphasized a lot on CSR practices. An essential factor inautomotive industry's agenda nowadays is the adoption of CSRpractices (CARS 21, 2006; Frigant, 2009), for example, to improvethe road safety as well as providing job opportunities together withwage-labor nexus in car-manufacturing regions (Frigant, 2009).

Based on the above discussion, we found that some particularindustries countenance comparatively high regulatory pressures frominternal and external stakeholders, and these regulatory pressuresshould also drive the companies to report CSR performance differently.Therefore, it is interesting to compare the CSR performance amongindustry sectors, more specifically the automotive industry with othermanufacturing industry such as metals products industry. The firstresearch hypothesis is derived from the above discussion:

H1. There is a significant difference regarding reporting CSR perfor-mance among different industrial sectors in the manufacturingindustry.

2.2. Disclosure of CSR performance and corporate financialperformance

Whether the measure of CSR performance relates negatively orpositively to the companies' financial performance is still a datableissue. Cochran and Wood (1984) indicate that the average age of acompany's assets is highly correlated with the ranking of its social

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responsibility. Aupperle et al. (1985) argue that there is norelationship between the measure of CSR performance and profit-ability, neither in short term nor in long term. However, Waddockand Graves (1997) suggest significant positive correlationsbetween CSR performance index and financial performances suchas return on assets in the long run. As Waddock and Graves (1997)explained based on slack resources theory, the companies, whichhave a better financial situation, should have more resources to beallocated on improving corporate social performances. Conse-quently these companies can achieve a high standard on CSR. Inshort, a better corporate financial performance provides theorganization the slack resources to engage in the CSR practicesas well as reporting their CSR performance.

Also according to Jones (1995), trust, cooperativeness as well astrustworthiness are subsets of ethical principles, which can helpthe organizations to achieve significant competitive advantages.The satisfaction of various stakeholder groups is instrumental fororganizational financial performance (Orlitzky et al., 2003). Thistheory suggests a positive relationship between CSR performanceand corporate financial performance. Accordingly, the followinghypothesis can be developed:

H2. There is a positive correlation between the disclosure of CSRperformance and corporate financial performance.

3. Research methodology

In this section, we provide a brief introduction of data collec-tion and structured content analysis of cases. We also refer to ourprevious study (Chen et al., 2014), in which similar methodologyhas been used with more detail description. Nevertheless weshould note that these two studies have different orientations ofinvestigation, i.e. in previous study the environmental manage-ment practices are the main focus, and in addition we haveentirely different samples when comparing the two studies.

3.1. Data collection

Since one of the research purposes is to compare CSR perfor-mance between different industries and different regions, we needsample companies for which it is possible to measure all the CSRvariables in a standard and consistent manner. As stated before inthe introduction, GRI report has recently developed as a widelyapplied format of CSR measurement. It represents voluntaryguidelines for measuring companies CSR performance and repre-sents a reliable public reference of consciousness and information(Marimon et al., 2012). Thus, we use the Sustainability DisclosureDatabase (Global Reporting Initative, 2013) for choosing thesample companies. The sample companies should fulfill the selec-tion criteria as follows:

� The company should belong to a manufacturing industry.� The company should introduce GRI reporting system.

� The company should publish standard GRI reports on 2012following sustainability reporting guidelines version 3.1 (GRI,2013).

Finally, 75 companies satisfy the selection criteria and areincluded as samples in this study. Since that one research purposeis to compare CSR performance in different industries, the samplesfrom manufacturing industry are divided into five groups, i.e.automotive industry, metals products industry, forest and paperindustry, chemical industry and health care industry. The samplesare summarized in Table 2, with sample numbers in each grouprespectively indicated.

Recall that another research purpose is to investigate therelationship between CSR performance and financial performancefor manufacturing companies, it is necessary to define the mea-sures of the financial performance. The financial measurementswe use in this research are Sales growth, Return on equity (ROE)and Cash flow/Sales ratio.

Sales growth: This states an increase in sales over a specificperiod of time.

ROE: This measures how well the corporation applied rein-vested earnings to generate additional earnings. A measurement ofhow much profit the corporation can produce given the resourcescontributed by the stakeholders (Weber et al., 2008).

Cash flow/Sales ratio: This ratio, expressed as a percentage, iscalculated by comparing the company's operating cash flow to itsnet sales or revenues. This financial indicator measures thecompany's ability to turn sales into cash (Cash Flow IndicatorRatios, 2014). A high ratio normally indicates the company'scapability of utilizing a larger portion of its revenue into profits,as well as net cash flow.

All the data for measuring the financial performances iscollected for the 2012 fiscal year from the database DataStream.

3.2. Structured content analysis

To make a cross-industry comparison of CSR, the contentanalysis can be a good choice. It is also useful for a longitudinalstudy to understand the trends in CSR for specific case companies(Tate et al., 2010). In this paper, content analysis is applied toextract data from annual GRI sustainability reports of the samplecompanies.

Human raters are used to code the information included in thereports. Human coding is desirable for this research since raterscan assess the intensity as well as presence of specific CSRimplementation by reading the contextual information that arecontained in the reports (Hofer et al., 2012). However, contentanalysis has a disadvantage in time and resource consuming.These constrain the sample numbers. Another disadvantage ofhumane coding is subjective: it can be supplemented by usingmultiple raters to read the reports to verify the score (Seuring andMüller, 2008). In this study we also have multiple raters for eachreport.

Table 2Sample companies.

Automotive (14) Aebi Schmidt, Dogus Otomotiv, Fiat Group, Ford Motor Company, Hyunda Mobis, MAN Group, KOEL, Kia Motors, Sapa Group, Piaggio Group, PSAPeugeot Citroën, Volvo Car Corp.,Volkswagen, Valeo

Metals products (24) Acerinox SA, Acindar Grupo, Alcoa, Arcelor Mittal USA, Arcelor Mittal, APERAM, Bekaert SA, BHP Billiton, Componenta, Essar Steel, Elval, Halcor, LaFarga Group, Kyungshin, OutoKumpu, Nyrstar, Novelis, Qatar Steel Company, Qatalum, Sandvik, SAIL, SSAB, Talvivaara, Yamana DesenvolvimentoMineral

Forest and paper (13) Ahlstrom, Stora Enso, Billerud AB, Canfor, Catalyst Paper, Domtar, Mestä group, Resolute Forest Products, SCA, Duratex, Nippon Paper, UPM-kymmene, Martela

Chemical (10) Air Products, DuPont, DyStar Singapore, Ecolab, Hanwha Chemical, Methanex, Praxair, Arizona Chemical, BASF SE, BorougeHealth care products(14)

Amgen Inc., APL, F. Hoffmann-La Roche Ltd, Infinitus China, LG Household and Health Care, Meda, Merck Germany, MerckUSA, Novozymes, OrionGroup, UCB, Fosun Pharmaceutical, Jointown Pharmaceutical, Nova Nordisk

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Validity is a key factor of approving the quality of contentanalysis. There are two ways to establish the validity. First of all,we can guide the raters by a consistent valid coding scheme. Thiscoding structure should guide raters to the focal concept. Then itcan be seen as a valid coding scheme (Potter and Levine‐Donnerstein, 1999). Secondly, the raters' decision can be assessedagainst by standards. The coding can be assumed as a validprocess, if the codes meet the standard for right decision making(Potter and Levine‐Donnerstein, 1999).

GRI report itself is supposed to provide a comprehensive,visible, consistent measurement system for assessing the com-pany's sustainability work (Brown et al., 2009; Marimon et al.,2012). For the social performance measurement, the GRI reportprovides 45 indicators which cover four categories concerning CSR(more details see the Appendix):

� Labor practices and decent work performance indicators.� Human rights performance indicators.� Society performance indicators.� Product responsibility performance indicators.

Moreover, all the contents of GRI report published are througha validation process themselves according to the G3.1 guideline(G3.1, 2013). Thus, we use this GRI guided indicators in the socialpart as a coding structure and score base for the content analysisto approve the validity. We also set the standard for raters to judgeif the decision making is right. The grading scale is between 1 and5, with (1) indicating no active (not reported), (3) indicatingmedium active (partially reported) and (5) high active (fullyreported). For example a fully reported indicator variable mayinclude quantitative measures, categories, and targets.

4. Results

After structured content analysis of the sample cases andcoding process, statistical analysis by SPSS (Statistical Productand Service Solutions) is conducted. The results are presented inthis section.

4.1. Descriptive statistics

In order to investigate the inherent interrelationships amongstdifferent aspects of CSR, at first we have investigated the descrip-tive statistics of all the CSR indicators.

4.1.1. Indicator protocols set for labor practice and decent work (LA)The indicators related to labor practice and decent work are

ranked in Table 3. The three highest ranked indicators are LA1:Total workforce by employment type, employment contract, andregion, broken down by gender; LA 7: Rates of injuries andaccidents and LA 12: Percentage of employees receiving regularperformance and care development reviews, by gender. Two ofthese indicators, LA1 and LA7, have an average above 4 and theyare the highest ranked indicators overall. The only indicator with amean value below 2 is LA 15: Return to work and retention ratesafter parental leave, by gender.

It is easy to see that the indicators which are easy to bequantified or measured have higher scores than others. Companiesput more efforts to measure the rates of injuries and accidentssince it will increase their operating cost and damage theirreputation readily.

4.1.2. Indicator protocols set for human rights (HR)In Table 4 the indicators for human rights (HR) are listed. The

top factor measured by companies is HR6: Operations and

significant suppliers identified as having significant risk for inci-dents with child labor, and measures taken to contribute to theeffective abolition of child labor. This indicator is followed by HR7:Operations and significant suppliers identified as having signifi-cant risk for incidents of forced or compulsory labor, and measuresto contribute to the elimination of all forms of forced or compul-sory labor. HR4 is ranked the third highest in the category, butwith an average score of 3.35 which is low compared to the othercategories. As many as three out of eleven indicators (HR8, HR10and HR11) have a mean value below 2 which are more than anyother category. Considering that many of the indicators receive alot of media attention (child labor, forced labor, discrimination andsecurity), it is noteworthy that this category has the lowestaverage scores of all four categories.

4.1.3. Indicator protocols set for society (SP)The society indicators are ranked in Table 5. The top indicator is

SP8: Monetary value of significant fines and total number of non-monetary sanctions for noncompliance with laws and regulations.From this, we can assume that companies focus more on indicatorsthat are closely related to costs, which can impact on the financialperformance directly. SP8 is closely followed by SP3 and SP5.Interestingly, a Wilcoxon signed rank test shows that SP3, which istraining against corruption is significantly (po .05) higher thanSP2, which is about the portion of the business that has beenanalyzed for corruption. One explanation could be that it is lesssensitive to put employees through training than to actually auditbusiness units on corruption. The means of two indicators are

Table 3Descriptive statistics on labor practice and decent work (LA).

N Minimum Maximum Mean Std. deviation

LA1 75 1 5 4.28 1.073LA2 75 1 5 3.56 1.491LA3 75 1 5 3.11 1.886LA4 75 1 5 3.69 1.786LA5 75 1 5 3.29 1.909LA6 75 1 5 3.32 1.918LA7 75 1 5 4.25 1.128LA8 75 1 5 3.45 1.758LA9 75 1 5 2.76 1.859LA10 75 1 5 3.37 1.634LA11 75 1 5 3.64 1.714LA12 75 1 5 3.80 1.611LA13 75 1 5 3.72 1.530LA14 75 1 5 2.41 1.764LA15 75 1 5 1.61 1.314

Table 4Descriptive statistics of human rights (HR).

N Minimum Maximum Mean Std. deviation

HR1 75 1 5 2.41 1.733HR2 75 1 5 3.19 1.776HR3 75 1 5 2.57 1.780HR4 75 1 5 3.35 1.871HR5 75 1 5 3.24 1.829HR6 75 1 5 3.59 1.794HR7 75 1 5 3.45 1.818HR8 75 1 5 1.91 1.621HR9 75 1 5 2.55 1.933HR10 75 1 5 1.72 1.457HR11 75 1 5 1.99 1.656

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below 2: SP9 Operations with significant potential or actualnegative impacts on local communities; SP10 Prevention andmitigation measures implemented in operations with significantpotential or actual negative impacts on local communities. Thesetwo indicators have relatively less attention since their effectscannot be detected in the short run; their impacts are mainly

through external stakeholders, e.g., local communities in thelong run.

4.1.4. Indicator protocols set for product responsibility (PR)From Table 6, we can find that the top ranked product

responsibility performance indicator is PR1: Life cycle stages inwhich health and safety impacts of products and services areassessed for improvement, and percentage of significant productsand services categories subject to such procedures. Meanwhile,there is no indicator with a mean value below 2. It is easy to derivethat companies really mind the product responsibilities among theCSR indicators. The reason is that these product responsibilityindicators are strongly correlated with the products reputation inthe product market. This kind of reputation can direct impact oncompanies' market performance.

4.2. GRI constructs

The GRI reports are built around categories and sub-categories,which in turn can be tested as constructs (See Table 7). If theinternal consistency for a category or sub-category is low, it is anindication that the indicators do not measure the same latentvariable, which in turn has effects on the design of future researchon CSR. The main categories are as previously described LaborPractices (LA), Human Rights (HR), Society (SP) and ProductResponsibility (PR). Each main category consists of between5 and 8 sub-categories as illustrated in Table 7. Some of the sub-categories consist of a single indicator while others consist of up to4 indicators. By calculating Cronbach's alphas for all multi-indicator constructs, it is possible to test their internal consistency.According to previous studies, alphas above .7 usually indicate ahigh internal consistency, though for exploratory research alphasabove .6 can be accepted (Hair et al., 1998). On the aggregated levelLabor Practices, Human Rights, Society and Product Responsibility

Table 6Descriptive statistics of product responsibility indicators.

N Minimum Maximum Mean Std. deviation

PR1 75 1 5 3.83 1.647PR2 75 1 5 2.79 1.961PR3 75 1 5 3.64 1.806PR4 75 1 5 2.87 1.954PR5 75 1 5 3.35 1.782PR6 75 1 5 3.29 1.909PR7 75 1 5 3.00 1.945PR8 75 1 5 2.47 1.898PR9 75 1 5 3.48 1.913

Table 5Descriptive statistics of society indicators.

N Minimum Maximum Mean Std. deviation

SP1 75 1 5 3.43 1.780SP2 75 1 5 3.16 1.882SP3 75 1 5 3.72 1.729SP4 75 1 5 3.51 1.863SP5 75 1 5 3.72 1.790SP6 75 1 5 3.05 1.999SP7 75 1 5 3.43 1.897SP8 75 1 5 3.77 1.857SP9 75 1 5 1.85 1.650SP10 75 1 5 1.91 1.686

Table 7Categories on social performance from GRI report.

Categories Indicators (See Appendix) Cronbach's alpha

Labor Practices and Decent Work Performance Indicators .861Employment (LA_A) LA1, LA2, LA3, LA15 .554Labor/Management Relations (LA_B) LA4, LA5 .640Occupational Health and Safety (LA_C) LA6, LA7, LA8, LA9 .609Training and Education (LA_D) LA10, LA11, LA12 .634Diversity and Equal Opportunity (LA_E) LA13 –

Equal Remuneration for Women and Men (LA_F) LA14 –

Human Rights Performance Indicators .897Investment and Procurement Practices (HR_A) HR1, HR2, HR3 .773Non-discrimination (HR_B) HR4 –

Freedom of Association and Collective (HR_C) HR5 –

Child Labor (HR_D) HR6 –

Forced and Compulsory Labor (HR_E) HR7 –

Security Practices (HR_F) HR8 –

Assessment (HR_G) HR9 –

Remediation (HR_H) HR10 –

Society Performance Indicators .854Local Communities (SP_A) SP1, SP9, SP10 .777Corruption (SP_B) SP2, SP3, SP4 .738Public Policy (SP_C) SP5, SP6 .671Anti-Competitive Behavior (SP_D) SP7 –

Compliance (SP_E) SP8 –

Product Responsibility Performance Indicators .900Customer Health and Safety (PR_A) PR1, PR2 .701Product and Service Labeling (PR_B) PR3, PR4, PR5 .747Marketing Communications (PR_C) PR6, PR7 .664Customer Privacy (PR_D) PR8 –

Compliance (PR_E) PR9 –

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all have strong alphas, indicating strong constructs. On the sub-category level, constructs are weaker but the majority is stillwithin the acceptable levels. LA_A falls slightly below the thresh-old value, indicating that the included indicators may not measurethe same thing. The ranking of both individual and aggregatedindicators shows Labor Practices to be important (See Table 3).Since the constructs in this paper are based on the standardizedformat in the GRI report and due to the high ranking of LaborPractices, it was decided to include LA_A for further analysis butwith extra care taken in the interpretation of the results.

