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The Influence of Corporate Environmental Ethics on Competitive Advantage: The
Mediation Role of Green Innovation
Author(s): Ching-Hsun Chang
Source: Journal of Business Ethics, Vol. 104, No. 3 (December 2011), pp. 361-370
Published by: Springer
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Accessed: 15-01-2020 07:46 UTC
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Business Ethics
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J Bus Ethics (2011) 104:361-370
DOI 10.1 007/s 1055 1-01 1-091 4-х
The Influence of Corporate Environmental Ethics on Competitive
Advantage: The Mediation Role of Green Innovation
Ching-Hsun Chang
Received: 19 February 2011 /Accepted: 23 May 2011 /Published online: 4 June 2011
© Springer Science+Business Media B.V. 2011
Abstract This study utilizes structural equation modeling
pressure. In previous times, investing in environmental
(SEM) to explore the positive effect of corporate environmental ethics on competitive advantage in the Tai-
activities is an unnecessary investment. However, the strict
environmental regulations and popular environmentalism
wanese manufacturing industry via the mediator: green
have changed the competitive rules and patterns for com-
innovation performance. This study divides green innova-
panies (Porter and van der Linde 1995). Green innovation
tion into green product innovation and green process
innovation. The empirical results show that corporate
environmental ethics positively affects green product
can be divided into green products and processes, including
innovation and green process innovation. In addition, this
uct designs, or corporate environmental management
(Chen et al. 2006). If companies are willing to undertake
green innovation enthusiastically, they can obtain the
advantage from differentiation and low cost which Can
even change the existing competitive rules (Porter 1981;
Porter and van der Linde 1995). Therefore, it is more
study verifies that green product innovation mediates the
positive relationship between corporate environmental
ethics and competitive advantage, but green process innovation does not. Therefore, corporate environmental ethics
can not only affect competitive advantage directly, but also
influence it indirectly via green product innovation in the
Taiwanese manufacturing industry. Taiwanese manufacturing companies can increase their corporate environmental ethics and green product innovation to enhance
their competitive advantages.
the innovation in technologies that are involved in energysaving, pollution-prevention, waste recycling, green prod-
widely accepted that green management is profitable
nowadays (Porter and van der Linde 1995; Sharma 2000).
Being green is a catalyst for continuous innovation, new
market opportunity, and wealth creation (Walley and
Whitehead 1994). Green innovations may embody the concept of environmental protection into the design and package
Keywords Corporate environmental ethics • Green
of products to increase their differentiation advantages
product innovation • Green process innovation •
(Chen et al. 2006; Hart 1995). Investing resources on envi-
Competitive advantage
ronmental management would not only avoid the trouble of
protests or punishment about environmental protection, but
also enhance their production efficiency, develop new
environmental markets, and thereby increase their capabil-
ities of green innovation (Chen 2008a). Porter (1980) and
Green innovation has become one of the important strate- Barney (1991) defined competitive advantages of a company
as a condition under which competitors are unable to repligic tools to obtain sustainable development in manufac-
turing industries because of the increasing environmentalcate its competitive strategies executed by the company.
Previous research argues that the relationship between green
innovation and competitiveness is positive in Taiwanese
C.-H. Chang (El)
Department of Business Administration, Tamkang University,
151 Ying-chuan Road, Tamsui, New Taipei City 25137, Taiwan
information and electronics industries (Chen et al. 2006).
Green innovations can enhance the product value and, thus,
offset the costs of environmental investments. Eventually,
â Springer
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green innovations improve resources productivity and make It indicates that companies’ social objective is not always
companies more excellent (Porter and van der Linde 1995). profit maximization, and their activities usually meet
Environmental management is getting important for com- external pressures for legitimacy. To gain the trust of
panies in the dynamic global environment, and more com- external institutions, companies have a good reason to green
panies are willing to put more efforts on developing green their products and to undertake green innovations,
innovations. Therefore, developing green innovations is a According to resource-based view (RBV), competitive
win-win solution for the conflict between economic devel- advantage results from the key resources and capabilities of
opment and environmental protection. companies (Barney 1991; Orsato 2006). RBV argues that
Green innovation can improve the performance of environmental social responsibility can become a key
environmental management to satisfy the requirement of capability that leads to a sustained competitive advanenvironmental regulations in Taiwan (Chen et al. 2006). tage (Hart 1995). There are several environmental forces
However, research which deals with the antecedent of impacting firms’ operation which are stakeholder activism
green innovation is scant in professional literature. This and environmentalism, competitive pressures, national
study examines corporate environmental ethics as an environmental policies, and international environmental
antecedent of green innovation, thereby providing insight regulations (Rugman and Verbeke 1998). Thus, companies
into green innovation which plays a mediating role have to carry out environmental management to comply
between corporate environmental ethics and competitive with international environmental regulations and consumer
advantage in Taiwanese manufacturing industry. Barney environmentalism (Berry and Rondinelli 1998). Hence,
(1986) argued that if a firm’s culture is valuable, unique, environmental management can be an important element of
and imperfectly imitable, then its culture can provide sus- a firm’s strategies, and it should be considered as a unique
tainable competitive advantages. Green management is not capability of firms from the RBV logic (Hart 1995).
only as a defensive mechanism to retain legitimacy, but Prior literature on corporate social responsibility posits
also as a centerpiece of an organization’s mission to attain that companies have social responsibilities that may reinsustainable development (Marcus and Fremeth 2009). force their economic objectives (Wood and Jones 1995).
