GREEN SUPPLY CHAIN MANAGEMENT: A GROUNDED. THEORY INVESTIGATION OF GREEN-TECH COMPANIES'. RARE EARTH METALS SUPPLY ...
MITIGATING EXTERNAL BARRIERS TO IMPLEMENTING GREEN SUPPLY CHAIN MANAGEMENT: A GROUNDED THEORY INVESTIGATION OF GREEN-TECH COMPANIES’ RARE EARTH METALS SUPPLY CHAINS JOHAN RAUER AND LUTZ KAUFMANN WHU – Otto Beisheim School of Management
The supply chain management literature has investigated myriad barriers to implementing green supply chain management (GSCM). However, little research has analyzed the role of capabilities to mitigate such barriers, a research gap we address in this study using an inductive research approach. Following a Straussian approach to grounded theory, the study analyzes data generated from ten Western green-tech companies sourcing technically indispensable rare earth metals from Chinese suppliers. Our interpretive research findings show that these companies face two categories of salient, external barriers to GSCM–supply chain structure-related and environmental standards-related implementation barriers. To cope with these barriers, we argue that firms require three categories of dynamic capabilities: sensing capabilities, alignment capabilities, and resilience capabilities. By connecting our research findings with the dynamic capabilities literature, we derive theoretical propositions to guide further research on studying the role of dynamic capabilities in the implementation of GSCM. Keywords: green supply chain management; implementation barriers; capabilities; green-tech; rare earth metals; dynamic capabilities; grounded theory; sustainability
INTRODUCTION In today’s globally extended supply chain networks, buying firms are not only responsible for minimizing their own environmental burden, but also extending their environmental stewardship in cooperation with their supply chain partners. In particular, stakeholder pressures (Kirchhoff, Koch & Nichols, 2011; Vachon & Klassen, 2006) such as rising public concerns about climate change—and institutional forces (Linton, Klassen & Jayaraman, 2007; Zhu, Sarkis & Lai, 2013)— such as rising environmental regulation—have forced buying firms to put green supply chain management (GSCM) practices high on their agendas. “As part of [the] transition from ‘does it pay?’ to ‘how to be sustainable?’” (Pagell & Shevchenko, 2014: p. 16), SCM research needs to address the critical question of how firms can make their supply chains truly sustainable in light of the myriad challenges faced when trying to implement sustainable practices such as GSCM. Scholars have identified various internal and external barriers to firms’ successful implementation of GSCM. Among the most prominent internal barriers
are the high costs associated with GSCM (Min & Galle, 2001; Walker, Sisto & McBain, 2008) and limited top management support (Berns et al., 2009; Giunipero, Hooker & Denslow, 2012). Major external barriers to GSCM comprise resistant suppliers (Walker et al., 2008; Wycherley, 1999) and differences in countries’ regulation (Giunipero et al., 2012; Walker et al., 2008). Little research, though, has explored how buying firms can cope with such barriers or investigated the role of dynamic capabilities (DCs) in mitigating them. We address this gap using a grounded theory approach—following the Straussian school of thought—as implementing GSCM can be considered a phenomenon with complex behavioral dimensions (Mello & Flint, 2009). In following Strauss (1987), we enter the field (1) with the predefined research question of how buying firms cope with (external) barriers to implementing GSCM, (2) the initial idea that these firms require specific capabilities to do so, and (3) the goal of developing a theoretical model of GSCM implementation barrier mitigation.