4.3. Cluster analysis

In order to see if there are different patterns on how CSRpractices are implemented and reported, a cluster analysis has beenconducted, first based on the averages of each category (Labor,Human Rights, Society and Product responsibility) and then basedon the averages for the sub-categories. A K-means cluster analysis isperformed with three clusters. The choice of three clusters is basedon having an expected number of cases in each cluster above 20.Additionally two or four clusters do not provide significant addi-tional insights. The results (see Tables 8 and 9) suggest a paralleladoption of all four categories: there is no indication of a sequentialadoption where some categories are fully adopted and the remain-ing ones are not. Both for categories and sub-categories, allindicators, follow the same pattern; the score for cluster 1 is lowerthan the score for cluster 2, which in turn is lower than cluster 3. Acloser inspection of the sub-categories shows that, among thelowest performing cluster members, Security Practices (HR_F),Remediation (HR_H), Customer Privacy (PR_D) have an average of1.0, i.e. none of the 24 companies reports anything in these sub-categories. The overall picture for this cluster is the same, withaverage scores consistently below 3. The best performing clusterhas averages above 4.0 for 3 out of 4 categories and 17 out of 24sub-categories. The sub-category assessment (HR_G) is the only onethat deviates from the general pattern with an average score below3, thus the result indicates that this sub-category is not generallyadopted by the companies in this sample.

4.4. Comparison in industries

To test whether there is any significant difference in CSRperformance indicators between automotive industry, metalsproducts industry, forest and paper industry, chemical industryand health care industry, a non-parametrical Kruskal–Wallis 1-way ANOVA has been applied for all the GRI indicators concerningthe social performance. We only find two indicators havingsignificant differences among industries among 45 indicators tobe tested. These indicators are LA14: Ratio of basic salary andremuneration of women to men by employee category, by sig-nificant locations of operation (p¼ .012) and PR7: Total number ofincidents of non-compliance with regulations and voluntary codesconcerning marketing communications, including advertising,

promotion, and sponsorship by type of outcomes (p¼ .027). Thuswe conclude that within the manufacturing industry, there is little(or no) indication of consistent differences between the fiveindustrial sectors mentioned above. The results reject the hypoth-esis H1. As a conclusion, there is no significant difference regardingreporting CSR performance among different industrial sectors inthe manufacturing industry.

4.5. Correlations between the disclosure of corporate socialperformance and financial performance

At last we have investigated the correlation between CSRindicators and financial performance. For all companies, theaverage of all scores of corporate social practices has beencalculated, as well as the average scores for LA indicators, HRindicators, SP indicators and PR performance indicators. Thesescores have then been compared to the sales growth, return onequity and cash flow/sales ratio by applying the Spearman's rhocorrelation tests. All except labor practices have displayed asignificant positive correlation with the ROE (see Table 10).

A similar pattern emerges for the correlations between theconstructs (sub-categories) in Table 7 and financial performance,see Tables 11–14. In Labor Practices and Decent Work performanceindicators, Occupational Health and Safety (LA_C) and Equal Remu-neration for Women and Men (LA_F) are significantly correlated withROE. Meanwhile, Diversity and Equal Opportunity (LA_E) has apositive and significant correlation with cash flow/sales.

In Human Rights performance indicators, Investment and Pro-curement Practices (HR_A) is significantly correlated with ROE.Assessment (HR_G) is significantly correlated with sales growth.In Society performance indicators analysis, it is found that Com-pliance (SP_E) is significantly correlated with ROE. In ProductResponsibility performance indicators, it is found that MarketingCommunications (PR_C) have significant correlations with ROE.

Based on above analysis, LA_C, LA_F, HR_A, HR_G, SP_E and PR_Call have positive and significant correlations with ROE. Due to someconstructs having low Cronbach's Alphas, these results have beenfurther verified on the indicator level. No further significances have

Table 8Final cluster centers.

Cluster

1 (N¼28) 2 (N¼21) 3 (N¼27)

LA_AVG 2.46 3.27 4.27HR_AVG 1.54 2.65 3.96SP_AVG 1.99 3.12 4.30PR_AVG 1.80 3.28 4.49

Table 9Final cluster centers for sub-categories.

Cluster

1 (N¼24) 2 (N¼23) 3 (N¼28)

LA_A 2.69 2.74 3.86LA_B 2.08 3.35 4.82LA_C 2.52 3.28 4.38LA_D 2.86 3.32 4.48LA_E 2.83 3.96 4.29LA_F 1.33 1.78 3.86HR_A 1.53 2.62 3.83HR_B 1.50 3.78 4.57HR_C 1.42 3.52 4.57HR_D 1.83 3.78 4.93HR_E 1.58 3.61 4.93HR_F 1.00 1.52 3.00HR_G 1.08 1.52 2.43HR_H 1.00 1.43 3.29SP_A 1.53 1.93 3.52SP_B 2.22 3.35 4.62SP_C 2.58 2.96 4.43SP_D 1.58 3.78 4.71SP_E 2.00 4.30 4.86PR_A 2.21 3.00 4.50PR_B 2.28 3.00 4.38PR_C 1.79 2.83 4.57PR_D 1.00 1.96 4.14PR_E 1.67 3.96 4.64

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been found and there are no large inconsistencies within constructswith significant correlations. The result seems support the result inearly studies reasoning according to the slack resources theory,which states that the profitable companies can have more resourcesto be spent on corporate social performance. Moreover, the CSR canbring incremental benefits for companies and then on the otherhand the disclosure of CSR also helps the companies to mitigatepotential harm from negative events (Peloza, 2006). However, it isinteresting to note that only one construct (LA_E) among allconstructs has significant correlations to sales growth or cashflow/sales. According to Orlitzky et al. (2003), ROE is a measure ofcorporate financial performance which examines the internalresources utilization for the company, whereas, sales growth andcash flow/sales are more intend to external measures of corporatefinancial performance. The result of our study shows that improvedcorporate social performance as well as more transparent disclo-sures of corporate social performance would have a strong relation-ship with improving the internal utilization of financial resources of

the companies. But such corporate social performance and itsdisclosures are not necessarily improving the company's externalfinancial performances.

5. Conclusion and managerial implications

The study results have managerial implications for CSR perfor-mances especially concerning the social part. First of all, the studyfindings show that amongst different categories of corporate socialresponsibility, the labor practice and decent work have receivedthe highest attention. Moreover, the indicators which are easy to

Table 10Correlations between average scores of social indicators with financial performances.

Sales growth ROE Cash flow/sales

Spearman's rho LA_AVG Correlation Coefficient .105 .200 � .093Sig. (1-tailed) .215 .078 .255N 59 52 53

HR_AVG Correlation Coefficient � .102 .265a .099Sig. (1-tailed) .221 .029 .240N 59 52 53

SP_AVG Correlation Coefficient � .048 .246a .105Sig. (1-tailed) .360 .040 .227N 59 52 53

PR_AVG Correlation Coefficient .054 .294a .114Sig. (1-tailed) .341 .017 .209N 59 52 53

a Correlation is significant at the .05 level (1-tailed).

Table 11Correlations between Labor Practices and Decent Work performance indicatorswith financial performances.

Salesgrowth

ROE Cash flow/sales

Spearman'srho

LA_A CorrelationCoefficient

.096 .095 � .151

Sig. (1-tailed) .234 .252 .140N 59 52 53

LA_B CorrelationCoefficient

.097 .143 � .020

Sig. (1-tailed) .232 .156 .443N 59 52 53

LA_C CorrelationCoefficient

.134 .250a � .019

Sig. (1-tailed) .155 .037 .446N 59 52 53

LA_D CorrelationCoefficient

� .004 .055 � .143

Sig. (1-tailed) .487 .349 .153N 59 52 53

LA_E CorrelationCoefficient

� .146 � .022 � .427b

Sig. (1-tailed) .134 .439 .001N 59 52 53

LA_F CorrelationCoefficient

.178 .250a .086

Sig. (1-tailed) .089 .037 .269N 59 52 53

a Correlation is significant at the .05 level (1-tailed).b Correlation is significant at the .01 level (1-tailed).

Table 12Correlations between Human Rights Performance Indicators with financialperformances.

Salesgrowth

ROE Cash flow/sales

Spearman'srho

HR_A CorrelationCoefficient

.013 .337a .222

Sig. (1-tailed) .460 .007 .055N 59 52 53

HR_B CorrelationCoefficient

� .204 .113 .043

Sig. (1-tailed) .061 .214 .380N 59 52 53

HR_C CorrelationCoefficient

� .131 .144 .073

Sig. (1-tailed) .161 .155 .301N 59 52 53

HR_D CorrelationCoefficient

� .010 .191 .009

Sig. (1-tailed) .470 .088 .476N 59 52 53

HR_E CorrelationCoefficient

� .084 .227 .025

Sig. (1-tailed) .264 .053 .429N 59 52 53

HR_F CorrelationCoefficient

� .097 .168 .064

Sig. (1-tailed) .232 .117 .323N 59 52 53

HR_G CorrelationCoefficient

� .303a � .056 � .106

Sig. (1-tailed) .010 .346 .225N 59 52 53

HR_H CorrelationCoefficient

.015 .179 .215

Sig. (1-tailed) .457 .102 .061N 59 52 53

a Correlation is significant at the .01 level (1-tailed).

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be quantified or measured often have higher scores than others.There is no indicator in the category of product responsibility witha mean value below 2. This indicates that companies are makingefforts to improve their performance in product responsibility,possibly because the product related CSR indicators are closelyrelated to market performance, brand value as well as competi-tiveness for the companies. Based on the cluster analysis of all CSRindicators, we can detect a parallel adoption of four categories,instead of a sequential progress where one category would beadopted before the others. Based on the current dataset and theemployed statistical tools, it is not possible to test for thedevelopment trajectories. But it is reasonable that the paralleladoption is a reflection of a parallel development.

When comparing the CSR performance indicators betweendifferent industries, only two indicators out of 45 indicators havesignificant difference, namely LA14 and PR7. This result shows thatin general there is no consistent difference in the disclosures of CSRperformance among automotive industry, metals products industry,forest and paper industry, chemical industry and health care

industry. This could indicate that CSR indicators are indeed generaland relevant across industries. Another explanation can be found inthe method. Since the indicators measure degree of disclosure, itdoes not necessarily reflect the amount of work put into thatcategory. A company with sites only in developed countries withstrict governmental control of labor conditions will find it mucheasier to reach full disclosure in these areas than a company with atruly global foot print, even if the latter does more work. Concern-ing the two indicators showing the difference, one possible reasonis that the automotive industry often compliances to such industrystandards (for example labor union standards) that are issued on aregular basis. The adherence to such standards has as a positiveimpact on their performance (Buren and Patterson, 2012).

In this paper, we take a comparatively short-term view (fromtime horizon perspective) to analyze the relationships betweenthe disclosures of CSR and financial performances in manufactur-ing companies. The results indicate that those companies doingwell on the GRI indicators like wisely perform well financially,particularly as the measure is based on ROE. Therefore, our studysupports the opinion that the profitable companies may have extraresources to report and improve corporate social performance; inthe meantime, CSR publicity and improvement can potentiallybring in significant competitive advantage for these companiesand thus complement the economic goals of the companies in theshort-term perspective. These results are in the line with the slackresource theory as well as the findings by Waddock and Graves(1997). Generally speaking, the disclosure of corporate socialperformance and corporate financial performance mutually affecteach other through a virtuous cycle.

In this paper we suggest to measure the CSR performanceaccording to the reporting system. This measurement is based oncontent analysis on the GRI reports mostly. As discussed by Chen andBouvain (2009), though this measuring method presents a helpfulevidence of the relative importance of the issue that the companyintends to represent to readers, it is not necessarily associate with theimportance related to the actual CSR practice. Thus, a furtherchecking or auditing system is necessary for the external stake-holders to assess the actual CSR work in these companies.

The findings of this study should be of interest for managers,government policy makers and investors. For those managers whocan allocate companies' resources during investment, they shouldconsider the potential payback from allocating some resourcestowards a transparent disclosure of corporate social performance.Such investment can efficiently utilize the internal financialresource of the companies, as well as remedy negative

Table 13Correlations between Society performance indicators with financial performances.

Salesgrowth

ROE Cash flow/sales

Spearman'srho

SP_A CorrelationCoefficient

.051 .183 � .002

Sig. (1-tailed) .350 .097 .495N 59 52 53

SP_B CorrelationCoefficient

.052 .230 .125

Sig. (1-tailed) .347 .051 .186N 59 52 53

SP_C CorrelationCoefficient

� .120 .097 .180

Sig. (1-tailed) .184 .246 .099N 59 52 53

SP_D CorrelationCoefficient

� .128 .137 � .112

Sig. (1-tailed) .166 .166 .213N 59 52 53

SP_E CorrelationCoefficient

� .058 .239a .052

Sig. (1-tailed) .333 .044 .356N 59 52 53

a Correlation is significant at the .05 level (1-tailed).

Table 14Correlations between Product Responsibility Performance Indicators with financial performance.

Sales growth ROE Cash flow/sales

Spearman's rho PR_A Correlation Coefficient .118 .210 .126Sig. (1-tailed) .188 .068 .183N 59 52 53

PR_B Correlation Coefficient .097 .213 � .006Sig. (1-tailed) .232 .065 .482N 59 52 53

PR_C Correlation Coefficient .006 .403a .207Sig. (1-tailed) .482 .002 .068N 59 52 53

PR_D Correlation Coefficient � .079 .150 � .021Sig. (1-tailed) .275 .144 .441N 59 52 53

PR_E Correlation Coefficient � .019 .154 .185Sig. (1-tailed) .442 .139 .092N 59 52 53

a Correlation is significant at the .01 level (1-tailed).

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communications coverage. Moreover, the managers should beencouraged to pursue GRI reporting activities with increased vigoror to investigate the underlying causes of the positive relationshipbetween the categories of Human Rights, Society as well asProduct responsibility with the return on equity.

However, there are still some limitations for GRI guideline itself.For example, GRI reports are not sufficient in providing informationfor the CSR performance assessment at suppliers' level. As Lee andKim (2009) discussed in their research, for company's daily supplychain management practices, lack of specific information of the CSRperformance assessment at suppliers' level is a big disadvantage.The development of evaluation measures for suppliers can be acrucial determinant in improving a company's performance. There-fore, it is very important for the GRI report developers consideringhow to develop concise and practical measurement indicators forthe social performance from a supply chain perspective.

This research provides a structured content analysis of CSRreports, especially it considers the social parts in the reports. TheCSR report presents a comprehensive coverage of social indicators.Using this social disclosure rating system, stakeholders can assessa company's commitment towards CSR issues and contrast themwith the actual performance. In this way, companies have abaseline to compare the CSR performances between each other.Moreover, it also provides companies the chance to benchmarkfrom the best practice in order to establish a sustainable business.For the policy-makers, they should consider the provision ofappropriate support and training for companies to publish stan-dard CSR reports, for example under GRI guidelines.

For investors, our study offers the empirical results as following:first of all, GRI reports can be used as an effective method to assessthe companies' sustainable work; and secondly, our study supportsthe conclusion in Rajput et al., (2012), namely a sustainable businessprovides a basis for securing the financial performance.

