The impact of environmental innovations on firms competitive advantage the practice in vietnam

Specifically, this paper evaluates: 1 The impact of environmental regulations on environmental product and process innovation 2 The impact of managerial environmental concerns on environ

Secondly, I would like to thank my colleagues who are from enterprises in province of Dongnai, Binh Duong and Hochiminh city for helping me to collect the data for this thesis

Thirdly, I would like to thank my classmates of the eMBA course, University

of Economics Ho Chi Minh City for kindly helping me in data analysis

Although the author has tried best for this thesis, the errors still may have taken place Therefore, the author is looking forward to the review as well as valuable feedbacks from everyone so that this thesis can be better

Nguyen Anh Khoa

Ho Chi Minh, Octorber 22nd 2012

COMMITMENT

I would like to commit that this thesis, “The impact of environmental innovations on firm’s competitive advantage –The practice in Vietnam”, was scientifically achieved through my independent and serious studies The data was collected in reality with clear origin In addition, the data has never been released in any menu

Nguyen Anh Khoa

TABLE OF CONTENTS ACKNOWLEDGEMENT I COMMITMENT II TABLE OF CONTENTS III LIST OF FIGURE VIII ABSTRACT 1

Chapter 1 INTRODUCTION 2

1.1 Introduction 2

1.2 Research Issues, Objectives & Questions 3

1.3 Research methodology 3

1.4 Significance of study 4

1.5 Structure of study 5

Chapter 2: LITERATURE REVIEW 6

2.1 Definition of environmental innovation 6

2.2 Review of previous studies on environmental innovation 8

Table 2.1: antecedent variables of environmental innovations 9

Table 2.2: environmental innovations and dependent variables 14

2.2.1 Influential factors on environmental innovations 18

2.2.2 Impact of environmental innovations on organization’s outcomes 19

2.3 Development of theoretical model and research hypothesis 21

2.3.1 The influence of environmental regulations on environmental innovations 21

2.3.2 Environmental innovations and managerial environmental concerns 23

2.3.3 Environmental innovations and competitive advantage of enterprise 25

2.4 Conclusion 26

Figure 2.1: Theoretical model 27

Chapter 3 RESEARCH METHODOLOGY 28

3.1 Introduction 28

3.2 Research procedure 28

Figure 3.1 Research procedure 28

3.3 Questionnaires Design 29

3.3.1 Scale of managerial environmental concerns (MEC) 30

Table 3.1 Scale of managerial environmental concerns 30

3.3.2 Scale of environmental regulations (ER) 30

Table 3.2 Scale of environmental regulations 31

3.3.3 Measurement of environmental innovations variables 31

Table 3.3 Scale of environmental product innovation (EPD) 32

Table 3.4 Scale of environmental product innovation (EPS) 32

3.3.4 Measurement of firm’s competitive advantage(FCA) 33

Table 3.5 Scale of firm’s competitive advantage (FCA) 33

3.4 Data analysis techniques 33

Table 3.6 Specification for cronbach alpha and EFA method 34

3.5 Main survey 34

3.6 Conclusion 35

Chapter 4 DATA ANALYSIS 36

4.1 Introduction 36

4.2 Main study sample profile 36

Table 4.1 Main study profile 36

4.3 Evaluating the scales 37

4.3.1 Cronbach alpha result of main survey 37

Table 4.2 Cronbach alpha result of main survey 39

4.3.2 EFA result of main survey 40

Table 4.3a KMO and Bartlett's Test 40

Table 4.3b Total Variance Explained 41

Table 4.3c Rotated Component Matrixa 42

Table 4.4a KMO and Bartlett's Test 43

Table 4.4b Total Variance Explained 43

Table 4.4c Rotated Component Matrixa 44

4.4 Hypothesis Testing 45

4.4.1 Normality assumption test 45

4.4.2 Hypothesis 1a,2a 45

Table 4.5 Normality assumption test 46

Table 4.6a Pearson correlation between each pairs of variables (ER,MEC), (ER,EPD), (MEC,EPD) 47

Table 4.6b MLR result of hypothesis 1a, 2a (Model summary) 48

Table 4.6c MLR result of hypothesis 1a, 2a (ANOVA) 48

Table 4.6d MLR result of hypothesis 1a, 2a (Coefficient) 48

4.4.3 Hypothesis 1b,2b 49

Table 4.7a Pearson correlation between each pairs of variables: MEC, EPS, ER 50

Table 4.7b MLR result of hypothesis 1b, 2b (Model summary) 50

Table 4.7c MLR result of hypothesis 1b, 2b (ANOVA) 51

Table 4.7d MLR result of hypothesis 1b, 2b (Coefficient) 51

4.4.4 Hypothesis 3a,3b 51

Table 4.8a Pearson correlation between each pairs of variables (EPD, EPS, FCA), 52