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Journal of Supply Chain Management
Our investigation comprises 27 in-depth interviews with managers from five Western green-tech product manufacturers, including manufacturers of electrical/ hybrid vehicles and wind turbines, as well as interviews with five Western green-tech components suppliers. The suppliers we interviewed supply batteries, catalysts, glass and ceramics, luminaries, and magnets to the manufacturers in our sample while also selling energy-efficient, green-tech products such as lithium ion batteries, automotive/industrial catalysts, photovoltaic panels, and energy-efficient luminaries to direct end customers. We examine the barriers to GSCM experienced by these companies and their coping mechanisms because companies with a “green” product portfolio can be considered particularly sensitive to the process of “greening” their supply chains in accordance with their corporate and products’ green image and reputation (Pullman & Dillard, 2010). Furthermore, green-tech companies’ GSCM practices have repeatedly been challenged in public (e.g., Dabelko, Herzer, Null, Parker & Sticklor, 2013; Guardian Weekly, 2012; Parry & Douglas, 2011), due to significant environmental risks that have materialized along the upstream supply chain of rare earth metals.1 Rare earth metals are mandatory inputs to all green-tech product applications and involve several environmental hazards, such as the radioactive and toxic by-products or chemically contaminated waste water from the mining and refining processes in China (Humphries, 2012; U.S. Department of Energy, 2011; W€ ubbeke, 2013). The rare earth metals context also seems highly suitable for researching GSCM implementations for the following reasons: While many buying firms in their general quest to implement GSCM depend on their suppliers and many of their supply chains are multitiered and extend across borders—implying heterogeneous environmental standards and political influences—these factors are all very pronounced in the case of rare earth metals supply chains, where Western green-tech companies highly depend on the heavily state-influenced Chinese mining and refining industry located several tiers upstream in their supply chains. We make three contributions with this article. First, we identify two broad categories of salient, external barriers to buying firms’ successful implementation of GSCM: supply chain structure-related barriers, and 1
Rare earth metals are a group of 17 elements: europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium, scandium, yttrium, lanthanum, cerium, praseodymium, neodymium, promethium, and samarium. Many green-tech product applications require these elements as mandatory inputs because of their physical properties, such as strong magnetic effects or high thermal resistance, without which green-tech product applications cannot achieve their desired product properties.
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environmental standards-related barriers. We then identify three categories of specific mitigation capabilities: sensing capabilities, alignment capabilities, and resilience capabilities. Dynamic mitigation capabilities emerge as the “main theme” or core category according to the Straussian school of thought on grounded theory (Strauss, 1987). Second, in linking our empirical findings and the literature on DCs, we derive theoretical propositions to guide GSCM research to further explore implementation barriers and firms’ potential mitigation approaches. That is, we reach the causal depth required for revealing the working of mechanisms in GSCM through a constant alternation between concrete and abstract reasoning (Aastrup & Halld orsson, 2008). Third, we stimulate dialogue between research and practice in a combined sustainability and SCM context (Fawcett & Waller, 2011, 2013). Although research has identified various driving forces and benefits related to firms’ environmental sustainability (Pullman, Maloni & Carter, 2009) and recommended that firms implement GSCM practices accordingly, practitioners still contend with myriad challenges to establish truly sustainable supply chains (Pagell & Shevchenko, 2014) and face various (as yet scarcely investigated) barriers to implementing GSCM (Giunipero et al., 2012; Walker et al., 2008). We begin by outlining the research context of this study, including a definition of GSCM, an overview of studies on barriers to implementing GSCM, and outlining the theoretical rationale of investigating DCs as underlying coping mechanisms to barriers to implementing GSCM—the “initial idea” for our study (Strauss & Corbin, 1998). Then, we present the methodology and the qualitative case examples investigated. Next, we synthesize our findings and derive our research propositions. Last, we discuss the results and research implications.
RESEARCH CONTEXT Green Supply Chain Management Prior research has investigated the key role of firms’ SCM functions in greening their international supply chains (Handfield, Sroufe & Walton, 2005; Linton et al., 2007), and environmental “sustainability has moved from the fringes of supply chain management research to . . . an area of significant research activity” (Pagell & Shevchenko, 2014: p. 1). As such, various terminologies around the concept of GSCM have emerged, including environmental purchasing (Zsidisin & Siferd, 2001), environmental logistics (Gonzalez-Benito & Gonzalez-Benito, 2006), supply chain environmental management (Sharfman, Shaft & Anex, 2009), and sustainable supply chain management (Carter & Easton, 2011).
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Barriers to Green SCM
We define Western green-tech companies’ GSCM practices as the entirety of both intra- and interfirm managerial approaches intended to improve the environmental impact of products and processes along their supply chains (Srivastava, 2007). Examples of buying firms’ GSCM practices include redesigning products or processes to reduce environmental waste, reducing or substituting polluting materials or processes, recycling and remanufacturing returned end products, and auditing, developing, and monitoring suppliers on environmental sustainability issues (Pullman & Sauter, 2012).