6. Limitations and future research suggestions

As the main content of GRI report always exceeds 100 pages, it isdifficult to apply content analysis to collect data from a large sampleof companies. In this paper, we have investigated 75 companiesacross Europe, Asia and America. The limited sample size restrainsthe possibility to conduct more advanced statistical analysis. Theanalysis crossing the regions could be of interest, but our samplesare distributed unevenly for these three regions due to moreavailable samples from Europe. With a larger sample size, it wouldalso be possible to further investigate the reason that the LaborPractices has a low internal consistency with the GRI structure.

Tang et al. (2012) analyzed 130 companies using panel datawith a time span from 1995 to 2007. They found that companiesimprove profits if they adopt a consistent CSR strategy, whichinvolves related dimensions of CSR and starts with those moreinternal to the companies. Oikonomou et al. (2012) conducted alongitudinal analysis of corporate social performance and financialrisk, and they use a large sample of panel data between the years1992 and 2009. They found that corporate social responsibility isnegatively and weakly related to the systematic company risk. Inaddition, corporate social irresponsibility is positively and stronglyrelated to the financial risk. However, in the above mentionedstudies, the corporate social performances are not evaluated usinga consistent reporting system. Whereas with the availability of GRIreports, we can repeat the similar longitudinal studies with somein-depth research focuses. Such a study should bring managersand researchers more insights to understand the developmentpath of CSR practice, and its relationship with financial perfor-mance from a long term perspective.

Again the longitudinal studies may also have a focus on certainregions. Since the Swedish manufacturing companies adopted GRI

reporting system for a relatively longer time, we can conduct alongitudinal panel data analysis during a period for the Swedishmanufacturing companies for the future research.

Appendix A. List of variables for raters

This list is adopted Global Reporting Initiative G3. Details of thedefinition can be found in sustainability reporting guidelinesversion 3.1. Grading scale should follow 1: not doing it, 3: alludesto doing it . . . 5: quantitative measures, categories, and targets.

1. Labor practices and decent work performance indicators1A: Employment

� LA1: Total workforce by employment type, employmentcontract, and region, broken down by gender.

� LA2: Total number and rate of new employee hires andemployee turnover by age group, gender, and region.

� LA3: Benefits provided to full-time employees that are notprovided to temporary or part-time employees, by signifi-cant locations of operation.

� LA15: Return to work and retention rates after parentalleave, by gender.

1B: Labor/management relations� LA4: Percentage of employees covered by collective bargain-

ing agreements.� LA5: Minimum notice period(s) regarding operational

changes, including whether it is specified in collectiveagreements.

1C: Occupational health and safety� LA6: Percentage of total workforce represented in formal

joint management–worker health and safety committeesthat help monitor and advice on occupational health andsafety programs.

� LA7: Rates of injury, occupational diseases, lost days, andabsenteeism, and total number of work-related fatalities, byregion and by gender.

� LA8: Education, training, counseling, prevention, and risk-control programs in place to assist workforce members,their families, or community members regarding seriousdiseases.

� LA9: Health and safety topics covered in formal agreementswith trade unions.

1D: Training and education� LA10: Average hours of training per year per employee by

gender, and by employee category.� LA11: Programs for skills management and lifelong learning

that support the continued employability of employees andassist them in managing career endings.

� LA12: Percentage of employees receiving regular perfor-mance and care development reviews, by gender.

1E: Diversity and equal opportunity� LA13: Composition of governance bodies and breakdown of

employees per employee category according to gender, agegroup, minority group membership, and other indicators ofdiversity.

1F: Equal remuneration for women and men� LA14: Ratio of basic salary and remuneration of women to

men by employee category, by significant locations ofoperation.

2. Human rights performance indicators2A: Investment and procurement practices

� HR1: Percentage and total number of significant investmentagreements and contracts that include clauses incorporatinghuman rights concerns, or that have undergone humanrights screening.

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� HR2: Percentage of significant suppliers, contractors, andother business partners that have undergone human rightsscreening, and actions taken.

� HR3: Total hours of employee training on policies andprocedures concerning aspects of human rights that arerelevant to operations, including the percentage of employ-ees trained.

2B: Non-discrimination� HR4: Total number of incidents of discrimination and

corrective actions taken.2C: Freedom of association and collective

� HR5: Operations and significant suppliers identified inwhich the right to exercise freedom of association andcollective bargaining may be violated or at significant risk,and actions taken to support these rights.

2D: Child labor� HR6: Operations and significant suppliers identified as

having significant risk for incidents of child labor, andmeasures taken to contribute to the effective abolition ofchild labor.

2E: Forced and compulsory labor� HR7: Operations and significant suppliers identified as

having significant risk for incidents of forced or compulsorylabor, and measures to contribute to the elimination of allforms of forced or compulsory labor.

2F: Security practices� HR8: Percentage of security personnel trained in the orga-

nization's policies or procedures concerning aspects ofhuman rights that are relevant to operations.

2G: Assessment� HR10: Percentage and total number of operations that have

been subject to human rights reviews and/or impactassessments.

2H: Remediation� HR11 Number of grievances related to human rights filed,

addressed and resolved through formal grievancemechanisms.

3. Society performance indicators3A: Local communities

� SP1: Percentage of operations with implemented localcommunity engagement, impact assessments, and develop-ment programs.

� SP9: Operations with significant potential or actual negativeimpacts on local communities.

� SP10: Prevention and mitigation measures implemented inoperations with significant potential or actual negativeimpacts on local communities.

3B: Corruption� SP2: Percentage and total number of business units ana-

lyzed for risks related to corruption.� SP3: Percentage of employees trained in organization's anti-

corruption policies and procedures.� SP4: Actions taken in response to incidents of corruption

3C: Public policy� SP5: Public policy positions and participation in public

policy development and lobbying.� SP6: Total value of financial and in-kind contributions to

political parties, politicians, and related institutions bycountry.

3D: Anti-competitive behavior� SP7: Total number of legal actions for anticompetitive beha-

vior, anti-trust, and monopoly practices and their outcomes.3E: Compliance

� SP8: Monetary value of significant fines and total number ofnon-monetary sanctions for noncompliance with laws andregulations.

4. Product responsibility performance indicators4A: Customer health and safety

� PR1: Life cycle stages in which health and safety impacts ofproducts and services are assessed for improvement, andpercentage of significant products and services categoriessubject to such procedures.

� PR2: Total number of incidents of non-compliance withregulations and voluntary codes concerning health andsafety impacts of products and services during their lifecycle, by type of outcomes.

4B: Product and service labeling� PR3: Type of product and service information required by

procedures and percentage of significant products andservices subject to such information requirements.

� PR4: Total number of incidents of non-compliance withregulations and voluntary codes concerning product andservice information and labeling, by type of outcomes.

� PR5: Practices related to customer satisfaction, includingresults of surveys measuring customer satisfaction.

4C: Marketing communications� PR6: Programs for adherence to laws, standards, and volun-

tary codes related to marketing communications, includingadvertising, promotion, and sponsorship.

� PR7: Total number of incidents of non-compliance withregulations and voluntary codes concerning marketingcommunications, including advertising, promotion, andsponsorship by type of outcomes.

4D: Customer privacy� PR8: Total number of substantiated complaints regarding

breaches of customer privacy and losses of customer data.4E: Compliance

� PR9: Monetary value of significant fines for noncompliancewith laws and regulations concerning the provision and useof products and services.

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Please cite this article as: Chen, L., et al., The relationship between disclosures of corporate social performance and financialperformance: Evidences from GRI.... International Journal of Production Economics (2015), http://dx.doi.org/10.1016/j.ijpe.2015.04.004i

IVPAPER

1

An empirical evaluation of sustainable operations practices and performance in

the Swedish manufacturing industry

Lujie Chen*, Andreas Feldmann, Ou Tang

Submitted to Journal of Cleaner Production

An early version of the paper was presented at the 21th International Annual

EurOMA Conference, 20-25 June, 2014, Palermo, Italy.

2

3

An empirical evaluation of sustainable operations

practices and performance in the Swedish manufacturing

industry

Lujie Chen1*, Andreas Feldmann

2, Ou Tang

1

1 Division of Production Economics, Department of Management and Engineering,

Linköping University, SE-581 83 Linköping, Sweden

2 Division of Industrial Management, Department of Industrial Economics and Management, Royal Institute of

Technology, SE-100 44 Stockholm, Sweden

* Corresponding author. Tel.: +46-13-281770; fax: +46-13-281101.

E-mail addresses: lujie.chen@liu.se (Lujie Chen), andreas.feldmann@indek.kth.se (Andreas Feldmann),

ou.tang@liu.se (Ou Tang)

4

An empirical evaluation of sustainable operations

practices and performance in the Swedish manufacturing

industry

Abstract

This study explored whether there are patterns linking sustainability practices and

performance in the Swedish manufacturing industry. Meanwhile, the relationships between

sustainability improvement practices and companies’ triple bottom line performance were

investigated using survey data from Swedish manufacturing companies. Treating each

sustainability practice and performance indicator as an individual item, factor analysis and

cluster analysis were conducted to explore the potential patterns and relationships. The results

indicated that the triple bottom line provides a valid outline for representing companies’

sustainability practices in the Swedish manufacturing industry. In terms of sustainability

performance, the results showed that economic performance was often treated as a separate

category in practice, whereas environmental sustainability and social sustainability were

often combined. Process and product technology level was positively correlated with

environmental performance and innovation performance. Economic, social, and

environmental practices had positive correlations with performance in the respective area.

Even though not all social and environmental practices directly improved companies’

economic performance, some social and environmental practices, such as education,

individual development, and environmental health improvement, had an indirect effect and,

thus, are deserving of specific attention. These selected practices often had a positive impact

on product and process innovation, which could further improve companies’ economic

performance.

Keywords: Sustainability, operations strategies, operations performance, survey

1. Introduction

Sustainability is a broad concept that integrates not only economic accomplishments, but also

environmental stability and social justice. As defined by Kleindorfer et al. [1], sustainable

operations management should combine the profit and productivity issues of classical

operations management with wider concerns over the company’s environmental and social

5

impacts. However, balancing economic, environmental, and social performance is not an easy

task for many companies, as they face internal resource constraints (e.g., budgets and costs)

and external pressures (e.g., market competition and government regulations) [2]. In order to

achieve sustainable development over the long term, companies need to implement

continuous improvement strategies and practices in order to promote their environmental and

social reputations.

Several studies have explored the relationship between companies’ environmental

management and their operations management. Gupta [3] stated that environmental

management has an impact on companies’ daily operations management in a variety of ways,

such as through product planning, the usage of raw materials and energy, air and water

pollution control, waste disposal operations, and the design and production of green products.

Sarkis [4] suggested that the manufacturing industry should view progress, productivity,

profitability, and environmental consciousness as integrated goals for operations management.

Hanna and Newman [5] indicated that new trends are forcing environmental issues into

operations management, such as the elimination of waste and pollution prevention. Montabon

et al. [6] explored the relationship between environmental management practices and

company performance by analyzing U.S. and non-U.S. companies’ reports in different

industries. They suggested the existence of a positive and significant relationship between the

two. Chen et al. [7] analyzed the relationship between environmental management practices

and company performance with data collected from a content analysis of Global Reporting

Initiative (GRI) reports for manufacturing companies in Sweden, China, and India. The

research results illustrated that most environmental management practices are not positively

correlated to a company’s financial performance in a direct manner. However, since

environmental management practices can improve innovation performance, there will be

some positive gains in financial performance.

An increasing number of publications have investigated related social sustainability issues. In

an empirical study, Carter [8] collected data from in-depth interviews and surveys,

identifying the ethical concerns affecting the relations between U.S. purchasing managers and

their non-U.S. suppliers. Luo and Bhattacharya [9] used secondary data from multiple

sources to analyze the relationship between corporate social responsibility (CSR) and market

value. The study result indicated that companies with less innovative inputs had lower

customer satisfaction due to poor CSR performance; consequently, their market value will be

harmed. Sharma and Henriques [10] examined how the stakeholders and their interactions

6

impact the types of sustainability practices implemented in the Canadian forest product

industry. Social and ecological stakeholders often focus on ecological diversities. In addition

they also have concerns over activities directly or indirectly the company’s economic

stakeholders, such as customers, on whom the company’s financial well-being depends. The

results showed that, in the pulp and paper industry, the focus of sustainability performance

has been changed, in that stakeholders have moved away from a narrow concern with the

early stages, such as eco-efficiency, toward a wider scope of sustainability practices, such as

building industrial ecosystems in a region.

However, the aforementioned studies still have some limitations. First, most of these studies

have only focused on one aspect of sustainability, such as environmental, social, or economic

sustainability, without considering the issues with respect to the “triple bottom line.” Second,

these studies have often explored the link between environmental/social practices and

company performance in a static manner. Very few studies have treated sustainability

explicitly in an organizational learning context, i.e., in terms of sustainability improvement

efforts in sustainability. Third, most of the studies have not had an explicit focus on the

manufacturing industry, despite the fact that, in industrialized countries such as Sweden, the

manufacturing industry contributes significantly to economic outputs. The manufacturing

industry is more energy and raw materials resource intensive than the service industry. As

such, the manufacturing industry is facing relatively high external and internal pressures with

respect to sustainability practices and performance [7]. Therefore, it is useful to conduct

empirical research on the manufacturing industry, investigating the learning and

improvement patterns influencing sustainable operations and company performance in terms

of the triple bottom line.

One recent study by Chen et al. [7] showed that some specific environmental practices can

have a positive impact on company performance, especially innovation performance

including product and process innovation. However, it remains unclear whether the strategic

choice of technology, i.e., technology-driven companies vs. less technology-driven

companies, will produce different results in terms of environmental performance and

innovation performance. Other research concerns include: whether companies attempt to

integrate sustainability into their business strategy instead of treating it simply as an add-on;

how a sustainability strategy can be developed and how sustainability targets can be set for

the entire manufacturing system; whether companies decide on sustainability strategy at the

7

headquarters or whether every plant designs its own strategy according to its specific needs.

To our knowledge, no empirical studies have addressed these questions.

Motivated by these issues, we conducted an empirical study to investigate the links between

the three bottom lines, namely the economic, environmental, and social aspects of

sustainability, and company performance in the manufacturing industry. Moreover, this study

focused on the dynamic nature of such links, i.e., whether there are patterns related to

sustainability practices and performance. Each sustainability practice and performance

indicator was treated as an individual item, and factor analysis and cluster analysis were used

to explore the potential patterns. More specifically, the following research questions guided

our study:

What are the focuses for companies when implementing different sustainability

improvement practices?

What are the focuses for companies when evaluating their sustainability

performance?

Do companies make the same amount of effort with respect to different categories

of sustainability improvement practices?

What is the relationship between sustainability improvement practices and

company performance?

How are companies mapping their sustainability strategy and targets? Is it a

centralized approach or a decentralized approach, with local plants building their

own sustainability strategy?

Does a company’s process and product technology level impact its environmental

performance and innovation performance?

To answer the above research questions, we collected data from a sample consisting of all

Swedish manufacturing companies with more than 200 employees. The survey instrument

focused specifically on companies’ sustainability improvement practices and the related

performance. We chose to focus on the Swedish manufacturing industry, particularly because

it has a long tradition of improving performance through research and development

expenditures and other innovation practices and efforts [11]. In this paper, we first present the

theoretical framework, including sustainable theory, dynamic resource-based view, and

ecological modernization theory. These theories provide the background for the development

of the study’s research questions. In Section 3, we describe the empirical data collection

8

methods, as well as the validity and reliability of this research. We present the statistical

analyses and results in Section 4, followed by a discussion of the theoretical generalizability

and managerial implications of the findings. We offer some conclusions and avenues of

future research in the final section.

2. Theoretical background

The questionnaire used in this empirical research was developed on the basis of a conceptual

framework modified from the results of previous research conducted by Chen et al. [12]. This

conceptual framework attempts to synthesize different perspectives on sustainability from the

viewpoint of the manufacturing industry. For this study, sustainability was evaluated

according the triple bottom line, i.e., environmental, social, and economic issues. These

issues were further divided into constructs (sub-categories) relevant to manufacturing,

providing results for six constructs (see the appendix). Furthermore, specific measurement

items needed to be validated for each construct. (The validation and reliability test is

explained in section 3.2.)