Table 4.8b MLR result of hypothesis 3a, 3b (Model summary) 52

Table 4.8c MLR result of hypothesis 3a, 3b (ANOVA) 53

Table 4.8d MLR result of hypothesis 3a, 3b (Coefficient) 53

4.4.5 Testing regression assumption on heteroskedasticity 54

4.5 Conclusion 56

Figure 4.1 Regression result of theoretical model 56

Chapter 5 DISCUSSION AND CONCLUSION 57

5.1 Introduction 57

5.2 Discussion of Findings 57

5.3 Practical Implications 58

5.4 Limitations and recommendations for future research 59

REFERENCES 61

APPENDIX I - QUESTIONNAIRES 65

APPENDIX II- RESULT OF CRONBACH ALPHA 68

Appendix 2.1 – Cronbach alpha of environmental regulations (ER) 68

Appendix 2.2 – Cronbach alpha of managerial environmental concerns (MEC) 69 Appendix 2.3 – Cronbach alpha of environmental product innovations (EPD) 70

Appendix 2.4 – Cronbach alpha of environmental process innovations (EPS) 72

Appendix 2.5 – Cronbach alpha of firm’s competitive advantage (FCA) 73

APPENDIX III – EFA RESULT 74

Appendix 3.1 –EFA result of 1st running 74

Appendix 3.2 –EFA result of 2nd running&histograms 79

LIST OF TABLES Table 2.1: antecedent variables of environmental innovations 9

Table 2.2: environmental innovations and dependent variables 14

Table 3.1 Scale of managerial environmental concerns 30

Table 3.2 Scale of environmental regulations 31

Table 3.3 Scale of environmental product innovation (EPD) 32

Table 3.4 Scale of environmental product innovation (EPS) 32

Table 3.5 Scale of firm’s competitive advantage (FCA) 33

Table 3.6 Specification for cronbach alpha and EFA method 34

Table 4.1 Main study profile 36

Table 4.2 Cronbach alpha result of main survey 39

Table 4.3a KMO and Bartlett's Test 40

Table 4.3b Total Variance Explained 41

Table 4.3c Rotated Component Matrixa 42

Table 4.4a KMO and Bartlett's Test 43

Table 4.4b Total Variance Explained 43

Table 4.4c Rotated Component Matrixa 44

Table 4.5 Normality assumption test 46

Table 4.6a Pearson correlation between each pairs of variables (ER,MEC), (ER,EPD), (MEC,EPD) 47

Table 4.6b MLR result of hypothesis 1a, 2a (Model summary) 48

Table 4.6c MLR result of hypothesis 1a, 2a (ANOVA) 48

Table 4.6d MLR result of hypothesis 1a, 2a (Coefficient) 48

Table 4.7a Pearson correlation between each pairs of variables: MEC, EPS, ER 50

Table 4.7b MLR result of hypothesis 1b, 2b (Model summary) 50

Table 4.7c MLR result of hypothesis 1b, 2b (ANOVA) 51

Table 4.7d MLR result of hypothesis 1b, 2b (Coefficient) 51

Table 4.8a Pearson correlation between each pairs of variables (EPD, EPS, FCA), 52

Table 4.8b MLR result of hypothesis 3a, 3b (Model summary) 52

Table 4.8c MLR result of hypothesis 3a, 3b (ANOVA) 53

Table 4.8d MLR result of hypothesis 3a, 3b (Coefficient) 53

LIST OF FIGURE

Figure 2.1: Theoretical model 27 Figure 3.1 Research procedure 28 Figure 4.1 Regression result of theoretical model 56

ABSTRACT

As environmental issues becomes a global matter, enterprises in the world also face a real challenge of reducing harmful impact from manufacturing activities under pressure of international and domestic environmental regulations In that scenario, what companies mostly concern about is the relationship between environmental improvement activities and the competitiveness of enterprise as they have to incur the extra cost from environmental activities

By regression analysis of 137 samples from enterprises in southern Vietnam, this paper concludes that the competitiveness of enterprises is positively impacted

by environmental process innovations In addition, for the environmental innovations to be fully implemented, the government regulation should comprise more stringent requirements of product and process to be environment-friendly Besides, enterprises also should care about the impulse role of management in accelerating the environmental activities in company

Chapter 1 INTRODUCTION

1.1 Introduction

The worst flood in Thailand history in 2011, the longer winter in Europe in 2011, the Katrina storm in America in 2005… may have partially expressed the bad consequences from harmful impact of waste from daily production of enterprises in the world Moreover, these natural calamities also mean that the current number of environmental protection is not enough

to preserve the environment

Along with the world, Vietnam is also suffered the natural disaster yearly as a result of harmful discharge into environment Although the “Law

on environment protection” was issued in year 2005, many corporations also violate this law as pouring untreated waste into the environment in later years (example: Vedan in 2008, Sonadezi in 2011) Besides, Vietnam has also become an ideal destination to invest in recent years which would consequently make a major impact into environment Thus, exploring the relationship between environmental innovations and firm’s competitive advantage becomes a crucial matter in current situation due to the following reasons:

Firstly, the result of the relationship between environmental innovations and firm’s competitive advantage can help partially explain the internal motives that push enterprises to violate the environmental laws in recent years

Secondly, in the case that it is a positive relationship, it creates impetus for enterprises to implement environmental activities as they have to obey the environmental laws

Thirdly, from the result of this paper, law maker can evaluate the appropriateness of current regulated items then they may complement or modify to be more suitable with current situations in Vietnam

1.2 Research Issues, Objectives & Questions

This paper aims to evaluate the impact of environmental innovations

on competitive advantage of enterprise in the situation that environmental innovations are under the pressure of regulation and managerial environmental concerns Specifically, this paper evaluates:

(1) The impact of environmental regulations on environmental product and process innovation

(2) The impact of managerial environmental concerns on environmental product and process innovation

(3)The impact of environmental product and process innovation on firm’s competitive advantage

1.3 Research methodology

This paper is implemented through two steps: (1) in-depth interview and (2) main survey (quantitative) The in-depth interview is carried out by face-to-face discussion with employees and managers Next, the main survey

is implemented through convenient sampling by sending hard copy and email to employees and managers Data collection is implemented in province of Binh Duong, Dongnai and Hochiminh city where most companies concentrate in southern Vietnam

For data analysis, Cronbach alpha and EFA is firstly used to verify the scales of variables Thereafter, multi-linear regression method is applied to

evaluate the theoretical model and research hypothesis In this paper, the software SPSS (Version 16.0) is used

1.4 Significance of study

From the theoretical perspective, this paper firstly investigates the relationship between managerial environmental concerns and environmental regulation with environmental innovations in enterprise Secondly, the relationship between environmental innovations and firm’s competitive advantage is also inquired Thus, these results can be used to complement the theory of environmental innovations for developing economy, like Vietnam

In addition, this paper also has many practical meanings:

Firstly, the result from this paper helps enterprises more understand about the role of managerial environmental concerns and environmental regulation as impacting factors on environmental innovations in enterprises Consequently, enterprises can speed up the environmental activities to preserve the earth and surrounding atmosphere

Secondly, the relationship between environmental innovation and firm’s competitive advantage leads the enterprise to a new outlook of the environmental activities which are no longer burdened-cost activities, but a new tool to increase the competitiveness of company

Finally, the result from this paper helps policy makers to grasp the impact of environmental laws on enterprise On this basis, policy makers can complement or modify the current items in the law so as to be more suitable and to play an encourage role to accelerate environmental activities in enterprise

1.5 Structure of study

This study is divided into five chapters:

Chapter 1 presents the overview of this study

Chapter 2 introduces literature review and theoretical model development

Chapter 3 presents research methodology which aims to verify scale and evaluate the hypothesis

Chapter 4 outlines the result of analyzing multi-linear regression model

Chapter 5 presents discussion of research result, implication and further research

Chapter 2: LITERATURE REVIEW

2.1 Definition of environmental innovation

In the process of manufacturing, enterprises have contributed a great amount of toxic materials, hazardous waste, and noxious carbon into environment In order to reduce the impact of these pollutions, environmental innovations is defined as activities that aim to change of processes, techniques, practices, systems and products so as to lower the harmful impact of manufacturing activities on environment (Rennings et al, 2004) Ediadat et al, (2008) also suggests the environmental innovations as a class of manufacturing practices which aims to reduce the using of resources and preventing pollution

Porter & van der Linde (Fall 1995) have other contribution for environmental innovation when classifying them into two main activities: process innovations and product innovations, specifically:

Firstly, products are forced to be innovated in the way that creates better-performing, higher quality, higher resale or safer characteristics, in other words, making the lifetime of product longer Moreover, the innovated products must have lower product cost per unit and lower disposal cost from users These results come from material substitution, less packaging so as to

be easy in recycling or disassembly

Secondly, the process must be innovated in the method that reduces pollution by less use of energy, higher yield, and less downtime Therefore, environmental product and process innovations help to transfer higher added value to customer with a lower cost of production In other words, the environmental product and process innovations can lead to competitive

advantages over the enterprises that do not subject to environmental regulations (Porter & van der Linde, Fall 1995)

In addition, in the OECD Oslo Manual (2005, (Gunday et al, 2011), process and product innovations are defined as closely related to the concept

of technological developments Specifically, a product innovation is the introduction of a good or service that is new or significantly improved regarding its characteristics of intended uses, including significant

materials…whereas a process innovation is the implementation of a new or significantly improved production or delivery method which intends to decrease unit costs of production or delivery, to increase quality, or to produce or deliver new or significantly improved products