Corporate environmental ethics is one of the key elements Companies undertake environmental management because
of organizational culture which is associated with innova- they hope to be socially responsible. Although corporate
tiveness (Peng and Lin 2008). Corporate environmental environmental management may not probably increase
ethics formalizes corporate value and expectation for eth- profits in the short term, it could have economic payoffs in
ical behavior, so it is a driving force for green innovation the long term (Hart and Ahuja 1997). Additionally, stake-
and competitive advantage. holder theory argues that firms should take into account
The structure of this study is as follows. In the second the interests of their multiple stakeholders to form
section, a literature review is discussed and five hypotheses late their strategies to gain the trust and support from the
are also proposed in this section. In the third section, this key stakeholders (Freeman 1984; Mitchell et al. 1997)
study describes the methodology, the sample and data firms only pay attention to economic goals, incorporati
collection, and the measurements of the constructs. In the environmental management into their strategies may be
fourth section, the descriptive statistics, reliability of the impossible (Drumwright 1994). Firms should undertake a
measurement, factor analysis, correlation coefficients long-term sustainable thinking that relies on non-econom
between constructs, and the results of measurement and goals as well as institutional and stakeholder pressur
structural model are shown. In the fifth section, this study (Prakash 2002).
mentions the discussions about the findings and implica- Corporate environmental management allows com
tions, and possible directions for future studies. nies to shape environmental competitive rules and thereby
to reap first-mover advantages (Peattie 1992; Peattie and
Ratnayaka 1992). Adopting environmental management
Literature Review and Hypothesis Development usually forces firms to apply strict environmental standard
into their green products or processes which can create
Corporate Environmental Management high-entry barriers (Barrett 1991). Firms could get support
from external institutions and key stakeholders and further
Companies may determine to adopt environmental man- obtain competitive advantages (Vogel 1995). Hence, the
agement because of external environmental pressures. positive relationship between competitive advantage and
Although neoclassical economists think maximizing corporate environmental activities can be supported from
shareholders’ wealth as companies’ main goal (Friedman the previous literature about institutional theory, stake1970), institutional theory pays attention to the impacts of holder theory, RBV, and corporate social responsibility
external institutions about firms’ strategies (Hoffman 1997). (Prakash 2002).
^ Springer
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on Green Product and Process Innovation
sustainable competitive
advantage (Barney
of generate
1986). Corporate environmental ethics is regarded as one
kind of superior corporate culture to attain sustainable
Green innovation is the improvement of products or pro- development. Hence, corporate environmental ethics of
cesses about energy-saving, pollution-prevention, wastecompanies can stimulate their proactive environmental
recycling, green product designs, and corporate environ- actions that can facilitate their green innovations (Chen
mental management in the field of environmental man- et al. 2006; Porter and van der Linde 1995). Consequently,
agement (Chen et al. 2006). This study divides green this study implies the following hypothesis:
innovation into green product innovation and green process
Hypothesis 1 (Hi) Corporate environmental ethics is
innovation. Green innovation can enhance the performance
positively associated with green product innovation.
of environmental management to satisfy the requirements
of environmental protection. A company devotes to Hypothesis 2 (H2) Corporate environmental ethics is
develop green innovation can not only meet the environ- positively associated with green process innovation.
mental regulations, but also build up the barriers to the
other competitors (Barney 1991; Chen et al. 2006). Previ- The Positive Effect of Green Product and Process
ously, many companies thought investing in environmentalInnovation on Competitive Advantages
management was an unnecessary investment (Porter and
van der Linde 1995). Recently, there are more positiveCompetitive advantages is defined as a condition which
associations between corporate environmental ethics and
competitors are not able to replicate its competitive strat-
green innovation. Companies should change their strategies egies executed by the company, nor are competitors able to
and operations so that they can comply with the trend of acquire the benefit that the company obtains by means of
environmental ism. Companies with high-environmental
its competitive strategies (Barney 1991; Coyne 1986;
ethics are prone to increase resource productivity through Porter 1980). Value, rareness, imitability, and unsubstitutgreen innovation to make up the environmental costs (Chenability are the characteristics of resources of companies
et al. 2006). Green innovation can improve product value which are helpful for innovation and companies can exploit
and, thus, offset the costs of improving environmental
them to gain competitive advantages (Learned 1969; Porter
impact. Ultimately, green innovation can further raise 1981). Innovation can create “isolation mechanisms”
resources productivity and make companies more com- which protect profit margins and allow benefits to be
petitive (Porter and van der Linde 1995).