For this paper, we explored how companies implement sustainability improvement practices

and what they focus on when evaluating sustainability performance. Moreover, we examined

the potential links between practices and performance from a dynamic perspective. Thus, in

order to provide a context for the research questions, as presented in the previous section, we

discuss sustainable theory, dynamic resource-based view, configuration of sustainability

strategy and ecological modernization theory in the following subsections.

2.1 Sustainable theory

Sustainable theory can provide the theoretical background for the survey design and

development in this study. According to Gimenez et al. [13], sustainable theory can be

defined at two levels. First, at the macroeconomic level, sustainable development can be

defined as “the development that meets the needs of the present without compromising the

ability of future generations to meet their needs” (see [14]). Second, at the microeconomic

level, sustainable theory can be operationalized at the company/plant level. Elkington [15]

developed this concept by applying the triple bottom line to measure a company’s overall

performance, thereby integrating the company’s economic, environmental, and social

sustainability. The triple bottom line measurement helps companies to identify their present

and future demands, and to efficiently balance organizational responsibilities between various

stakeholders.

9

According to a literature review by Chen et al. [12], economic sustainability can be measured

at the plant level as cost, market, and economic stability. Environmental sustainability is

related to ecosystem vitality, which includes air pollution and water quality related to the

ecosystem, biodiversity protection, climate change performance (e.g., CO2 emissions), and

renewable energy usage; environmental health, which includes environmental burden of

disease, and air pollution and water quality related to humans; and environmental factors

within production, which include material use, energy consumption, renewable resources,

waste generation, treatment, and disposal, and the recycling of materials, energy, and waste.

Social sustainability is often related to governance, education, community, individual civil

liberties, and human rights (see appendix).

Hence, the following three research questions have been developed from the above principle.

What are the focuses for companies when implementing different sustainability

improvement practices?

What are the focuses for companies when evaluating their sustainability

performance?

Do companies make the same amount of effort with respect to different categories

of sustainability improvement practices?

2.2 Dynamic resource-based view

Barney [16] first developed the resource-based model for illustrating competitive advantages.

This model shows that by using rare, valuable, replaceable resources, companies can gain a

sustained competitive advantage. Helfat and Peterraf [17] extended this resource-based model

into the dynamic resource-based view, which suggests that all companies’ capabilities can be

seen in a dynamic way that involves adaptation, change, integration, and the building or

reconfiguring of other capabilities. According to this dynamic resource-based view,

improvements in various organizational practices and performance can exemplify the

company’s capacity for development. There have been some applications of this perspective

in the examination of sustainable operations. For example, Vachon and Klassen [18] used this

theory to explain why environmental project cooperation with customers was positively

correlated to environmental performance. In addition, Sarkis et al. [19] suggested that

building operational capabilities through sustainable operations in a green supply chain can

make continuous improvements to the company’s reputation and positively impact other

performance indicators.

10

For companies, economic profitability is still the top reason for adopting environmental and

social improvement practices. According to the literature [19] [20], improved sustainability

practices, especially environmental ones, may have a positive impact on economic

performance in the following ways.

First, improved sustainability practices, such as environmentally friendly programs, can help

to secure competitive advantage and add value to the company’s core business programs [20],

[21]. Moreover, it has also been suggested that companies can do better in their financial

output with the help of different sustainability programs, including environmental

certification and employee well-being improvement programs [13].

Second, sustainability practices can improve companies’ innovation possibilities, such as

product innovation and process innovation, and thus economic profitability can be achieved

[7].

Third, even though sustainability practices may not improve companies’ gains over the short

term, continuous environmental improvements can help companies to achieve better

performance over the long term [20].

The following research question was generated from the above discussion:

• What is the relationship between sustainability improvement practices and

company performance?

2.3 Configuration of sustainability strategy

A sustainability strategy can be decided upon either through a centralized approach or a

decentralized approach. Olson et al. [22] stated that “a measure of the dispersion of

responsibilities as well as decision authority from top management to lower management

levels, including the implementation and development of procedures and methods can be

described as configuration.” When implementing sustainability practices, companies may still

have different configurations of their sustainability strategy. This variation is of particular

concern when a company is operating in a global environment with footprints worldwide.

In practice, companies can set either a fully centralized or decentralized sustainability

strategy, or alternatively a mixture of the two. Understanding such configurations is

important in organizational studies, since the selection of a configuration affects companies’

coordination mechanisms, and accordingly their operations and performance. However, there

has been no empirical investigation into how companies, especially manufacturing ones, map

11

the configuration of sustainability strategies based on the triple bottom line. Thus, we present

another research question.

• How are companies mapping their sustainability strategy and targets? Is it a

centralized approach or a decentralized approach, with local plants building their

own sustainability strategy?

2.4 Ecological modernization theory

Ecological modernization theory is an important theory in environmental sociology.

Considering the micro-level analysis, the general idea of ecological modernization theory is

that companies can allocate resources to technology innovations designed to help them

improve their environmental performance and, in turn, achieve better economic performance.

In other words, ecological modernization theory supports the notion that through

“ modernization” (i.e., innovation and technology development) companies can achieve both

environmental performance improvement and industrial development [23], [19]. The effects

of technological innovation are also explained by this theory, as pointed out in [19] and [24].

In effect, manufacturing companies can access operational opportunities for performance

improvements by overcoming obstacles to innovation. Therefore, according to ecological

modernization theory, manufacturers can implement strategies related to their production and

process, which will affect their innovation and environmental performance. Thus, a further

research question is:

Does the choice of technology impact environmental performance and innovation

performance?

3. Methods

This section presents the data collection, and discusses the validity and reliability of the data.

3.1 Data collection

This study relied on data from a survey that was administered during the first half of 2014. As

mentioned earlier, Chen et al. [12] conducted a literature review to investigate the

sustainability issues in manufacturing. By aggregating and categorizing the sustainability

concerns of previous literature, Chen et al.’s study identified the important sustainability

factors of manufacturing in terms of environmental, social, and economic dimensions. For the

current study, we designed the survey questionnaire based on the results and the conceptual

model generated by Chen et al. [12]. A 5-point Likert scale was applied in the survey. Since

12

the quality of a survey depends greatly on the understanding and cooperation between

questionnaire designers and respondents, the designers were available to the respondents by

email and phone if any questions arose [25]. Pilot testing was conducted among a group

consisting of experts from companies and academic institutions in Sweden. Such an approach

confirmed that the questionnaire was suitable for achieving the basic research objectives and

that respondents would be able to understand the main items regarding sustainable operations

performance and practices (see appendix for the relevant part of the questionnaire).

According to the study objectives of this paper and the results of the pilot test, targeted

survey respondents were managers in charge of their company’s sustainable operations who

had good knowledge of their company’s sustainable strategy, sustainability practices, and

performance. Most of these managers were at the middle or high management levels in their

companies. This selection of respondents was supported by the suggestions of Zhu et al. [25]

and Bowen et al. [26] who showed positive correlations between middle managers’ attitudes

toward company environmental proactivity and green supply chain management operations.

The sample population for this research was composed of Swedish companies in the

manufacturing industry. From Statistics Sweden (SCB), we obtained a list of all the Swedish

manufacturing companies across different sectors. We then narrowed that list to include only

companies with more than 200 employees, since the pilot test indicated that companies of

that size (mid- and large-sized companies) often devote attention to sustainable operations

and often have someone in charge of such operations. The sample also covered the entire

Swedish territory so as to ensure the representativeness of the sample. We then made phone

calls to each of the companies, requesting the contact information of the managers in charge

of the company’s sustainable operations. Finally, the questionnaire was mailed to 349

Swedish manufacturing companies, and 101 useable responses were returned (a response rate

of 29%). Once we had received all the responses, we conducted an analysis using SPSS in

order to investigate the relationships between sustainable operations practices, and

environmental, economic, and social performance.

We checked for non-response bias using a t-test comparison between the characteristics of

early respondents and late respondents, including the respondents’ position and years in the

manufacturing industry. No significant differences (p<0.05) were detected between early

respondents and late respondents, indicating no serious non-response bias in the data.

13

3.2 Validity and reliability

According to sustainable theory and the conceptual model, we developed the constructs

shown in Table 1, which include technology level, economic sustainability improvement

practices, environmental sustainability improvement practices, social sustainability

improvement practices, economic sustainability performance, innovation performance,

environmental sustainability performance, and social sustainability performance. Since

common method bias can occur when the same methods are used for collecting data and can

affect the collected data’s validity and reliability [27], [28], we used Harman’s single-factor

test to evaluate this bias [29]. All of the measured items were loaded into one single factor by

conducting principal component analysis with an unrotated factor solution. The evaluation

results showed that 31.90% of variance was explained with all items loaded into a single

factor. Thus, the common method bias was not seen as a significant problem in this dataset

(see critical value in [30]).

To further analyze the survey data, we calculated the Cronbach’s alpha coefficients and

item-total correlations for the empirical data (see Table 1). All of the factors for technology

level, economic sustainability improvement practices, environmental sustainability

improvement practices, social sustainability improvement practices, economic sustainability

performance, innovation performance, environmental sustainability performance, and social

sustainability performance had reliability values (alphas) of 0.807, 0.867, 0.837, 0.828, 0.878,

0.773, 0.861, and 0,833, respectively. All these reliability values were well above the

threshold value of 0.70 suggested by Nunnally et al. [31]. This test thus confirmed the

constructs’ reliability. Moreover, all of the factors within each construct had high item-total

correlation values, i.e., the values were larger than 0.50, which is the threshold value

recommended by Hair et al. [32]. In other words, these were acceptable values with respect to

the corresponding higher-level constructs for this exploratory research study.

14

Table 1. Validity and reliability of the constructs

Constructs Items Corrected Item-Total

Correlation Cronbach’s alpha

Technology level Process technology 0.677 0.807 Product technology 0.677

Economic

sustainability

improvement

practices

Cost 0.656

0.867 Market 0.775 Growth

0.815

Environmental

sustainability

improvement

practices

Ecosystem vitality 0.722

0.837 Environmental health 0.819 Environmental factors

within production 0.591

Social sustainability

improvement

practices

Governance 0.588

0.828 Education 0.562 Individual 0.795 Community 0.697

Economic

sustainability

performance

Cost 0.593

0.878

Return on investment 0.723 Economic stability 0.761 Market 0.729 Growth 0.756

Innovation

performance

Product innovation 0.564 0.773 Process innovation 0.631

Environmental

sustainability

performance

Ecosystem vitality 0.469

0.861 Environmental health 0.631 Environmental factors

within production 0.631

Social sustainability

performance

Governance 0.815

0.833 Education 0.788 Individual 0.619 Community 0.617

4. Results

The results of the analysis are presented in this section.

4.1 Descriptive analysis of technology level, sustainability practices, and performance

As seen in Table 2, the technology level was relatively high for the Swedish manufacturing

companies, with a mean value higher than 3.7. Comparing the three aspects of sustainability

improvement, it is not surprising that economic improvement practices ranked the highest

among all sustainability improvement practices.

15

Table 2. Descriptive data of technology level, sustainability practices, and performance

Mean Median Mode Std. Deviation

Technology levela

Process technology levela 3.73 4.00 4 .874

Product technology levela 3.75 4.00 4 .925

Sustainability practicesb

Cost 4.30 4.00 4 .707

Market 4.18 4.00 4 .754

Growth 4.26 4.00 4 .757

Ecosystem vitality 2.93 3.00 4 1.175

Environmental health 3.23 3.00 4 1.153

Environmental factors within production 3.69 4.00 4 .890

Governance 2.96 3.00 2 1.193

Education 3.01 3.00 3 .933

Individuals 2.80 3.00 3 1.113

Community 2.97 3.00 3 1.120

Sustainability performancec

Cost 3.55 4.00 4 .753

ROI 3.59 4.00 4 .767

Economic stability 3.63 4.00 4 .680

Market 3.76 4.00 4 .724

Growth 3.55 4.00 3 .770

Quality 3.94 4.00 4 .732

Delivery 3.76 4.00 4 .776

Flexibility 3.97 4.00 4 .688

Product Innovation 3.65 4.00 4 .823

Process Innovation 3.45 3.00 3 .870

Ecosystem vitality 3.23 3.00 3 .944

Environmental health 3.47 3.00 3 .954

Environmental factors within production 3.65 4.00 4 .855

Governance 3.49 3.00 3 .921

Education 3.33 3.00 3 .811

Individuals 3.34 3.00 3 .776

Community 3.28 3.00 3 .773

a. 1 = very low; 2 = low; 3 = medium; 4 = high; 5 = very high.

b. 1 = very low; 2 = low; 3 = medium; 4 = high; 5 = very high.

c. 1 = very poor; 2 = poor; 3 = fair; 4 = good; 5 = excellent.

The adoption of environmental sustainability practices was found to be less than the adoption

of economic ones, with mean values of 2.93, 3.23, and 3.69 for the respective three

environmental improvement practices. However, environmental practices within production

had the highest mean value of 3.69, showing that for these manufacturing companies,

production-related environmental issues were the most important. The social improvement

practices, including governance, education, individuals, and community, were ranked lowest.

Meanwhile, there was a diversified level of implementation with several sustainability

practices, namely ecosystem vitality, environmental health, governance, individuals, and

16

community. These five practices had relatively higher standard deviations over 1.00. For

sustainability performance, the results were relatively less diversified, since no factor in this

category had a standard deviation higher than 1.00. All sustainability performance had a

mean value ranging from 3.00 to 4.00.

In sum, the empirical results showed that the Swedish manufacturing industry has adopted

relatively weak social sustainability practices. In addition, the implementation level for the

sustainability improvement practices had relatively high variation, especially when

considering environmental and social improvement practices. This indicates that there are

different attitudes among manufacturing companies toward adopting environmental and

social sustainability practices. Some manufacturers may have implemented such practices

proactively, whereas others may have reactive attitudes toward environmental and social

issues.

4.2 Mapping the sustainability strategy

In this subsection of this paper, we investigate how Swedish manufacturing companies set

their sustainability strategy. Based on the review study in [12] and the pilot test among

researchers and companies, we included eleven areas for indicating sustainability strategy in

the questionnaire. These areas again covered economic, environmental, and social aspects. In

order to determine whether the sustainability strategy is defined centrally or de-centrally in

the manufacturing network, we provided a 5-point Likert scale ranging from ‘locally’ (1) to

‘centrally’ (5). The results are given in Table 3.

Economic sustainability strategies included cost, market, economic sustainability, and growth;

such strategies displayed the most centralized tendency. This category was followed by

environmental sustainability strategies, containing ecosystem vitality, environmental health,

and environmental factors within production. The last category was social sustainability

strategies, which had the lowest tendency toward centralization. This category included

governance, individual, education, and community.

We also must note that there was a limited number of companies in the sample with

centralized control over all sustainability strategies, i.e., out of 101 companies, only nine had

the maximum score of 5 for all sustainability strategy settings. In general, the Swedish

manufacturing companies in the sample tended to define their sustainability strategies either

centrally or locally depending on the type of sustainability strategy being introduced.

Economic sustainability strategy was more likely to be set centrally, whereas social

17

sustainability strategy was more likely to be set locally. Environmental sustainability strategy

showed a mixed pattern. Since Swedish manufacturing companies with more than 200

employees are likely to be international companies with global networks, a possible

explanation for these findings is that for social sustainability strategy, manufacturers need to

consider local interests such as local community development, individual welfare, and

personal development in the specific areas/regions. Therefore, such a strategy needs to be

formed locally.

Table 3. Orientation of sustainability strategy setting (centralized vs. decentralized)

Area of Sustainability

strategy a

Mean Median Mode Std. Deviation

Cost 3.42 3.00 3 1.228

Market 3.83 4.00 5 1.028

Economic stability 4.07 4.00 5 1.019

Growth 4.10 4.00 5 .917

Ecosystem vitality 3.01 3.00 3 1.317

Environmental health 2.98 3.00 3 1.292

Environmental factors

within production

2.91 3.00 3 1.248

Governance 2.02 2.00 2 .666

Individual 1.94 2.00 2 .639

Education 2.13 2.00 2 .623

Community 2.10 2.00 2 .727

a. 1 = local; 2 = mostly local; 3 = mixed; 4 = mostly central; 5 = central.