Barriers to Implementing Green Supply Chain Management The GSCM literature has emphasized the importance of aligning environmental sustainability considerations with interwoven networks of supply chain actors (Mollenkopf, Stolze, Tate & Ueltschy, 2010)—a form of interfirm environmental collaboration that, if implemented effectively and practiced efficiently, may help companies reap benefits from knowledge-sharing (Vachon & Klassen, 2008) and resultant superior firm performance (Vachon & Klassen, 2006). Recent metaanalytical findings by Golicic and Smith (2013) suggest that firms’ environmental supply chain practices positively affect firms’ overall competitive advantage and lead to improved market-based, operationalbased, and accounting-based forms of firm performance. Yet firms face various internal as well as external barriers to implementing such interorganizational GSCM practices. Internal barriers to GSCM include the newness of the concept of GSCM (Wycherley, 1999; Zhu & Sarkis, 2004), high upfront costs of GSCM (Min & Galle, 2001; Walker et al., 2008; Wycherley, 1999), lack of legitimacy (Carter & Dresner, 2001; Walker et al., 2008), and limited top management support (Berns et al., 2009; Giunipero et al., 2012). External barriers to GSCM include lack of available data for measuring GSCM (Veleva, Hart, Greiner & Crumbley, 2003), resistant suppliers (Walker et al., 2008; Wycherley, 1999), risk of losing key supply chain partners (Koplin, Seuring & Mesterharm, 2006; Zhu & Cote, 2004), differences in regulation (Giunipero et al., 2012; Walker et al., 2008), and industry-specific barriers (Walker et al., 2008; Zhu & Sarkis, 2006). For a systematic review of literature on GSCM-related barriers, the interested reader is referred to Walker et al. (2008) and Giunipero et al. (2012). Building on these existing, empirical findings, we contribute to advance knowledge in this area by further exploring the barriers and, in addition, gaining an in-depth understanding of the underlying capabilities required to cope with such challenges during the implementation of GSCM. In doing so, we conceptualize internal barriers to GSCM as residing within
organizations, and external barriers to GSCM as residing outside buying firms and requiring these firms to rely on the conducive support of multiple other supply chain entities. Such interfirm collaboration might often be a complex and challenging mandate for firms (Cousins & Menguc, 2006; Kotzab, Teller, Grant & Sparks, 2011), making the mitigation of external barriers potentially more difficult than resolving internal barriers to GSCM, which reside within the comparatively narrow boundaries of a single firm (Fawcett, Hofer & Fawcett, 2013). Thus, we focus our investigation on the potentially more challenging external implementation barriers to GSCM and the role of capabilities—reflecting buying firms’ knowledge and skills—in overcoming them.
Dynamic Capabilities and Green Supply Chain Management The “initial idea” for our study to investigate dynamic capabilities (DCs) in light of firms’ barriers to implementing GSCM was triggered by three theoretical rationales. First, a common and central tenet among both DC research as well as research on GSCM is the goal of achieving competitive advantage for the firm. DC theory (Eisenhardt & Martin, 2000; Teece, Pisano & Shuen, 1997) is rooted in the resource-based view (Barney, 1991; Grant, 1991; Wernerfelt, 1984), which posits that firms combine bundles of valuable, rare, inimitable, and nonsubstitutable resources in an effort to gain or maintain competitive advantage (Barney, 1991, 2012; Wernerfelt, 1984). Similarly, organizations implementing environmentally sustainable supply chains as part of GSCM initiatives may be able to achieve long-term competitive advantage (Carter & Easton, 2011; Carter & Rogers, 2008). In particular, stakeholder pressures from customers (e.g., Bhattacharya & Sen, 2004; Yang & Rivers, 2009), employees (e.g., McWilliams & Siegel, 2001; Reimann, Ehrgott, Kaufmann & Carter, 2012), and from the public (e.g., Li, Yang & Yue, 2007; Yang & Rivers, 2009), as well as institutional pressures (e.g., Aguilera, Rupp, Williams & Ganapathi, 2007; Lee, 2011) have been identified as salient drivers for MNEs to embrace GSCM. Implementing GSCM supports firms in improving reputation among those stakeholders (e.g., Ellen, Webb & Mohr, 2006; Sen & Bhattacharya, 2001) and institutional bodies (e.g., Child & Tsai, 2005; Gardberg & Fombrun, 2006), leading to a difficult-to-imitate competitive advantage. Second, DC theory asserts that an enduring competitive advantage in rapidly changing environments requires DCs (Teece et al., 1997), which refer to “the organizational and strategic routines by which firms achieve new resource configurations as markets emerge” (Eisenhardt & Martin, 2000: p. 1107). Similarly, stakeholder and institutional requirements for