Along with Porter &van der Linde (Fall 1995), other researchers substitute environmental innovations with a term “green innovations” that has a similar meaning Chen et al, (2006) suggests that there should be technological change in green innovations which comprise of green product and process innovation These changes should result in energy-saving, pollution prevention, waste recycling, product designs or corporate environmental management Chiou et al, (2011) also integrated green managerial innovations, green product, and green process into green innovations, in which the green managerial innovation is conceptualized as internal managerial support for green initiatives Therefore, green innovations and environmental innovations can be used interchangeably Moreover, many researchers also replace process innovation and product innovation with new concepts For example Snir, (2001) uses product stewardship to describe the set of practices that reduce environmental impact by less use of hazardous chemicals and nonrenewable materials in product development, and product design Meanwhile, W.Y.Wong et al, (2011) suggests the term process stewardship as preventing

inefficient use of materials and resources in transportation, production, and disposal of product so as to reduce adverse environmental impact It emphasizes waste reduction and contributes to environmental protection through implementing such processes as recycling, reengineering polluting processes, minimizing carbon emission and so forth Therefore, product and process innovations are specific kinds of technological innovation which aim

to reduce environmental burden for product and process (Ziegler & Nogareda, 2009)

Generally, the environmental innovation can be used interchangeably with green innovation which consists of two main elements of product innovation and process innovation aiming to reduce harmful environmental impact to the earth

2.2 Review of previous studies on environmental innovation

Since Porter & van der Linde, (Fall 1995) arise the role of environmental innovation as it can offset the cost of complying with environmental regulations and lead to competitive advantage, many authors have tried to re-examine this role as well as discovering the factors that influence environmental innovation and the factors that is impacted by environmental innovation Below tables are summarized for these factors as well as the methodology and main findings Generally, these papers can be divided into two main categories On one hand, there are factors that play as independent variable, which influence environmental innovations such as: customers, suppliers, regulatory and competitive pressures (table 2.1) The other is the dependent factors that are impacted by environmental innovations such as: environmental performance, competitive advantage and firm performance (finance, export intensity…) (table 2.2)

No Authors Main category:

- Antecedent variables:

regulations, customer/supplier, managerial concerns…

-Solving the monopoly model for the optimal price and environmental emission level of the firm

-Environmental innovation motives should be encouraged by awards rather than by fine

-Competition can be effective driver of environmental innovation while regulatory pressure can be effective drivers of environmental innovation in case consumers are likely to switch due to

environmental performance

-

No Authors Main category:

- Antecedent variables:

regulations, customer/supplier, managerial concerns…

-Data is collected by online questionnaire in three different sectors:

information and communication technology (IT), household appliances (HA), and medical

appliance (MA) of German manufacturers

-Using logit regression for analyzing data

-Both customer benefit and regulation foster the

implementation of environmental product innovation

environmental regulations on environmental innovation strategy

-Survey from environmental managers in the chemistry industry in Jordan

-Sample of 119 firms -Analyzing data with SEM

-Environmental innovation strategy

is associated with improved perceived firm’s business performance

-The adoption of environmental innovation strategy is influenced by managerial environmental concerns but not influenced by government environmental regulations,

The adoption

of environmental innovation strategy is not influenced by government environmental regulations,

No Authors Main category:

- Antecedent variables:

regulations, customer/supplier, managerial concerns…

Greening the suppliers through green innovations improves the environmental performance and competitive advantage

-A negative binominal generalized estimating equations (GEE) model is used to analyze data -Data includes observations from leader and challenger firm in each six-digit NAICS industry in the US

- Market leadership, firm size and firm profitability significantly affect the magnitude of a firm’s environmental management activities

No Authors Main category:

- Antecedent variables:

regulations, customer/supplier, managerial concerns…

-Data is collected of 122 electronics manufacturers

in Taiwan -Applying multigroup analysis with AMOS 7.0

-Process stewardship improves both the environmental and financial performance

-Product stewardship negatively impact on both the

environmental and financial performance of electronic manufacturers

environmental innovations

-Data were collected by a questionnaire-based telephone survey in Germany

-Using univariate probit analysis

relationship between environmental management system and technological environmental innovations is not clear

No Authors Main category:

- Antecedent variables:

regulations, customer/supplier, managerial concerns…

-Collecting data from 1000 firms in UK by mail

-Using regression analysis

to analyze data

- E-co performance of ENPD is positively influenced by many factors: A higher degree of top management support for ENPD; a higher degree of integration of environmental coordinator in ENPD process; a higher degree of supplier involvement

-E-co performance and market performance of ENPD is positively influenced by: a higher degree of effective groundwork; a higher degree of integration of

environmental impact databases in existing information systems; a higher degree of cross-functional coordination; a higher degree of environmental benchmarking