4.3 Technology level with environmental performance and innovation performance

The correlations between technology level and innovation performance as well as

environmental performance were investigated using the Pearson correlation coefficient.

Preliminary analysis was conducted to ensure that there was no violation of the assumptions

of linearity, normality, or homoscedasticity. The results are shown in Table 4. There was a

strong positive correlation between process technology level and environmental performance,

including Ecosystem performance, Environmental health performance, and Production

environmental performance, with correlation coefficient values of r=0.410, r=0.425, and

r=0.336, respectively (N=77, p<0.001). Meanwhile, there was a medium to strong correlation

between product technology level and environmental performance (i.e., Production

environmental performance, Ecosystem performance, Environmental health performance)

with correlation coefficients of r=0.240, r=0.306, and r=0.321, respectively (N=77, p<0.001).

The relationship between product technology level and innovation performance (products and

18

process) showed medium and positive correlation, with correlation coefficients of r=0.284

and r=0.290, respectively (N=77, p<0.001). At the same time, process technology level only

correlated positively with process innovation performance (r=0.285, N=76, p<0.001).

From the above investigation, it is easy to see that technology orientation strategy (i.e.,

selecting high technology level and investing at a high level in product and process

technology) can eventually help companies win in terms of both innovation and

environmental dimensions.

Table 4. Pearson’s test for the correlations between technology strategy, and innovation

performance and environmental performance

Technology

level

Product

innovation

Process

Innovation

Ecosystem

performance

Environmental

health

performance

Production

environmental

performance

Process

technology .200 .285

* .410

** .425

** .336

**

Product

technology .284

* .290

* .306

** .321

** .240

*

**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

4.4 Sustainability improvement practices

To identify the pattern and relationship among sustainability improvement practices, we

applied factor analysis and cluster analysis to explore the focus of companies when

implementing different practices. First, the sample data were investigated with factor analysis,

using the principal component and varimax rotation methods on the improvement practices.

Extraction was based on the Kaiser criterion (Eigenvalues >1). Since F02 Economic stability

had high cross-loading (>0.5), it was removed from further analysis. Meanwhile, as

Economic stability loaded significantly in both economic sustainability and social

sustainability, it indicated that Economic stability is perceived to have both social and

economic dimensions. Then, we conducted the test on all of the sustainability improvement

practices, with the exception of F02 Economic stability.

The resulting rotated solution is presented in Table 5. Three distinct components were

extracted, and each factor loaded very high in one component and very low in the others.

These values satisfied the levels required for a confirmatory factor analysis, as set out by Hair

et al. [32]. The results of the components in fact corresponded to the triple bottom line. Thus,

company sustainability improvement practices can be clearly classified into three dimensions

(components) according to the test, namely, economic, environmental, and social dimensions.

19

In other words, the statistical analysis results indicated that the triple bottom line is a good

classification of companies’ sustainability practices.

Each component could be further divided into different factors, as highlighted in Table 5.

Thus, the focus of companies when implementing different sustainability improvement

practices was tested empirically. The statistical results confirmed three factors for economic

sustainability improvement practices, i.e., Cost, Market, and Growth; three factors for

environmental sustainability improvement practices, i.e., Ecosystem vitality, Environmental

health, and Environmental factors within production; and four factors for social sustainability

improvement practices, i.e., Governance, Education, Individual, and Community.

Table 5. The Rotated Component Matrixa on sustainability improvement practices

Sustainability improvement practices Component

1 2 3

Cost -.091 .829 .289

Market .106 .918 .053

Growth .217 .916 .059

Ecosystem vitality .247 .089 .860

Environmental health .231 .087 .893

Environmental factors within production .279 .248 .702

Governance .761 .224 .064

Education .707 .011 .220

Individual .830 -.013 .353

Community .801 .057 .242

Extraction Method: Principal Component Analysis.

Rotation Method: Varimax with Kaiser Normalization.

a. Rotation converged in 5 iterations.

4.5 Focuses of sustainability performance

Conducting the same analysis on the questions related to performance generated different

results. Only two components were found (see Table 6) using the same method of extraction.

The pattern that emerged suggested that economic performance could be rated as its own

category, and environmental sustainability and social sustainability could be combined into

one. In this case, the cross-loadings, especially between environmental sustainability and

economic sustainability, were much higher. The higher covariance between environmental

sustainability and economic sustainability could indicate a stronger tie between those two

than with social sustainability. However, the reason for this requires further investigation.

Extracting three components produced the same pattern as in Table 5, but with many

problematic cross-loadings. First, performance indicators correlated differently compared to

20

improvement practices. Second (but related), social and environmental performance were

more closely related than social and environmental improvement practices. In conclusion,

this factor analysis indicated that, when studying sustainability performance, we should

combine environmental and social sustainability and model them as a combined category.

Table 6. Rotated Component Matrixa on sustainability performance

Sustainability performance Component

1 2

Cost .187 .780

Market .245 .860

Growth .165 .893

Ecosystem vitality .701 .427

Environmental health .704 .451

Environmental factors within production .605 .415

Governance .704 .291

Education .760 .100

Individual .812 .213

Community .805 .024

Extraction Method: Principal Component Analysis.

Rotation Method: Varimax with Kaiser Normalization.

a. Rotation converged in 3 iterations.

4.6 Cluster analysis

As one research question suggests, it is useful to explore whether Swedish manufacturing

companies dedicate the same amount of effort to the various sustainability improvement

practices Thus, we chose a cluster analysis method for investigating the empirical evidence.

A K-means cluster analysis with three clusters was selected. Three clusters were chosen

partly due to the sample size, ensuring a reasonable number of expected responses in each

cluster. In addition, the choice of three clusters also reflected the factor analysis results in

three different components. As seen in Table 7, there were reasonable numbers of cases in

each cluster (36, 20, and 31 respectively). One interesting finding from the cluster analysis

was that 22.98% of the companies (20 out of 87, Cluster 2) made the same amount of effort

with respect to economic, environmental, and social improvement practices. The companies

in all clusters placed a good amount of emphasis on economic sustainability practices,

although Cluster 3 (last column in Table 7) had a significantly lower score in G01 Cost. The

companies in Cluster 1 (36 out of 87 companies) put relatively more effort into

environmental improvement practices, but less effort into social improvement practices. In

Cluster 3 (31 out of 87), companies put less effort into both environmental and social

21

improvement practices.

Table 7 also shows that the economic improvement practices were of common interest to all

companies, but the companies had mixed attitudes with regard to the other two types of

sustainability improvement practices (i.e., either interested in both, interested in one aspect,

or not interested at all). However, when further improvement practices need to be adopted,

many companies will first seek to implement environmental improvement practices, instead

of social ones. None of the clusters prioritized social improvement practices over

environmental ones.

We then used the empirical data to test whether a company that puts more effort into one

sustainability category performs better in the corresponding category. Alternatively, the

question is: does a company in Cluster 1, which puts more effort into environmental

sustainability, perform better in environmental sustainability than the companies in other

clusters? The cluster analysis was conducted, and the results are shown in Table 8. We should

note that, for this analysis, the clusters of the companies were based on sustainability

improvement practices, i.e., the results in Table 7. The values of the performance indicators

were calculated for each cluster. Overall, Cluster 2, which dedicated greater effort to all

aspects of sustainability practices than the other two clusters, also performed relatively better

in all dimensions except for Flexibility (G08). In terms of the companies in Clusters 1 and 3,

there was an indication that companies belonging to Cluster 1 outperformed those in Cluster

3 with respect to environmental sustainability performance (cf. G11 to G13 in Table 8). In

this case, there was no obvious difference with respect to the other sustainability performance

indicators.

Table 7. Final cluster centers on sustainability improvement practices Sustainability improvement practices 1 (N=36) 2 (N=20) 3 (N=31)

Cost (F01) 4.33 4.50 4.03

Market (F03) 4.08 4.60 4.03

Growth (F04) 4.14 4.70 4.00

Ecosystem vitality (F05) 3.17 4.10 1.81

Environmental health (F06) 3.58 4.30 2.03

Environmental factors within production (F07) 3.75 4.40 2.97

Governance (F08) 2.69 4.10 2.39

Education (F09) 3.03 3.80 2.39

Individuals (F10) 2.86 4.05 1.87

Community (F11) 2.89 4.30 2.16

22

Table 8. Performance indicators for clusters Sustainability performance 1 (N=36) 2 (N=20) 3 (N=31)

Cost (G01) 3.52 3.88 3.33

ROI (G02) 3.54 3.80 3.48

Economic stability (G03) 3.56 3.86 3.54

Market (G04) 3.70 3.94 3.65

Growth (G05) 3.43 3.80 3.50

Quality (G06) 4.00 4.00 3.76

Delivery (G07) 3.63 3.94 3.81

Flexibility (G08) 3.86 3.94 4.04

Product Innovation (G09) 3.60 3.88 3.46

Process Innovation (G10) 3.31 3.88 3.23

Ecosystem vitality (G11) 3.37 3.75 2.73

Environmental health (G12) 3.73 3.94 2.88

Environmental factors within production (G13) 3.73 4.06 3.19

Governance (G14) 3.46 4.19 3.12

Education (G15) 3.31 3.67 3.12

Individuals (G16) 3.40 3.73 3.00

Community (G17) 3.22 3.56 3.12

In a business context, we often think that companies should work on their weaknesses in

order to improve. However, these results suggest that we can also alternatively claim that

there is a benefit for companies when they dedicate more work to their strengths.

4.7 Relationship between practices and performance

We applied statistical analysis in order to investigate the relationship between sustainability

improvement practices and company performance. The results are shown in Table 9.

Generally speaking, each aspect of improvement practices indicated a strong correlation with

the corresponding performance area (sections A, B, C in Table 9).

First of all, when searching for correlations between economic practices and economic

performance, a Pearson test was used. As expected, we found very strong correlations

between all practices and performance indicators related to economic sustainability (financial

performance, see section A in Table 9). In addition, Cost improvement practices (F01) were

positively correlated with environmental sustainability performance, including Ecosystem

vitality (G11), Environmental health (G12), and Environmental factors within production

(G13). Consistent with the factor analysis, economic improvement practices in Growth (F04)

were positively correlated with all financial and environmental sustainability performance as

well as Governance (G14) and Education (G15) in social sustainability, and Process

innovation (G10). Market improvement practices (F03) were positively correlated with all of

23

the financial sustainability performance and environmental sustainability performance

indicators, including Ecosystem vitality (G11) and Environmental health (G12), as well as

social performance in Governance (G14).

The results regarding the relationship between environmental improvement practices and

environmental performance are shown in section B of Table 9. It is interesting to note that all

of the environmental improvement practices were positively and strongly significantly

correlated with environmental performance. These results indicate that higher levels of

environmental improvement practices are associated with better environmental performance.

This result is in line with the previous findings of the cluster analysis (refer to section 4.6).

The results for testing the relationship between social improvement practices and social

performance are shown in section C of Table 9. Most of the social improvement practices

were correlated positively and significantly with social performance. The same conclusion

can be drawn here that better social improvement practices are associated with better social

performance.

To analyze how the environmental improvement practices correlated to economic

performance, the same Pearson test was used, and the results are shown in Table 9. The

environmental improvement practices, including Environmental health (F06) and

Environmental factors within production (F07), were positively correlated with Process

innovation (G10). These results indicate that if companies pay more attention to the

environmental factors within production, e.g., better waste management, the introduction of

renewable raw materials, or better recycling of materials, their innovation performance will

be positively affected, especially in terms of process.

The relationship between social improvement practices and economic performance is also

presented in Table 9. Most of the social improvement practices did not necessarily correlate

with the companies’ economic performance. However, it is interesting to note that most

companies’ sustainable social improvement practices were correlated with their innovation

performance. For example, improvement practices in Education (F09) and Individual (F10)

improved companies’ performance in both Product innovation (G09) and Process innovation

(G10). Companies’ improvement practices in Governance (F08) improved companies’

performance in Process innovation (G10). These results suggest that investment in employees’

education and individual development programs can help companies to achieve better

innovation possibilities.

24

Table 9. The correlation between sustainability improvement practices and performance

indicators

From the statistical analysis, another interesting finding was that there were neither positive

nor negative correlations between sustainability improvement practices and operational

performance, such as Quality conformance to specification (G06), Delivery (G07), and

Flexibility (G08). Only Education (F09) had a positive, strong correlation with Quality

conformance to specification (G06). This result indicates that the investment in education,

such as employee training programs, has the potential to improve companies’ operational

performance, especially in terms of quality management.

Considering the relationship between different improvement practices and innovation

performance, we found some interesting results. Most economic, environmental, and social

improvement practices had strong and positive correlations with Process innovation (G10).

At the same time, as we discussed earlier, only two social improvement practices (i.e.,

Education (F09) and Individual (F10)) had positive correlations with Product innovation

(G09). This result is similar to that found in our previous research using companies’ GRI

(Global Reporting Initiative) reports [7]. In Chen et al.’s study, product innovation was found

F01 F03 F04 F05 F06 F07 F08 F09 F10 F11

A

G01 .264* .301

** .364

** .189 .282

* .347

** .203 .227

* .210 .118

G02 .265* .368

** .399

** .146 .198 .204 .281

* .116 .193 .048

G03 .309**

.332**

.434**

.048 .096 .128 .243* .212 .072 .091

G04 .333**

.329**

.410**

.108 .208 .213 .205 .108 .100 .067

G05 .189 .272* .318

** .090 .221 .162 .177 .028 .085 .070

G06 .130 .160 .154 .073 .032 .143 .131 .240* .086 .197

G07 .158 .119 .145 -.003 -.076 .035 .072 .098 .054 .141

G08 -.013 -.044 .011 -.021 -.044 .067 -.022 .047 -.049 -.001

G09 .015 .124 .201 .096 .088 .168 .161 .279* .277

* .179

G10 -.010 .183 .245* .189 .293* .228* .260* .320** .365** .190

B

G11 .348** .284* .297** .584** .518** .430** .223 .136 .297** .129

G12 .313** .344** .346** .481** .573** .452** .181 .182 .230* .083

G13 .378** .160 .276* .380** .403** .575** .301** .126 .217 .129

C

G14 .203 .298** .383** .256* .279* .394** .546** .207 .382** .328**

G15 -.023 .146 .231* .166 .166 .130 .240* .544** .304** .145

G16 .059 .164 .181 .235* .324** .292* .374** .294* .461** .394**

G17 .056 .029 .127 .088 .106 .194 .280* .262* .337** .464**

25

to be more closely related to environmental practices such as environmental design, specific

design targets/goals, and market surveillance. Thus, the results suggest that product

innovation is more closely associated with market-driven factors. Meanwhile, Process

innovation (G10), such as the implementation of cleaner technologies to prevent pollution

[33], is relatively easier for companies to achieve if they improve their internal production

processes.

With the subsequent step of data analysis, we investigated the correlation between overall

sustainability improvement practices and company performance. We calculated the sum of all

economic improvement practice scores for all of the companies in the sample, as well as the

aggregate scores for environmental improvement practices, social improvement practices,

and overall sustainability improvement practices. These scores (shown in the correlation

matrix in Table 10) were then compared as far as the companies’ operational performance,

innovation performance, and environmental performance were concerned. It can be seen that

overall sustainability improvement practices were correlated positively with financial

performance, operational performance, innovation performance, environmental performance,

and social performance.