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firms’ GSCM can dynamically change, reducing the half-time of firms’ competitive advantage from GSCM over time. In particular, “organizations with the intent on pursuing a sustainability strategy [like green-tech companies] are prone to more and unpredictable changes than if they do not have these goals” (Beske, 2012: p. 378). Further, GSCM has to deal with the dynamics of supply chains constantly becoming more interwoven and complex, increasing firms’ exposure to risks and barriers associated with GSCM implementation (Giunipero et al., 2012). Third, DCs have only scarcely been addressed in (sustainable) SCM research (Crook & Esper, 2014), with two exceptions. First, analyzing the role of DCs in an SCM context, Defee and Fugate (2010) revealed that research on capabilities largely followed a traditional, single-firm view, focusing on static capabilities rooted in the resource-based view—a view mostly ignoring largely established cross-firm relationships as part of today’s dynamic supply chain environments. Addressing this shortcoming, Defee and Fugate (2010: p. 188) developed a model of “Dynamic Supply Chain Capabilities.” Distinguishing between static capabilities and DCs, the authors argue that firms need to develop two DCs supporting them to continuously renew and create new static capabilities and therewith achieve sustainable competitive advantage. Specifically, Defee and Fugate (2010) identify knowledge accessing “a [mandatory] dynamic capability held by two or more parties . . .[that] fosters an understanding of the current knowledge resources possessed by [. . .any other supply chain] party” (Grant & BadenFuller, 2004). Further, they highlight co-evolving capabilities as a mandatory “set of routines businesses [need to] use to reconnect webs of collaborations within and across companies to generate new and synergistic capabilities” (Eisenhardt & Martin, 2000). Second, applying a DC view in a sustainable SCM (SSCM) context, Beske (2012) reviewed literature from the SCM, SSCM, and DC context and develop a framework of “Dynamic Capabilities in SSCM” (Beske, 2012; : p. 380). The model specifies that firms need to apply five DCs in order to achieve sustainable performance from SSCM. These include knowledge assessment (accessing and understanding knowledge of SC partners), co-evolving (reconnecting webs of collaborations among supply chain partners), supply chain partner development (developing each and every supply chain partner), reflexive supply chain control (aligning supply chain KPIs with supply chain goals), and supply chain re-conceptualization (including new actors as supply chain partners) (Beske, 2012). Guided by the initial research conducted by Defee and Fugate (2010) and Beske (2012), we follow their call to expand research on DCs in a sustainable SCM context. In particular, we explore the real life
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conditions of the role of DCs in Western green-tech buying firms’ mitigation of barriers to implementing GSCM.
METHODOLOGY Research Sample To better understand how firms overcome external implementation barriers to GSCM, we adopted a grounded theory approach (Glaser & Strauss, 1967; Strauss, 1987; Strauss & Corbin, 1998). Substantive theory underlying sustainability and firms’ capabilities provided “a stimulus to a “good idea” but it also “gave [us] an initial direction in developing relevant categories and properties” of theory emerging in the context of GSCM (Glaser & Strauss, 1967: p. 79). The unit of analysis is the buying firm’s GSCM practices. Western green-tech manufacturers and their firsttier Western green-tech component suppliers provide a particularly information-rich setting (Flyvbjerg, 2006) for our study for three reasons. First, to commit to true environmental sustainability, a company must make “green” aspects a core dimension of its product portfolio and business model. Green-tech product manufacturers must improve their environmental impact at the outset and thus must design new products and supply chain–wide processes (in close cooperation with their first-tier component suppliers) that live up to their environmentally friendly core values and credence attributes (Pullman & Dillard, 2010). As such, we consider the supply chain relationship between green-tech product manufacturers and their first-tier component suppliers particularly sensitive to environmental sustainability issues. Second, stakeholder groups might hold green-tech product manufacturers specifically responsible for both their own and their upstream supply chain’s environmental performance (Berrone, Fosfuri, Gelabert & Gomez-Mejia, 2013). Because any low environmental performance at green-tech component suppliers would constitute a risk to green-tech manufacturers’ reputation and business