No Authors Main category:

-Survey from environmental managers in the chemistry industry in Jordan

-Sample of 119 firms -Analyzing data with SEM

-Environmental innovation strategy is associated with improved perceived firm’s business performance

-Environmental technologies enhance the competitive advantage of enterprise

-Survey from the information and electronics company in Taiwan by random sampling from 600 enterprises -Using regression analysis

Green product innovation and green process innovation positively relates to corporate competitive advantage

-

Table 2.2: environmental innovations and dependent variables

No Authors Main category:

-Using hierarchical regression analysis to analyze data

- Proactive environmental strategies of SMEs positively influenced their export intensity, but this effect depends on size, and more intense with an increase in size

innovation

-Test both strong and narrowly strong versions

of Porter hypothesis (PH) -Adopting a theoretically based gravity model to analyze data

-Data is made up of 14 exporting countries (EU members) and 145 importing countries

-For strong version of PH:

environmental regulation does not seem to be harmful for export competitiveness

-For narrowly strong version of PH: environmental innovation efforts fosters green exports

-

No Authors Main category:

Modelling the causual relationship

performance and their financial resources and management capability

-Using the longitudinal data from 1990 to 2003 for the four industries in the US

-Using squares (3SLS) model to analyze data

three-stage-least There is positive association between environmental innovation and financial performance

-Environmental innovation cannot be easily mimicked by all firms

-Using data from a sample

of 1228 service organizations -Using univariate and multivariate analysis

Environmental management positively influence financial performance

-Using secondary data from Investor

Responsibility Research Center’s 2000 Corporate Environmental Profiles Database to analyze

relationship between financial return and a more pro-active measure

of environmental performance

No Authors Main category:

Does adopting environmental practice

advantage?

-Using questionnaire survey (n=63)and telephone interview (n=15)

competitive advantage because the cost

of environmental responsibility

2.2.1 Influential factors on environmental innovations

As the environmental matters become global concerns, the governmental body of each country is gradually strictly controlling the activities of domestic enterprises so as to be environment-friendly Literature has also showed that the influential factors on environmental innovations can

be summarized into environmental regulations, customer and or supplier impact, and managerial role (table 2.1)

As shown in table 2.1, the impact of environmental regulations is broadly investigated under many different models Yalabik & J.Fairchild, (2011) resolves the monopoly model to prove the role of regulatory pressure

as driver of environmental innovations The driver becomes stronger in the case that there is an award when enterprises comply with environmental laws rather than levying fine for environmentally disobeyed enterprises Therefore, environmental regulations should be award-oriented rather than fine-oriented so as to become greater impetus for environmental innovations

In other case, Kammerer,(2009) uses logit regression for German manufacturers to argue that regulation positively supports the implementation of environmental product innovation (one part of environmental innovations) However, the stringent regulations only lead to environmental product innovations, which does not contribute novelty of product to the market

Reversely, Ediadat et al, (2008) evaluate the impact of governmental environmental regulations on environmental innovations for the chemistry field in Jordan which shows a negative relationship after solving SEM model Ramanathan et al, (2010) also reasons that environmental regulations negatively influence innovation in the short run for UK enterprises This is indeed a sharp contradiction to the theory suggested by Porter & van der Linde, (Fall 1995) when they argue that a well designed environmental regulation can trigger the environmental innovations in the enterprises

In summary, the conflicting result from past researches show an unclear image of the impact of environmental regulations on environmental innovations

In addition to regulations factor, the factor of customers and/or suppliers is also deeply investigated as an influencing element on environmental innovations Chiou et al, (2011) argues that greening the suppliers is positively related to green innovations when he investigates 124 companies in Taiwan and uses SEM model to analyze data Pujari et al, (2003) also support this argument when he reasons that supplier involvement positively influence the new environmental product development Yalabik & J.Fairchild, (2011) reasons that customer becomes a driver for environmental innovations while Kammerer, (2009) suggests that customer benefits foster the implementation of environmental innovations Furthermore, Ediadat et

al, (2008) collects customer and supplier into one factor as stakeholders and evaluates this factor on environmental innovations for the chemistry sector in Jordan which results in a positive relationship In general, the factor customer/supplier positively influences to environmental innovation

The next important factor lies in managerial role when many authors investigate the relationship between managerial role and environmental innovations Ediadat et al, (2008) finds that managers who have positively environmental concerns would trigger the environmental innovation Pujari

et al, (2003) reasons that the supporting of top management has a positive effect on the eco-performance of environmental new product development

2.2.2 Impact of environmental innovations on organization’s outcomes

Literature has showed that the main outcomes that result from environmental innovations can be categorized into competitive advantages, financial performance and firm’s business performance (Table 2.2)