Table 10. Correlation matrix for overall sustainability improvement practices and company

performance

1 2 3 4 5 6 7 8 9

1 Economic_improvement_practices 1

2 Environmental_improvement_practices .214* 1

3 Social_improvement_practices .271**

.657**

1

4 Financial_performance .117 .169 .293**

1

5 Operational_performance .083 .146 .282**

.899**

1

6 Innovation_performance .103 .201* .336

** .885

** .900

** 1

7 Environmental_performance .195 .349**

.299**

.831**

.804**

.864**

1

8 Social_performance .112 .215* .378

** .874

** .887

** .932

** .863

** 1

9 Sustainable_improvement_practices .595**

.824**

.885**

.329**

.299**

.345**

.403**

.371**

1

**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

5. Discussion of the findings and their implications

As competition among companies continues to intensify, companies need to put more effort

into not only traditional economic practices, but also social and environmental ones, in order

to protect their competitive position and to meet the demand from different stakeholders.

However, it is still unclear as to whether there is a tangible return for those efforts in terms of

26

the three bottom line practices. This study attempted to provide answers to this question by

conducting a survey in the Swedish manufacturing industry.

Cluster analysis indicated different amounts of effort devoted to improving various types of

sustainability practices. When the Swedish companies in the sample implemented

sustainability practices, they often adopted economic improvement practices first and

foremost, followed by environmental practices. Social sustainability practices received

relatively less attention than the compared with other two areas. This may be due to the fact

that a global social accountability standard, such as SA8000, is less widespread in the

Swedish manufacturing industry than the environmental standard, such as ISO14000; or

companies might consider environmental improvement practices to be easier to implement

than social ones. However, such arguments need to be investigated further.

The study results also showed that some environmental and social improvement practices

were adopted in a diversified pattern. These included ecosystem vitality, environmental

health, governance, individuals, and community. Some manufacturers demonstrated proactive

attitudes toward sustainability practices, whereas others were more reactive. Nevertheless, in

terms of sustainability performance, the Swedish manufacturers in the sample showed a less

diversified pattern. The analysis also suggested that companies often assign economic

performance to a separate category when reviewing sustainability performance, while

combining environmental sustainability and social sustainability into one category.

Furthermore, the effort put into economic, social, and environmental practices were found to

have positive correlations with economic, social, and environmental performance,

respectively. Nevertheless, most social and environmental improvement practices were not

necessarily found to improve companies’ financial performance. However, it is interesting to

note that several environmental practices and social practices ha a positive relationship with

companies’ innovation performance, including product and process innovation. These

findings are in line with the results of authors’ previous research [7]. Finally, most

environmental and social improvement practices did not correlate with economic

improvement practices.

With regard to the configuration of sustainability strategy, only a limited number of Swedish

manufacturers had centralized control over all aspects of sustainability. When such an issue is

compared from the perspective of the three bottom lines, economic sustainability strategy

27

displayed the most centralized tendency, social sustainability strategy was often developed

locally, and environmental sustainability strategy showed a mixed pattern.

We should also note that, in this study, the Swedish manufacturing industry demonstrated a

relatively high level of process and product technology. Advancing at a high level of product

and process technology can ultimately benefit manufacturers in terms of both innovation

performance and environmental performance. This, perhaps, should be highlighted as the

competitive advantage of Swedish manufacturers.

This research offers a theoretical contribution by incorporating the operations strategy

perspective into sustainability aspects. According to Angell and Klassen [33], environmental

operations issues, such as pollution control, waste minimization, and reduce/reuse/recycle

policies, can be regarded as an additional component of operations strategy. In this survey,

we used environmental improvement practices to stand in for these environmental operations

issues that can be seen as an important part of a company’s overall operations strategy.

Moreover, social improvement practices can also be viewed as another important part of

companies’ operations strategy. Within the context of operations strategy, sustainable

development pressures can affect the operational management of value-adding activities.

Such sustainability pressures affect product and process issues across the whole production

chain. Again, these activities include material use, energy consumption, renewable resources,

waste generation, waste treatment, waste disposal, and recycling of material, energy, and

waste.

From this research, we can derive several managerial implications for operations

management. First of all, managers may need to increase their awareness of social

sustainability improvement practices, since their implementation is relatively lacking

compared with the other two dimensions. There is a need to investigate whether and how SA

8000 and other core social sustainability standards should be introduced into the

sustainability improvement control system, so that social sustainability will receive additional

attention. In addition, decision makers should put more effort into designing and employing

proactive or value seeking sustainable operations strategies for improving environmental,

social, and economic performance. In order to achieve product and process innovation and

sustain a competitive advantage, company managers should consider the strategic importance

of some social and environmental practices, for example, education and individual

development, as well as practices that improve environmental health. Furthermore, the

manufacturing industry should invest in product and process technology, since such

28

investments can finally help companies to achieve success in innovation and environmental

performance.

Although this survey focused on the manufacturing industry in Sweden, the results can be

useful for other industries. The idea of integrating and developing these sustainability

improvement practices into an overall operations strategy is still relatively new to many

companies. Thus, learning and benchmarking how other companies have introduced such

strategies and practices into their organizations should aid in more successful implementation

and execution [4]. Balancing people, planet, and profit is still a difficult task for

manufacturers. It requires the integration of different departments within the organizations, as

well as proper resource allocation. In addition, key performance indicators must include

sustainability aspects, so that sustainable management can be achieved.

6. Limitations and further research

There are still some limitations in this research. One limitation is the sample population,

which was restricted to Swedish manufacturing companies with more than 200 employees.

This was mainly due to the high willingness of mid- and large-sized companies to answer the

survey questions on sustainable operations, as well as the greater prominence/availability of

sustainability practices and the presence of a responsible person at these bigger companies.

We are uncertain as to whether the research results can be generalized to the entire

manufacturing industry, including relatively small manufacturing companies. Therefore, a

further survey in small manufacturing companies should be conducted. In addition,

sustainability concerns can vary in different (e.g., developed vs. developing) countries.

Therefore, one direction of future research could be to extend our study to other countries.

Consequently, it could be interesting to compare countries, particularly with those in

emerging markets. Finally, the impact of sustainable operations on a company’s performance,

both from short-term and long-term perspectives, could be investigated in future research. For

example, it could be further verified by conducting experiments in different industries, setting

control variables for the short and long run.

29

Appendix: List of variables in the questionnaire, all measured with a 5-point Likert

scale

1. Economic improvement practices in the following areas

F01. Cost e.g.: labor cost, energy cost, material cost, facility cost, and logistic cost

F02. Economic stability e.g.: favorable tax, exchange rate fluctuations

F03. Market e.g.: international markets and potential demand

F04. Growth e.g.: industry growth, competitiveness in the host region

2. Environmental improvement practices in the following areas

F05. Ecosystem vitality e.g.: Air pollution and water quality related to the ecosystem,

biodiversity protection, and climate change performance

F06. Environmental health e.g.: Environmental burden of disease, air pollution and water

quality related to humans

F07. Environmental factors within production e.g.: Material use, energy consumption,

renewable resources, waste generation, waste treatment, waste disposal, recycling of material,

energy, and waste

3. Social improvement practices in the following areas

F08. Governance e.g.: Corruption, political stability, trade and tariff barriers

F09. Education e.g.: General education level

F10. Individual e.g.: Civil liberties, human rights

F11. Community e.g.: Equity, safety, cohesion, local technology

4. Economic performance in the following areas

4.1 Financial performance

G01. Cost

G02. Return on investment

G03. Economic stability

G04. Market

G05. Growth

4.2 Operational performance

G06. Quality conformance to specification

G07. Delivery

G08. Flexibility

4.3 Innovation performance

G09. Product innovation

G10. Process innovation

30

5. Environmental performance in the following areas

G11. Ecosystem vitality

G12. Environmental health

G13. Environmental factors within production

6. Social performance in the following areas

G14. Governance

G15. Education

G16. Individual

G17. Community

31

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VPAPER

1

Does supplier involvement affect Swedish manufacturers’ sustainability?

Lujie Chen, Ou Tang

Submitted to Journal of Business Ethics

An early version of this paper has been presented and received Purchasing

& Supply Management Best Paper Award at 6th European Decision

Sciences Institute Conference, 31 May to 3 June 2015, Taormina, Italy.

2

3

Does supplier involvement affect Swedish manufacturers’ sustainability?

Lujie Chen (Lujie.chen@liu.se)

Division of Production Economics, Department of Management and Engineering,

Linköping University, SE-581 83 Linköping, Sweden

Ou Tang

Division of Production Economics, Department of Management and Engineering,

Linköping University, SE-581 83 Linköping, Sweden

Abstract

This study examines the moderating role of supplier involvement in the focal

company’s sustainable initiatives. Survey methodology was used to collect data from

349 Swedish manufacturers. Partial least squares structural equation modeling was then

applied to analyze the causal relationships and moderating effects. The results showed

that there was a significant positive relationship between sustainable drivers and

sustainable improvement practices within the focal company itself. The focal

company’s sustainable improvement practices significantly contributed to its

sustainable performance. Moreover, the high levels of supplier involvement in

environment-related work significantly strengthened the relationship between the focal

company’s sustainable practices and performance. This study contributes to the

literature in the field of green supply chain management. The results indicate not only

that a “win-win” opportunity exists for members of the Swedish manufacturing industry

who implement sustainable practices, but also that organizational green capabilities can

be strengthened by cooperating with suppliers through organizational learning.

Keywords: Corporate social responsibility, Corporate sustainability, Empirical research,

Organizational sustainability cooperation, Structural equation model, Supplier

involvement, Sweden

4

1. Introduction

There is a growing interest among academics and practitioners in studying

sustainable supply chain management. Developing countries, such as China, have

dedicated a lot of effort to green supply chain management (Zhu et al., 2007, 2008; Zhu

and Sarkis, 2006, 2007). North America and Europe are also main clusters focusing on

green supply chain issues with the aim of sustaining societal development (Srivastava,

2007). For example, Sweden, as a typical developed European country, has set very

strict regulations regarding environmental protection and social justice across the whole

supply chain (Norrman and Jansson, 2004).

In these developed countries, external and internal stakeholders, such as

customers, government, local community, and non-governmental organizations (NGOs),

put a lot of pressure on companies to be more environmental and social friendly.

Moreover, stakeholders intensively investigate the companies’ environmental and social

performance concerning sustainability. If a company has misbehaviors related to

sustainability issues, its reputation can easily be damaged and its market share will

quickly be lost, impacting its overall economic performance. Recently, as many

European manufacturers have begun outsourcing overseas, companies must extend their

sustainability management not only to the focal company, but also to the suppliers and

their sustainable practices and performance. In other words, a significant part of

sustainability risk has shifted from direct and close control of the focal company to the

suppliers across a global supply chain (Caniëls et al., 2013). There are several cases

reporting such concerns: Apple’s supplier has had serious problems with hazardous

waste run-off and occupational health (Day et al., 2012); Coca Cola has been blamed for

using production water taken from public sources in India, damaging the local

community’s interests; Nike has been defamed for the environmentally unfriendly

performance of its global subcontractors (Parmigiani et al., 2011). Therefore, the sound

sustainable performance of a focal company might be destroyed by the inadequate level

of sustainable administration of its suppliers (Caniëls et al., 2013; Faruk et al., 2001).

To reduce these kinds of risks, companies should develop sustainable strategies

and operations technology that involve suppliers in the related sustainable work.

Meanwhile, the focal companies should help and support suppliers to comply with

environmental and social standards (Caniëls et al., 2013). However, it is still unclear

how supplier involvement affects the manufacturers’ sustainability. This problem still

5

has not been investigated extensively by researchers. Vachon and Klassen (2008)

conducted a survey in the North American manufacturing industry to examine the

environmental collaboration between suppliers and focal companies. Seuring and

Müller (2008) presented a literature review on the same issue. They claimed that

suppliers, focal companies, and customers are connected in supply chains, and the focal

companies should have the key responsibility for environmental and social performance.

There have been several other studies in this field focusing mainly on the focal

company’s sustainability drivers and performance (Henriques and Sadorsky, 1995, 1996,

1999), green purchasing (Green et al., 1998), and the focal company’s internal

environmental practices and performance (Zhu et al., 2005), among other issues.

However, the question of whether suppliers’ involvement in sustainable work

moderates the relationships between sustainable operations practices and performance

has not been assessed in depth, especially in Nordic countries. Therefore, this

investigation of supplier involvement is of notable academic and operational interest to

the manufacturing industry. It is often assumed that the involvement of various

suppliers in sustainable work will change the relationships between the practices and

associated performance of the focal companies. Understanding these moderating

relationships is useful for manufacturing managers, as it can enable them to decide on

cooperation strategies concerning suppliers and to address environmental, social,

economic, and operational issues. Therefore, this problem is critical to supply chain

management and sustainable management from strategic perspectives (Carter and

Rogers, 2008; Sanders, 2012).

To investigate the above research problem, we conducted empirical research

based on data collected from the Swedish manufacturing industry. This paper will be

structured as follows: First, the related literature and the conceptual model are presented.

We then describe how the data were collected and present the validity and reliability of

the data used in this study. The results of the analyses are presented in Section 4. The

final section discusses the theoretical and practical implications, and also describes the

potential directions for future research.

2. Related literature and conceptual model

2.1 The relationship between sustainability drivers and sustainability practices

Stakeholder theory contributes to the investigation of the relationship between

sustainability drivers and sustainable practices. As Freeman (1984, p. 46) defined, “A

6

stakeholder is any identifiable group or individual who can affect the achievement of an

organization’s objectives or who is affected by the achievement of an organization’s

objectives.” In the context of sustainable practice and performance, pressures from

various stakeholders can drive companies to adopt different environmentally friendly

practices and other socially friendly practices. In turn, these pressures will impact on the

related company performance. Zhu and Sarkis (2007) argued that environmentally

friendly supply chain management practices are positively associated with

organizational learning and management support, whereas pressures from stakeholders

can moderate this relationship. González-Benito and González-Benito (2006) conducted

a literature review to classify the determining factors in a company’s environmental

proactivity, including different practices and strategies. They found that stakeholder

pressures are one crucial determining factor.

Customers are often considered important stakeholders for companies. Customers

can influence companies’ adoption of environmentally friendly practices, for example,

due to their demand for more green products. There have been several studies showing

that customer concern is one key driver for companies implementing environmental

management practices. Henriques and Sadorsky (1996) also suggested that pressure

from customers contributes significantly to companies developing an environmental

plan. Khanna and Anton (2002) found that companies selling final products and in

closer contact with customers are more likely to have more comprehensive

environmental management practices than those companies producing intermediate

products.

According to the literature, stakeholders can also be categorized as external or

internal. The difference between external and internal stakeholders lies in their ability to

control critical organizational resources. Even though external stakeholders do not have

the ability to directly control critical organizational resources for the company, they do

have the capacity to impact public opinion on the company’s sustainable practice and

reputation (Sarkis et al., 2010; Sharma and Henriques, 2005). Such external

stakeholders include NGOs, government, regulators, and customers.

As suggested by Haanaes et al. (2011), we took line leaders into consideration in

our study since our respondents were manufacturing companies. (The definition of line

leaders will be given in section 3.2). Moreover, Haanaes et al. also considered the

advisory board to be a driver for company’s sustainable work. Regulators can be

7

important stakeholders, influencing companies to implement specific sustainable

management practices (Zhu and Sarkis, 2007). In sum, in this study, Government and

regulators, Advisory board, Line leaders, Advocacy organizations and NGOs, and

Customers are included as the main sustainability drivers.

Thus, based on stakeholder theory, we make the following hypothesis:

H1: There is a causal relationship between sustainability drivers and sustainable

improvement practices.

2.2 The relationship between sustainable practices and performance

There have been a number of studies exploring the relationship between

sustainable practices and performance. López et al. (2007) conducted a study on the

relationship between sustainable practices and company performance by investigating

the Dow Jones Sustainability Index. Zhu and Sarkis (2004) examined the relationships

between environmentally friendly practices and company performance, particularly

environmental and economic performance. Their focus was on Chinese manufacturing

companies. Zhu et al. (2005) also studied the Chinese manufacturing industry,

investigating the drivers, practices, and performance related to green supply chain

management. Vachon and Klassen (2008) analyzed environmental practices and

company performance in the package printing industry.