continuity, we consider green-tech manufacturers advocates of greening their supply chain in close collaboration with their first-tier component suppliers. Third, research has questioned how “green” green-tech product applications really are from an extended supply chain network perspective. Recent investigations (e.g., Dabelko et al., 2013; Guardian Weekly, 2012; Parry & Douglas, 2011) have scrutinized the environmental friendliness of green-tech products because of their mandatory reliance on rare earth metals as inputs; such inputs, along with clear technological benefits, come with substantial negative environmental risks, such as radioactive and toxic by-products (e.g., uranium, thorium), radioactive fine dust emissions, and chemically contaminated waste water
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Barriers to Green SCM
tech product manufacturers by the metrics of firm size (large versus small) and the share of green-tech product applications in the firms’ entire product portfolio (focused portfolio on green-tech product applications versus diversified product portfolio, including non-green-tech products) (Eisenhardt & Graebner, 2007). Further, to investigate barriers to implementing GSCM, the Western green-tech manufacturers experienced in cooperation with their Western component suppliers, we asked the Western green-tech product manufacturers (C01–C05) to refer us to their Western green-tech suppliers of semi-finished and finished components (C06–C10). During this process, we were consistently referred to large and proven Western green-tech component suppliers that supplied rare earth-containing batteries, catalysts, glass and ceramics, luminaries, and magnets with high product quality, reliability, and delivery performance to the Western green-tech manufacturers in our sample. This snowballing technique not only allowed us to collect data on barriers to GSCM that Western green-tech manufacturers experienced in cooperation with their Western green-tech component suppliers, but, as the green-tech component suppliers purchased rare earth metals from Chinese miners and refiners, we were also able to gain data on barriers these firms experience in implementing GSCM further upstream in the rare earth metals supply chain.
(Humphries, 2012; U.S. Department of Energy, 2011; W€ ubbeke, 2013). Thus, in their general efforts to control environmental risks, green-tech product manufacturers face particular environmental challenges in their upstream supply chain for rare earth metals, which is dominated (approximately 95%) by rare earth miners and refiners located in China. Therefore, we investigate the rare earth metals supply chain and examine how Western green-tech product manufacturers in cooperation with their Western, first-tier component suppliers cope with the external implementation barriers they face when trying to establish rare earth supply chains that live up to their green image and reputation. Our sample includes five Western green-tech manufacturers (C01–C05) from two key green-tech application fields, including electrical/hybrid vehicles and wind turbines, and five Western green-tech component manufacturers (C06–C10) supplying components such as batteries, catalysts, glass and ceramics, and magnets with high shares of rare earth metals as inputs (Hensel, 2011; U.S. Department of Energy, 2011) to the green-tech manufacturers in our sample (Figure 1). In addition to supplying manufacturers, they also sell energy-efficient, green-tech products such as lithium ion batteries, automotive/industrial catalysts, photovoltaic panels, and energy-efficient luminaries to direct end customers. To force variance into the sample, we sampled polar cases of green-
FIGURE 1 Sample Characteristics
Western green-tech product manufacturers Electrical & hybrid vehicles
C06 Luminary components Western green-tech component suppliers
Batteries, catalysts, magnets Glass & ceramic components
L
Wind turbines
C01
C02
C03
C04
C05
L D
L D
S F
L D
S F
D
C07
L
D
C08
L
D
C09
L
D
C10
L
D
# of interviews
Respondents
# interviews 2
Product categories: luminaries, batteries catalysts, and magnets
Product categories: luminaries, batteries catalysts, and magnets
Product categories: luminaries, batteries catalysts, and magnets
5
Product categories: magnets, and glass & ceramics
Product category: magnets
2 3
3 3 Head of Purchasing Head of RETF Sustain-ability expert
3 Head of Purchasing Head of RETF Sustain-ability expert
2 Head of Purchasing Head of RETF
2 Head of Purchasing Head of RETF
Respondents Head of Purchasing Head of RETF Head of Purchasing 3 members o RETF Sustainability expert Head of Purchasing Head of RETF Head of Purchasing Head of RETF Sustainability expert Head of Purchasing Head of RETF Sustainability expert
2 Head of Purchasing Head of RETF
Note: L: large firm (>25 billion USD revenue); S: small firm (