Chiou et al, (2011) confirms that green innovations lead to cost savings, increased efficiency, increased productivity and better product quality which enhance the competitive advantages Conversely, Simpson et

al, (May,Jun 2004) argues that in the case of SMEs in South Yorkshire, they have to incur the cost of environmental responsibility and improvements and therefore, do not get the competitive advantage because the cost increased Therefore, the relationship between environmental innovations and competitive advantage is still controversial

Another aspect that is affected by environmental innovations is the firm’s business performance as Martin-Tapia et al, (2010) argues that proactive environmental strategy in SMEs foster the export intensity when researching about the case of food industry in Spain However, the main session that most literatures focus in the firm performance lie in the field of financial performance As the enterprises have to incur the cost for improving of process and product in the environmental orientation, most managers take care of one thing that if these costs will partially be transferred to added value in the products which is brought to customers T.Lucas & A.Wilson, (2008) argues that environmental management helps increase the financial performance in the service industry, specifically there

is a positive relationship between these two variables Recently, Azorin et al, (2009) has summarized the literatures that focus on the relationship between green management and financial performance The result of this review shows that the positive relationship between environmental management and financial performance is dominant Whereas, Filbeck & F.Gorman, (2004) reason that the environmental performance negatively impacts on financial performance when they analyze the public utilities in US Therefore, the relationship between environmental performance and financial performance is still controversial

F.Molina-2.3 Development of theoretical model and research hypothesis

2.3.1 The influence of environmental regulations on environmental innovations

Nowadays, the increasing acknowledgement of community about the environmental matter is pushing the government to enhance the governmental regulation for stricter control of production activities that orient to the sustainable development In Vietnam, there have been many cases that enterprises extremely violate the environmental laws as discharging waste without treatment (i.e Vedan, Sonadezi) This situation has alarmed both government for more stern regulation and enterprises for more environmentally responsible productions

In addition, the literature review also outlines that there are still controversial about positive relationship between environmental regulations and environmental innovations when it is verified in different countries Therefore, it is necessary to confirm again this relationship in Vietnam, an emerging economy with many environmental issues in recent years

According to Blind, (2012) regulations are divided into three main sectors: economic regulation, institutional regulation and social regulation to which environmental regulation is belonged Environmental regulations have caused the emergence of new industries, such as the environmental industry, and the improvement of new product that has fewer or no harmful impacts on the environment (Blind, 2012) Consequently, environmental regulations drive the industry explicitly towards technologies which protect the environment or produce less environmental damage Kemp (1998, (Blind, 2012)) proposes to use regulation as a modulator of technical change in the direction that has less negative impact on the environment

In addition, Cook et al (1983, (Geiger & Hoffman, 1998) identifies four major factors to represent for a stern regulation: scope (extensiveness of regulation), stringency (degree of constraint imposed by regulation), degree

of uncertainty (degree of change in the regulatory process) and duration (length of time that regulation has been in existence) In these four factors, the stringency of environmental regulation is the single most important factor that drives firms’ environmental activities and technological innovations (Johnstone et al., 2007; Frondel et al., 2008, (Kammerer, 2009)) Ediadat et

al, (2008) also complements the definition of environmental regulation as a set of characteristics such as: stringency, flexibility, realistic objectives (adequate timeframe for implementation of innovative solutions) and appropriate for the circumstance in each country, which aim at mitigating a firm’s impact on the natural environment and creating a context where a firm will engage in environmental innovation

Porter & van der Linde, (Fall 1995) also argue that government environmental regulation would spur firms to innovate That comes from the argument that: firstly, environmental regulation would warn the enterprise about the inefficient use of resource which needs technological improvement; secondly, regulation helps increase the corporate awareness which often leads to environmental improvement and thirdly, the stringent regulation would create pressure for enterprise to invest and innovate because company cannot opportunistically gain position by evading environmental investment

In addition, Dosi et al (2006) and Malerba (2006) (Costantini & Mazzanti, 2012) reasons that in order to be compliant with environmental regulations, company will be induced by new constraints to reorganize technology and organization, to improve the coordination of activities, and to align incentives for the purpose of meeting the constraints at a lower cost, resulting in more efficiency and increasing productivity

The previous literature review also shows an unclear image of the role

of environmental regulation on environmental innovations as some argue of

a positive relationship and other does not However, in the case of a negative relationship, the cause is explained as the stick of regulation is insufficient to

trigger environment innovation Therefore, enterprises try to minimize the destruction of share holder value caused by regulation instead of striving to create value by implementing innovation strategy (Ediadat et al, 2008)

In Vietnam, the establishment of environmental police department sends a clear message of government endeavor in combating with environmental issues Therefore, the environmental regulations would trigger the environmental innovations As environmental innovation is a high –order construct which involves product innovation and process innovation, hypothesis 1a and 1b are suggested:

Hypothesis 1a: the environmental regulations positively impact on environmental product innovation

Hypothesis 1b: the environmental regulations positively impact on environmental process innovation

2.3.2 Environmental innovations and managerial environmental concerns

Environmental innovations cannot be successfully implemented without the concerns and support from management (Hamel and Prahalad, 1989; Zhu and Sarkis, 2004, ((Chiou, Chan, Lettice, & Chung, 2011)).Bansal (2003, (Ediadat, Kelly, Roche, & Eyadat, 2008)) argues that the scope and speed of the firm’s response to environmental issue is positively related to top management concerns Moreover, firms are likely to practice environmental innovations if their managers view that it has high value to conserve the environment

Ashford (1993, (Christmann, 2000)) also identifies that managerial barrier is one of seven obstacles (technological, financial, labor-force related, regulatory, consumer-related, supplier-related, and managerial obstacles) that

hinder pollution prevention activity in company Especially, in the case that company needs to change the existing norms and expectation to be more suitable to the concept of environmental innovations, it requires a greater role of management in overcoming these obstacles as well as speeding up the creativity and innovation activities (Prather and Gundry, 1995; Tushman and O’Reilly, 1997, (Ediadat et al, 2008))

Moreover, green innovation implementation also depends on the willingness of management to commit resources (Dwyer, 1990; Hegarty and Hoffman, 1990,( (Pujari et al, 2003)) Specifically, creating greener products

to address increasingly environmentally sensitive markets requires a significant investment in appropriate technologies and capabilities (Hutchinson, 1992 (Pujari et al, 2003)) In summary, management support plays a significant role to push the implementation of green innovation strategy

The impact of management support on environmental innovation is further acknowledged by the research on environmental new product development In this sector, the role of top management becomes important

as the integration of environmental innovation into the business process can

be a major challenge to the existing circumstance of company that cannot be implemented if there is not fulfilled leadership and active support of the company’s top management (Pujari and Wright, 1996; Cahan and Schweiger,

1993, 1994, (Pujari et al, 2003))

Accordingly, hypothesis 3a and 3b are suggested:

Hypothesis 2a: managerial environmental concerns positively impact the implementation of environmental product innovation

Hypothesis 2b: managerial environmental concerns positively impact the implementation of environmental process innovation

Although customers and/ or suppliers are majorly argued to be positively impact on environmental innovation, this factor is not evaluated due to some limitations of this research

2.3.3 Environmental innovations and competitive advantage of enterprise

According to Porter (1980), competitive advantage of enterprises can

be achieved through three main strategies: cost leadership, differentiation of product and focus on particular segment of the industry Following this argument, other authors try to find out the way that company can gain competitive advantage, which comprises many activities such as: waste reduction, improving quality, innovation in product and process, productivity, increasing material efficiencies (Imai, 1986 ((Shrivastava, summer 1995)); (Garvin, 1992; Buzzle and Gale, 1987; Welford and Gouldson, 1993, ((Simpson, Taylor, & Barker, May,Jun 2004)) These activities can be classified as product innovation and process innovations that, according to Porter and Van de Linde (1995), lead to competitive advantage, too

Shrivastava, (summer 1995) suggests a term “environmental technologies” which are described as production equipment, methods and procedures, product design, and product delivery mechanism so as to consume less energy and preserve natural resources Moreover, by viewing organizations as a set of vision, input, throughput and output, Shrisvastava (summer 1995) argues that environmental technologies lead to competitive advantage in the way that:

Firstly, in the input system, environmental technology helps company choose materials, labor, energy so as to comply with customer, society and natural environment, consequently, it conserves environment and minimize the cost right at the first step

Secondly, in the throughput system, environmental technologies are designed to improve the efficiencies of manufacturing and lower the waste and pollution to environment

And thirdly, product designs with green characteristics (products are designed in more environmentally responsible ways) and minimizing packaging can help save cost in the output system Therefore, environmental technologies lead to competitive advantage by reducing the cost and differentiating products

In addition, the literature review also shows a controversial result of the relationship between environmental innovation and enterprise’s competitive advantage as some authors argue a positive relationship while some does not However, the cause that leads to cost-up (which does not lead

to competitive advantage) results from less efficiency, especially energy efficiency (Simpson et al, 2003) In sum, the activities of environmental innovations lead to competitive advantage for enterprise

Accordingly, hypothesis 2a and 2b are suggested:

Hypothesis 3a: environmental product innovation positively leads to competitive advantage for enterprise

Hypothesis 3b: environmental process innovation positively leads to competitive advantage for enterprise

2.4 Conclusion

This chapter has reviewed the available researches as well as developed theoretical model and research hypothesis that relate to environmental innovation Firstly, the relationship between environmental regulation and

environmental innovations is argued Secondly, this paper reviews the impact

of managerial environmental concerns and environmental innovations in enterprise Thirdly, the firm’s competitive advantage that is impacted by environmental innovations is also reasoned And finally, the theoretical model and research hypothesis are developed as follows:

Figure 2.1: Theoretical model

Environmental

product innovation

Firm’s competitive advantage

Environmental process innovation H1a (+)

H3b (+) H3a (+)

Chapter 3 RESEARCH METHODOLOGY

3.1 Introduction

This chapter focused on research methodology which aimed to evaluate the scales for measuring variables and to verify the hypothesis The research methodology included four major parts: (1) research design, (2) scales for questionnaires, (3) preliminary evaluating of scales, and (4) the main survey

3.2 Research procedure

In this paper, the research procedure was implemented as follows:

Figure 3.1 Research procedure

1st draft scale

complete scale

Main quantitative interview

Cronbach alpha, EFA

Mult-linear regression

Qualitative (in-depth interview)

Literature review

Step 1: questionnaire design

This study adopted the scales that were used in previous available researches From these researches, a first draft scale was drawn to measure variables

Step 2: qualitative study

The qualitative study aimed to verify the scale again even they were already built in other countries This step was implemented as follows:

(1) Firstly, the back translation method was used to ensure that the questionnaires were fully and exactly translated into Vietnamese

(2) The in-depth interview was implemented to check wording with 10 employees and 3 managers After interviewing these 13 peoples, the Vietnamese questionnaires are ensured to be understood rightly and clearly After that, the final questionnaires were drawn to serve the main survey

Step 3: Main survey

The main survey followed quantitative method with 200 samples that were sent to respondents by hard copy and sending email This step aimed to collect data for verifying the research model

3.3 Questionnaires Design

The questionnaires in this study based on the scale of other available

researches They were modified so as to be appropriate for Vietnam circumstance which resulted from the in-depth interview There are four variables: managerial environmental concerns (MEC), environmental regulations (ER), environmental innovations (EI) and firm’s competitive advantage (FCA)

3.3.1 Scale of managerial environmental concerns (MEC)

The measurement for this variable was based on the scale that Jone, (2008) implemented in USA, which was a 6-item scale Each interviewee was asked to indicate the extent of disagreement (1: strongly disagree) or agreement (5: strongly agree) with following statements:

Table 3.1 Scale of managerial environmental concerns

MEC1 Managers believed it had a moral responsibility to protect the environment

MEC2 Managers supported protecting the environment even if substantial costs

were incurred

MEC3 Managers believed that improvements in environmental performance

would improve long-term financial performance

MEC4 Managers believed that customers and other stakeholders cared about the

environmental impact of company’s products

MEC5 Managers believed that advances in technology could solve environmental

problems while increasing profits at the same time

MEC6 Managers believed that company should help conserve society’s limited

natural resources

3.3.2 Scale of environmental regulations (ER)

This scale was based on the research of Ediadat et al, (2008), which was carried out in Jordan country This variable was measured using a 4-item scale

Each respondent was asked to indicate the extent (1, strongly disagree to 5, strongly agree) to which environmental laws that impacted their companies as follows:

Table 3.2 Scale of environmental regulations

ER1 Environmental laws contained stringent standards

ER2 Environmental laws were clear in the specification of requirements

ER3 Environmental laws were effective in tackling environmental problems directly

ER4 Environmental laws were appropriate for Vietnam circumstances

3.3.3 Measurement of environmental innovations variables

Environmental innovations indicated the improvement in both product design and process in company As referred in the literature review section, the environmental innovation was a high-order construct which comprised two first-order constructs: product innovation and process innovation This variable was measured basing on the 9-item scale that was developed by Chen et al, (2006, (Chiou et al,2011)) and Chen (2008, (Chiou et al, 2011)) The respondent was asked

to indicate the level of agreement for the following actions in production and product design (1: strongly disagree to 5: strongly agree) (table 3.3; 3.4)

Table 3.3 Scale of environmental product innovation (EPD)

EIP1 Company used less or non-polluting/toxic materials (i.e using

environmentally friendly material

EIP2 Company designed or improved environmentally friendly packaging (e.g

use less paper and plastic materials) for existing and new products

EIP3 Company recovered company’s end-of-life products and recycling

EIP4 Company used eco-labeling

Table 3.4 Scale of environmental product innovation (EPS)

Item Statement

EIP5 Company lowered consumption of e.g water, electricity, gas and petrol

during production/use/disposal

EIP6 Company recycled, reused and remanufactured materials or parts

EIP7 Company used of cleaner or renewable technology to make savings (such as

energy, water, waste)

EIP8 Company redesigned of production and operation processes to improve

environmental efficiency

EIP9 Company redesigned and improved products or services to meet new

environmental criteria or directives (such as WEEE/RoHs/REACH/EuP directives)