In an empirical investigation, Chen et al. (2014) examined the relationship

between environmental management practices and financial performance in the

manufacturing industry by using Global Reporting Initiative (GRI) reports and financial

reports. The results indicated that most environmental management practices have

positive correlations with a company’s financial performance. Chen et al. (2014)’s study

also suggested that managers should pay particular attention to product innovation,

since it correlates positively and significantly with environmental management at

tactical, strategic, and other levels.

Furthermore, Chen et al. (2015) conducted research to investigate the

relationship between the disclosure of corporate social performance and the financial

performance by carrying out a content analysis of 75 GRI reports. The research results

indicated that many CSR indicators, such as product responsibility, human rights, and

society, correlate positively and significantly with financial performance.

Schaltegger and Synnestvedt (2002) investigated the relationship between

environmental practices and economic success and suggested that there should be a

8

causal relationship between eco-efficiency and better company performance. According

to the above discussion, most of this research has suggested that the implementation of

sustainable practices will correlate to better sustainable performance; thus, we develop

the following research hypothesis:

H2: There is a causal relationship between sustainable improvement practices and

performance.

2.3 The moderating role of supplier

Although the development of green supply chain management has been growing,

it has done so mainly in Europe and North America (Srivastava, 2007). Currently, in EU

countries, most companies must comply with sustainable management systems, for

example, the EU Environmental Management and Auditing Scheme (EMAS, see Chen

et al., 2014). Other standards, such as ISO 14001, have also been implemented in the

daily practices of operations, purchasing, and supply chain managers. At the same time,

social standards, e.g., Social Accountability (SA) 8000 and Code of Conduct, have not

been as widely adopted (Seuring and Müller, 2008). Focal companies more frequently

require their suppliers to operate in line with environmental criteria than with social

criteria. In addition, suppliers’ work might be documented via related environmental

and social management systems, such as ISO 14001 and SA 8000. Suppliers will be

delisted if they cannot comply with these sustainability regulations. Employees at

supplier companies are trained for this environmental work across companies in order to

improve supply relations and the performance of both the focal company and supplier

company (Seuring and Müller, 2008).

The relational view and resource dependence theory can serve as the theoretical

background for investigating the moderating effects of supplier involvement in

environmental work. According to the relational view, organizational capabilities can be

strengthened by incorporating the existing resources of different organizations across

the whole supply chain through organizational learning (Dyer and Singh, 1998;

Takeishi, 2001; Vachon and Klassen, 2008). There have also been several empirical

studies supporting the relational view. Previous studies by Chen et al., (2004), Liker and

Wu, (2000), and Vachon and Klassen (2008) showed that if the focal companies have

better cooperation with their suppliers, the focal companies’ performance can be

enhanced. The reason is that suppliers and focal companies can cooperate and learn

from each other through inter-organizational learning, as suggested by the relational

9

view (Dyer and Singh, 1998). In this way, not only can company performance be

improved, but also the organizational capabilities can be strengthened (Dyer and Singh

1998; Kleindorfer et al., 2005).

Similarly, Resource dependence theory was first proposed by Emerson (1962)

then further developed by Pfeffer and Salancik (1978, p. 26-27) to suggest that

“organizations depend on others in their environment for resources to ensure their long

run viability.” It assumes that organizations must depend on other organizations to

protect strategically vital resources and reduce uncertainty and risks (Heide, 1994;

Singh et al., 2011). The resource exchange between suppliers and focal companies can

be applied as a mechanism to control and reduce possible environmental/social risks.

In light of these, we developed the following research hypotheses on the

moderating effect of supplier involvement in the focal company’s sustainable work

considering economic, environmental, and social aspects:

H3: Supplier involvement in the focal company’s economic work moderates the focal

company’s sustainable improvement practices and performance.

H4: Supplier involvement in the focal company’s environmental work moderates the

focal company’s sustainable improvement practices and performance.

H5: Supplier involvement in the focal company’s social work moderates the focal

company’s sustainable improvement practices and performance.

2.4 Conceptual model

According to the discussion above, we built a conceptual model (Fig.1) to

explore the moderating effects of supplier involvement in the relationship between

sustainability improvement practices and performance. In this investigation, the

relationship between sustainable drivers, sustainable practices, and sustainable

performance was our major concern. The conceptual model and the related items were

first developed based on the results of previous literature reviews (Chen et al., 2014;

Haanaes et al., 2011; Linton et al., 2007). Subsequently, this conceptual model and its

contents were verified by company managers and academic experts. More details of this

model will be given in section 3.2.

10

Fig. 1. The conceptual model for this research

3. Methods

3.1 Data collection

Swedish manufacturing companies made up the sample for this research. SCB

(Statistics Sweden) provided a list of those companies belonging to the manufacturing

industry. Previous research has suggested that larger companies have more resources

and larger scale operations, which enable greater innovation (Russo and Fouts, 1997).

Moreover, bigger companies are subject to greater public scrutiny, prompting greater

social responsiveness (Pfeffer and Salancik, 1978; Sharma and Henriques, 2005). Our

preliminary investigation also indicated that medium- and large-sized companies (more

than 200 employees) often have a professional manager who is responsible for

sustainable operations. Thus, in this study, we only targeted the middle- and large-sized

companies in the Swedish manufacturing industry with more than 200 employees;

smaller companies were excluded.

Frohlich (2002) and Huo et al. (2014) suggested that the response rate can be

improved by showing the respondents the value of the research, as well as

demonstrating the relevance of study to their companies. Therefore, the research

assistant made telephone calls to all of the sample companies before we sent the survey

by email. The research assistant introduced the main contents of this survey and the

possible managerial implications for the company over the phone. Moreover, the

research assistant also attempted to identify the most appropriate person at the company

to answer the survey questions. Through this step, 349 companies provided the

11

information, including name, email, and title, of the contact person. In the end, 101

useable surveys were returned with a response rate of 29%.

Common method bias can occur when the same methods are used for collecting

data (Oh et al., 2012; Podsakoff et al., 2003). The most popular and acceptable approach

for evaluating common method bias is Harman’s single-factor test (Buckley et al., 1990;

Podsakoff et al., 2003). The principal component analysis was conducted to load all of

the items used in this study into one factor with an unrotated factor solution. The test

results showed that 31.90% of variance was explained with all items loaded into a single

factor. Therefore, the common method bias was not detected in the dataset (see critical

value in Olhager and Prajogo, 2012).

3.2 Measures

According to the previous literature review (Chen et al., 2014) and the survey by

Haanaes et al. (2011), we developed constructs specifically for sustainability drivers,

supply chain involvement in different aspects of sustainability work, sustainability

improvement practices, and different aspects of sustainability performance, as shown in

Table 1. We used 5-point Likert scales to measure these constructs.

Sustainability drivers were measured using five items, as mentioned in section

2.1. According to the literature, line leaders can be defined as leaders of a specific

production line. They lead several non-leadership employees/operators in the module of

a factory. The advisory board is an organization of experts who have been selected to

help a company improve business operations, for example, doing sustainable work more

efficiently. There are two kinds of measurement models for latent constructs (Freeze

and Raschke, 2007). Reflective measures are caused by the latent constructs, whereas

formative measures cause the latent constructs (Freeze and Raschke, 2007). Thus, the

sustainability drivers can be viewed as formative constructs. Meanwhile, sustainability

improvement practices and sustainable performance can be seen as reflective constructs.

The validity and reliability of these constructs are further discussed in the following part.

Table 1. Constructs and related items used in this research

Constructs Items Code

Sustainability drivers Government and regulators B11

Advisory board B12

Line leaders B13

Advocacy organizations and NGOs B14

Customers B15

12

Supply chain

involvement in

different aspects

work

Supplier involvement in economic-related work C09

Supplier involvement in environmental-related

work

D07

Supplier involvement in social-related work E09

Economic

sustainability

improvement

practices

Cost e.g.: labor cost, energy cost, material cost,

facility cost, and logistics cost

F01

Economic stability e.g.: favorable tax, exchange

rate fluctuations

F02

Market e.g.: international markets and potential

demand

F03

Growth e.g.: industry growth, competitiveness in

the host region

F04

Environmental

sustainability

improvement

practices

Environmental improvement practices in

ecosystem vitality

F05

Environmental improvement practices in

ecosystem vitality

F06

Environmental improvement practices in

production

F07

Social sustainability

improvement

practices

Governance e.g.: Corruption, political stability,

trade and tariff barriers

F08

Education e.g.: General education level F09

Individual e.g.: Civil liberties, human rights F10

Community e.g.: Equity, safety, cohesion, local

technology

F11

Financial

performance

Cost e.g.: labor cost, energy cost, material cost,

facility cost, and logistics cost

G01

Return on investment G02

Economic stability e.g.: favorable tax, exchange

rate fluctuations

G03

Market e.g.: international markets and potential

demand

G04

Growth e.g.: industry growth, competitiveness in

the host region

G05

Operational

performance

Quality conformance to specification G06

Delivery G07

Flexibility G08

Innovation

performance

Product innovation G09

Process innovation G10

Environmental

sustainability

performance

Environmental performance in ecosystem vitality G11

Environmental performance in environmental

health

G12

Environmental performance in production G13

Social sustainability

performance

Social performance in governance G14

Social performance in education G15

Social performance in individual G16

Social performance in community G17

13

3.3 Data Analysis

The partial least squares (PLS) method, which is a second-generation

multivariate analysis (Fornell and Larcker, 1987), was applied in this study. The

software SmartPLS 3.0 was used for the PLS data analysis. PLS analysis has different

characteristics compared to the first generation of regression-based analysis. PLS

analysis is a kind of maximum likelihood variance-based Structural Equation Modeling

(SEM) tool that can model relationships among multiple dependent and independent

constructs simultaneously (Haenlein and Kaplan, 2004). PLS regression analysis

generalizes and combines features from multiple regression analysis and principal

component analysis, and can maximize predictive accuracy (Abdi, 2003).

We chose PLS as the main data analysis method because of the modeling

features and sample size of this research. More specifically, PLS analysis allowed us to

integrate the measurement and the related structural models (Bollen, 2014; Thatcher and

Perrewe, 2002). This method can measure the unobserved (latent) variables, as well as

reflective and formative constructs (Hair et al., 2011). In this research, sustainability

drivers, sustainability practices, and sustainability performance were modeled as latent

variables. Moreover, the sustainability drivers were modeled as formative constructs.

Nevertheless, the first-generation SEM tools, such as covariance-based ones, are limited

in their ability to describe formative constructs (Hair et al., 2011; Zhang et al., 2014).

The sample size requirement was another reason for selecting PLS regression

analysis, since the method is more suitable than traditional SEM techniques for handling

smaller sample sizes. The sample size in this research satisfies the rule of thumb that it

should be at least ten times larger than the largest number of structural paths directed at

any one construct (Chin et al., 2003; Oh et al., 2012). The rule of thumb for covariance-

based SEM states that the sample size should be at least five times the number of

indicators estimated (Bentler and Chou, 1987). To be more specific, due to the

complexity of this research model, the sample size had to be at least 180 respondents for

applying the covariance-based SEM; with the PLS method, the sample number could be

reduced to 40, which is ten times the maximum number of path relationships directed at

a particular construct (Hair et al., 2011).

Lastly, the research objective was another motivating factor for us to choose

PLS as the main data analysis method. Our research focuses on the causal relationships

between sustainability drivers, sustainable improvement practices, and performance.

14

PLS regression analysis is quite suitable for examining causal effect relationships

among different latent constructs (Hair et al., 2011). Moreover, our research is not only

exploratory, but also focused on theory development. Thus, PLS is a better choice, since

this approach is especially useful for exploratory research, as well as predictive and

theory development (Ringle et al., 2012; Hair et al., 2011).

In the following discussions, we validate the measurement model and then

discuss the structural model results. The measurement model in this research can be

divided into a formative measurement model and a reflective measurement model.

Reflective measurement models can be assessed using different statistical criteria:

Cronbach’s alpha for composite reliability and internal consistency reliability

Indicator loadings for indicator reliability

Average variance extracted (AVE) for convergent validity

Heterotrait-monotrait ratio (HTMT) for testing the discriminant validity

On the other hand, according to Jarvis et al. (2003), when the causality direction is from

items to construct, the construct should be formative. Thus, sustainability drivers should

be modeled as formative constructs in this research. Checking the validity of formative

constructs included testing the variance inflation factor (VIF) to avoid multicollinearity

and testing the indicator weights to approve the validity.

4. Results

4.1 Measurement model

The reliability and validity of the reflective constructs are shown in Table 2.

Three tests were applied to determine the convergent validity and internal consistency

reliability of the ten reflective constructs: AVE of a construct, the construct’s composite

reliability, and the construct’s Cronbach’s Alpha. Urbach and Ahlemann (2010, p. 19)

stated, “Convergent validity concerns the level to which individual items are indicating

a construct converge in contrast to items measuring various constructs.” Fornell and

Larcker (1981) introduced average variance extracted (AVE) as a criterion for

convergent validity. The AVE values (shown in Table 2) were all above 0.5, indicating

that a latent variable is on average adequate to explain more than half of the variance of

its indicators. Therefore, all of the constructs in the reflective measurement showed

sufficient convergent validity. Composite Reliability and Cronbach’s Alpha were

employed to measure the internal consistency. Most constructs were above the

recommended threshold value of 0.7 (Chin, 1998), except for sustainable practice,

15

which was very close with a value of 0.694 (considered to be an acceptable level, Hair

et al., 1998). The result indicated proper internal consistency in the first and second

orders.

According to Chin (1998), to verify the indicator reliability, all of the indicators

loaded in the reflective model should be higher than 0.7 with a significance of at least

0.05 (T Statistics larger than 1.96). As shown in Table 3, all of the indicators in the

reflective model passed the reliability test. In other words, more than 70% of the

indicators’ variance was explained by the corresponding latent variable.

To check the discriminant validity, the examination of cross-loadings and the

Fornell-Larcker criterion are the most common approaches (Urbach and Ahlemann,

2010). However, as indicated in the latest research by Henseler et al. (2014), these two

approaches are not reliable in many research situations: the Fornell-Larcker criterion

tests whether the AVE is bigger than the square of constructs correlation. However,

according to the research and simulation analysis by Hui and Wold (1982) and

Lohmöller (1989), variance-based SEM methods, such as PLS, are likely to

overestimate indicator loadings (Henseler et al., 2014). Moreover, PLS methods in

general are likely to underestimate the structural model relationships (Marcoulides et al.,

2012). Therefore, PLS methods tend to pass the Fornell-Larcker criterion easily.

Considering the examination of cross-loadings, the PLS regression method

examines each independent latent construct respectively, and then checks the entire

SEM. Thus, the loadings will be inflated in the cross-loadings (Henseler et al., 2014).

This is a potential drawback for conducting cross-loadings to check the discriminant

validity in a PLS approach. Henseler et al. (2014), in fact, suggested a stricter rule, the

heterotrait-monotrait ratio (HTMT) of the correlations, for testing the discriminant

validity. HTMT tests the correlations of indicators across constructs measuring different

phenomena. The advantage of the HTMT method is that it is not necessary to have

factor loadings first. Therefore, it avoids the potential problems of inflated cross-

loadings and regression dilution (Henseler et al., 2014). Therefore, we calculated the

HTMT ratios for all of the first-order latent constructs, with the results shown in Table 4.

To validate the formative constructs, we used a bootstrapping procedure to obtain the

significance level of all of the indicator weights. The results are shown in Table 5. Most

of these formative indicators were at the acceptable level (see the value suggested by

Chin, 1998), except for the driver Line leaders. Thus, we deleted this factor from the

16

subsequent analyses. Meanwhile, although the weight for the driver Government and

regulators had a value slightly lower than 0.2, according to previous research (Caniëls

et al., 2013; Large and Thomsen 2011; Zhu and Sarkis 2006, 2007; Zhu et al., 2007),

government and regulatory pressures cannot be neglected when studying sustainability

drivers/pressures. As suggested by Hair et al., (2014), if an indicator has a high

theoretical relevance, it should be retained. Thus, considering its theoretical relevance

based on previous research, we decided to retain Government and regulators in the

subsequent analyses. Then, we calculated the variance inflation factor (VIF) to avoid the

multicollinearity among the formative indicators (Fornell and Bookstein, 1982). All

these values were well below the threshold value of 10 suggested by Hair et al. (2014).