gained for companies. Innovation is a key source of com-
Companies require the motivation and ability to pro-petitive advantage in the era of knowledge economy
duce creative and innovative ideas to develop new prod-(Daghfous 2004; Prajogo and Ahmed 2006). Innovation
ucts or processes (Chen and Huang 2009). Previous enables companies to create and deploy their capabilities
studies pointed out that the well-defined policies andthat support the long-run business performance (Teece
processes in companies have positive effect on their 2007). Successful innovation can make external imitation
innovation (Stewart 1994). Therefore, well-defined envi-
more difficult and allow firms to sustain their advantages
ronmental policies can facilitate and integrate the opera- better (García-Morales et al. 2007).
Companies pioneering in the green innovation can obtain
tions among different departments in companies and solve
the environmental problems (Porter and van der Linde the competitive advantages and enable them to sell their
1995). Corporate environmental ethics highlights the role environmental technologies or services, to improve their
of proactive environmental management (Weaver et al. corporate images and even to create new markets (Chen
1999b). The environmental ethics in a company can et al. 2006; Hart 1995, 1997; Peattie 1992; Porter and van
influence innovation of environmental technology and der Linde 1995). Companies investing more commitments
business operation (Greeno and Robinson 1992; Schle- in environmental management and green innovation
gelmilch et al. 1996). This study argues that corporate actively can not only minimize production waste, but also
environmental ethics plays an important role in the green enhance the overall productivity, increase corporate repuinnovation of a company. Top management concerns tation, and thereby increase corporate competitive advan-
relate positively to the scope and speed of a firm’stages under the trends of the popular environmentalism of
responses to environmental issues (Eiadat et al. 2008). The consumers and severe international regulations of envirole of management is crucial in establishing a company’s ronmental protection (Berry and Rondinelli 1998; Chen
norms and expectations about ethics (Tushman andet al. 2006; Porter and van der Linde 1995). Moreover,
O’Reilly 1997). Based on RBV, outstanding corporate green innovation can create “isolation mechanisms” which
culture which is typically valuable, rare, inimitable, and protect profit margins and allow benefits to be gained for
non-substitutable can be viewed as one of key resources tocompanies.
Ô Springer
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In this study, green innovation is divided into green
impacts, corporations should invest resources to achieve
product innovation and green process innovation. There are
their goal of sustainable development. Corporate environ-
two sources of competitive advantage: differentiation and
mental ethics formalize company values and expectations
low cost (Porter 1980). A company can use differentiation
for ethical behavior. Companies that have high environ-
strategies to create unique features for its new products.
mental ethics standards can not only avoid the troubles that
Differentiation strategy can facilitate companies to pay off
come with environmental protection protests, but also
improve their corporate images (Chen et al. 2006).
ecological investments (Orsato 2006; Chen et al. 2006).
Green product innovation of a company can improve
product design, quality, and reliability with respect to
Therefore, environmental management may lead to longterm economic gains. Competitive advantage is a condition
environmental concern which can yield a better chance to
under which companies occupy some niche positions
differentiate its green products such that the company can
where their competitors cannot imitate their successful
charge higher prices and make better profit margins for
environmental strategies and they can gain the sustainable
their green products (Chen 2008a). A company can adopt
benefits (Porter 1980; Porter and van der Linde 1995). A
green product innovation to enhance its green image (Chen
company devoted to develop its corporate environmental
2010). Therefore, the company can obtain competitive
ethics can not only meet the environmental regulations, but
advantage through green product innovation (Chen et al.
also build up the barriers to the other competitors. Com-
2006). On the other hand, green process innovation can
panies can enhance competitive advantage through
reduce the cost for companies. Previous literature argues
improving their intangible assets (Chen 2008b). Environ-
that pollution is the concrete evidence of inefficient uses of
mental ethics can be regarded as companies’ intangible
resources (Porter and van der Linde 1995; Chen 2011).
assets. Companies can occupy some positions about envi-
Investing more resources in green process innovation can
not only minimize production waste, but also enhance
ronmental protection where competitors cannot copy
their successful environmental strategies and gain the
resource efficiency (Porter 1980; Porter and van der Linde
sustainable benefits from these successful environmental
1995). Companies can adopt green process innovation to
strategies. Therefore, this study proposes the following
enhance resource productivity by means of material saving,
energy decreasing, waste recycling, and resource reducing
(Chen 2008a). Green process innovation can not only
prevent costly pollution, but also reduce resource expense
and overall cost (Orsato 2006; Berrone 2009). Companies
can continue to undertake green process innovation to raise
their manufacturing efficiency and productivity such that
they can obtain low cost advantage (Chen 2008a). A
company can adopt green …
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