Table 2. Internal consistency reliability and convergent validity for the reflective measurement

models First order AVE Composite

Reliability

Cronbach’s

Alpha

Second order AVE Composite

Reliability

Cronbach’s

Alpha

Environmental

improvement

practices

0.752 0.901 0.833 sustainable

practice 0.622 0.831 0.693

Economic

improvement

practices

0.654 0.882 0.819

Social

improvement

practices

0.660 0.886 0.826

Financial

performance 0.651 0.903 0.865 sustainable

performance 0.573 0.870 0.812

Operational

performance 0.647 0.846 0.726

Innovation

performance 0.814 0.897 0.773

Environmental

performance 0.782 0.915 0.859

Social

performance 0.647 0.879 0.816

Table 3. Indicator reliability (Meanings of variables are listed in Table 1 and the Appendix) Construct Item loadings T Statistics

Economic improvement practices

F01 0.772 11.073

F02 0.681 12.554

F03 0.872 22.943

F04 0.894 35.151

Environmental improvement practices

F05 0.874 32.237

F06 0.920 54.602

F07 0.803 15.288

Social improvement practices

F08 0.781 14.751

F09 0.741 13.848

F10 0.898 48.690

17

F11 0.822 19.200

Financial performance

G01 0.744 9.155

G02 0.793 13.967

G03 0.802 13.694

G04 0.842 26.114

G05 0.847 28.822

Operational performance

G06 0.840 17.818

G07 0.851 13.013

G08 0.715 9.669

Innovation performance

G09 0.886 34.079

G10 0.918 63.409

Environmental performance

G11 0.927 55.914

G12 0.918 44.935

G13 0.803 12.547

Social performance

G14 0.785 14.564

G15 0.733 10.393

G16 0.867 26.655

G17 0.826 13.922

Table 4. Correlations and Heterotrait-Monotrait Ratio (HTMT) 1 2 3 4 5 6 7 8

1.Economic improvement practices

2.Environmental improvement practices 0.413

3.Environmental performance 0.420 0.676

4.Financial performance 0.535 0.264 0.608

5.Innovation performance 0.200 0.252 0.619 0.560

6.Operational performance 0.111 0.039 0.406 0.598 0.656

7.Social improvement practices 0.389 0.669 0.261 0.215 0.360 0.139

8.Social performance 0.272 0.339 0.701 0.479 0.709 0.469 0.538

Table 5. Variance inflation factors (VIF) and weights for formative scales

Construct Items VIF Weight P-value

Sustainable drivers Government and regulators 1.367 0.183 0.233

Advisory board 1.742 0.416 0.005

Advocacy organizations and NGOs 1.415 0.537 0.000

Customers 1.154 0.237 0.085

4.2 Structural model

The structural model was tested by performing SmartPLS. The hierarchical

analysis results and moderation results are shown in Fig. 2. We made R2 stand for each

dependent construct’s coefficients of determination. Those values (R2) indicated

18

whether the independent variables of the model explained substantial variance of this

construct. According to the criteria by Chin (1998), the coefficients of determination

shown in Fig.2 were medium (R2=0.4) and small (R

2=0.314). This result confirmed that

the structural model was acceptable.

The path relationships (standardized beta coefficients of least squares

regressions) of the structural model could be assessed by means of performing

bootstrapping (Urbach and Ahlemann, 2010). The significance of the estimators of the

proposed model could be obtained by calculating t-statistics. Thus, bootstrapping using

5,000 samples (Hair et al., 2014) was performed to estimate the statistical significance

of the structural paths by calculating the t-values. The results of the path coefficients are

shown in Fig. 2.

The results of the significant paths provided empirical support for the two

proposed causal relationships, as well as one moderating effect, as Table 6 presents. The

regression coefficients were in the predicted direction with predicted significance levels,

with the exception of the moderating effects of supplier involvement in the focal

company’s economic work and supplier involvement in the focal company’s social

work. The possible reason for this is that most Swedish manufacturers have

implemented very strict environmental assessment and control systems for their

suppliers. However, they do not have sophisticated and mature auditing systems

concerning the social aspects compared to the environmental ones. Very similar to

German manufacturers, most Swedish manufacturing companies follow the EU Eco-

Management and Auditing Scheme (EMAS) and ISO 140001 standard (Wagner, 2007).

Moreover, other environmental restrictions have been set by the European Union. For

example, the restriction of hazardous substances (RoHS) has been implemented for

waste electrical and electronic equipment (WEEE) (Chen et al., 2014; Tseng, 2013).

These regulations help the focal companies in Sweden to guide and help their suppliers

across the whole supply chain to achieve better environmental performance. In effect,

the suppliers can be more involved in the focal companies’ environmental improvement

practices by following these environmental regulations and restrictions.

19

*p<0. 1.

**p<0.05.

***p<0.001. Fig. 2. Structural model with path coefficient estimates.

We applied a blindfolding method with an omission distance of 7 in order to test

the predictive relevance of this structural model (Hair et al., 2014). All Q2 values

obtained were higher than zero. Thus, the structural model achieved satisfactory

predictive power.

The effect size f2 measures whether an independent latent variable has a

substantial impact on a dependent latent variable (Cohen, 2013; Urbach and Ahlemann,

20

2010). The f2

in this structural model was calculated using the PLS algorithm. The

results showed that for the endogenous latent variable sustainable performance, the f2 of

sustainable improvement practice was 0.225, signifying relatively medium effects (Chin,

2010; Cohen, 2013). For sustainable improvement practices, only the variable

sustainable drivers exhibited large effects (with f2 values equal to 0.667).

Table 6. The results of hypothesis testing

Hypothesis Contents Results T -Value

H1 There is causal relationship between sustainability drivers

and sustainable improvement practices

Support 9.712***

H2 There is causal relationship between sustainable

improvement practices and performance.

Support 4.342***

H3 Supplier involvement in the focal company’s economic

work moderates the focal company’s sustainable

improvement practices and performance.

Reject 0.435

H4 Supplier involvement in the focal company’s environmental

work moderates the focal company’s sustainable

improvement practices and performance.

Support 1.656*

H5 Supplier involvement in the focal company’s social work

moderates the focal company’s sustainable improvement

practices and performance.

Reject 1.453

*p<0. 1.

**p<0.05.

***p<0.001.

Therefore, we can conclude that Swedish manufacturers have developed their

sustainable awareness because of internal and external drivers from government and

NGOs, and customer needs. Moreover, this awareness has translated into powerful

sustainable improvement practice adoption. Meanwhile, some of these practices have

contributed to several areas of sustainable performance, including economic,

environmental, and social aspects. However, this contribution is still at the mid-level.

We can see that a “win-win” opportunity exists for members of the Swedish

manufacturing industry who implement sustainable practices. These practices appear to

be achieving what is anticipated of them based on their causal and positive relationships

with overall company performance. But how to further expand these kinds of positive

effects remains an interesting question for these companies and academic research. For

example, what weaknesses can be found in Swedish manufacturers when they are

implementing sustainable improvement practices? Do sustainable management tools

need to be enhanced? Or do personal skills need to be developed?

4.3 The effects of supplier involvement on the environmental focus

21

As discussed in the previous part, we found that supplier involvement in the

focal company’s environmental work moderated the relationship between the focal

company’s sustainable improvement practices and performance. However, we still did

not know how these moderating effects influenced the focal company. For instance, did

they affect the environmental improvement practices or environmental performance?

Thus, a t-test via statistical packages (SPSS) was conducted. The sample was split into

two groups based on the level of supplier involvement in the environmental-related

work identified by the respondents. Of the 101 respondents, 48 companies reported a

high level of supplier involvement in the environmental-related work, whereas 51

reported a low level. Two respondents did not answer this specific question. Then, we

used the t-test to compare these two groups of companies with respect to their

environmental improvement practices in ecosystem vitality, environmental

improvement practices in environmental health, and environmental improvement

practices in production, product, and process innovation performance, and their

corresponding environmental performance in ecosystem vitality, environmental health,

and production. These results are presented in Table 7.

There were no significant differences between these two groups of companies

concerning environmental performance. Meanwhile, there were significant differences

regarding environmental improvement practices, especially in ecosystem vitality and in

environmental health. Therefore, the results suggest that companies with different levels

of supplier involvement do things differently in terms of their emphasis on different

environmental improvement practices; at the same time, the results do not suggest that

there is a difference in the level of environmental-related performance achieved. Thus,

the involvement of various suppliers in the environmental issues will cause the

relationships between implemented practices and related performance to vary in the

focal companies, mainly since suppliers affect the focal companies’ environmental

improvement practices. For countries with very strict environmental regulation systems,

managers of the focal companies will choose suppliers based not only on their ability to

fulfill environmental regulations, but also their ability to cooperate efficiently on

environmental practices in the long run (Caniëls et al., 2013). Thus, suppliers also have

the motivation to invest time and money to involve themselves in the focal companies’

environmental improvement practices, such as environmental quality management.

Meanwhile, as Caniëls et al. (2013) stated, Several manufacturers develop their

22

individual environmental regulations beyond ISO series; these environmental standards

are not only established by the focal companies themselves but also received support of

their key suppliers. Thus, these suppliers affect focal companies’ environmental

initiatives.

Table 7. T-test comparing high-level and low-level supplier involvement in environmental-

related work

The relationship between suppliers and focal companies can be viewed as a kind

of green cooperation. Suppliers can access and become involved in focal companies’

environmental initiatives through organizational learning, such as continuous training

programs. In this way, cooperative relationships are developed between suppliers and

focal companies. Knowledge can also be shared between them regarding regulatory

criteria for environmentally friendly materials and products, eco-design, and

environmental health (Zhu and Sarkis, 2004).

5. Conclusion and future research

Environmental

improvement

practices and related

performance

High supplier

involvement

Mean (std.dev.)

Low supplier

involvement

Mean (std.dev.)

Mean difference

(sig. level)

Environmental

improvement

practices in

ecosystem vitality

3.27（1.086） 2.59（1.171） 0.681（0.005<0.05）

Environmental

improvement

practices in

environmental health

3.58（1.033） 2.88（1.148） 0.700（0.003<0.05）

Environmental

improvement

practices in

production

3.80（0.859） 3.57（0.900） 0.236（0.191>0.05）

Environmental

performance in

ecosystem vitality

3.38（1.063） 3.10（0.810） 0.278（0.203>0.05）

Environmental

performance in

environmental health

3.68（1.002） 3.28（0.877） 0.401（0.065>0.05）

Environmental

performance in

production

3.78（0.917） 3.53（0.784） 0.259（0.186>0.05）

23

This research has several managerial implications. First of all, the findings

further validate that sustainable improvement has a significant, positive influence on

overall sustainable performance. Therefore, “win-win” opportunities do exist in the

Swedish manufacturing industry, especially among larger companies. These results are

also consistent with previous studies by Zhu et al. (2008). Although Zhu et al. (2008)

focused on the context of a developing country, they achieved similar results. Therefore,

the findings from this study suggest that a green opportunity also exists in developed

countries such as Sweden. This knowledge can help those manufacturing companies

that are resisting the sustainable challenge to be more proactive in future

environmentally and socially friendly work. They should recognize the value of

sustainable improvement practices and green cooperation with suppliers. Secondly, the

results also indicate that sustainable strategic goals should be shared with suppliers. An

organization should develop a sustainable-oriented culture to promote an organizational

learning environment. Furthermore, companies should generate sustainable

improvement practices and tools. In doing so, the performance of the whole

organization will be improved.

Thirdly, supplier involvement in the focal company’s environmental work

enhances the relationship between a focal company’s sustainable improvement practices

and its performance. This is a very interesting finding not only for academia, but also

for manufacturing companies. There are many manufacturers outsourcing their

production to low-cost countries, such as those in Eastern Europe, China, and South-

East Asia. Therefore, it is difficult for these companies (Lindgreen et al., 2009) to check

whether their supplier has the same level of concern and ability to do sustainable work.

The sustainable performance of the supplier will also affect the focal company’s

reputation and interests. Thus, we also suggest that, in order to achieve better

sustainable performance, companies need to incorporate sustainable culture into the

whole supply chain. Sustainable needs should not be seen as an add-on for the

company’s strategy, but should be considered an integral part of all operations

departments, and inshore and offshore suppliers (Lindgreen et al., 2009).

This research had several limitations that provide the opportunity for future

avenues of research. First of all, we only focused on the Swedish manufacturing

industry. Sweden is a developed country that has very strict regulations, especially in

terms of environmental protection and green manufacturing. Whether these results are

24

generalizable to developing countries still needs to be examined. A cross-industry and

cross-country survey should be conducted in order to generate more samples for

comparison. Moreover, a longitudinal analysis could help researchers to investigate

whether these effects are enhanced or diminished over the years. In this research, we

only considered supplier involvement; we did not incorporate the impact of customers.

Therefore, we plan to conduct follow-up research including customers alongside

suppliers and focal companies so as to better comprehend sustainable supply chain

management. Moreover, it would be interesting to better understand the types of

diffusion mechanisms and learning processes that occur between suppliers, focal

companies, and customers. A multiple case study could help to uncover these

mechanisms.

25

Appendix: List of variables in the questionnaire, all measured with a 5-point

Likert scale

1. How influential is each of the following in driving your company’s attention to

sustainability?

Likert scale: (1=very low, 2 = low, 3 = medium, 4 = high, 5 = very high)

B11. Government and regulators

B12. Advisory board

B13. Line leaders

B14. Advocacy organizations and NGOs (Non Governmental Organizations)

B15. Customers

2. To what degree are suppliers involved in the focal company’s sustainability

work?

Likert scale: (1=very low, 2 = low, 3 = medium, 4 = high, 5 = very high)

C09. Economic perspective (Cost, Market, Economic stability, Growth)

D07.Environmental perspective (Ecosystem vitality, Environmental health,

Environmental factors with production)

E09. Social perspective (Governance, Education, Individual and Community)

3. Economic improvement practices in the following areas

Likert scale: (1=very low, 2 = low, 3 = medium, 4 = high, 5 = very high)

F01. Cost e.g.: labor cost, energy cost, material cost, facility cost, and logistics cost

F02. Economic stability e.g.: favorable tax, exchange rate fluctuations

F03. Market e.g.: international markets and potential demand

F04. Growth e.g.: industry growth, competitiveness in the host region

4. Environmental improvement practices in the following areas

Likert scale: (1=very low, 2 = low, 3 = medium, 4 = high, 5 = very high)

F05. Ecosystem vitality e.g.: Air pollution and water quality related to the ecosystem,

biodiversity protection, and climate change performance

F06. Environmental health e.g.: Environmental burden of disease, air pollution and

water quality related to humans

F07. Environmental factors within production e.g.: Material use, energy consumption,

renewable resources, waste generation, waste treatment, waste disposal, recycling of

material, energy, and waste

5. Social improvement practices in the following areas

26

Likert scale: (1=very low, 2 = low, 3 = medium, 4 = high, 5 = very high)

F08. Governance e.g.: Corruption, political stability, trade and tariff barriers

F09. Education e.g.: General education level

F10. Individual e.g.: Civil liberties, human rights

F11. Community e.g.: Equity, safety, cohesion, local technology

6. Economic performance in the following areas

Likert scale: (1=very poor, 2 = poor, 3 = fair, 4 = good, 5 = excellent)

6.1 Financial performance

G01. Cost

G02. Return on investment

G03. Economic stability

G04. Market

G05. Growth

6.2 Operational performance

G06. Quality conformance to specification

G07. Delivery

G08. Flexibility

6.3 Innovation performance

G09. Product innovation

G10. Process innovation

7. Environmental performance in the following areas

G11. Ecosystem vitality

G12. Environmental health

G13. Environmental factors within production

8. Social performance in the following areas

G14. Governance

G15. Education

G16. Individual

G17. Community

27

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