Environmental orientation of exporting SMEs from an emerging economy: its antecedents and consequences.

Author:Chan, Ricky Y.K.

Abstract This study proposes and empirically tests a model delineating the major antecedents and consequences of environmental orientation for exporting SMEs from China. Based on a survey on 414 exporting SMEs, it has derived empirical support for most of the hypothesized relationships of the proposed model. To summarize, the findings show that, among the surveyed firms, their CEOs' environmental beliefs and SMEs' efforts in scanning developed markets contribute significantly to the development of their internal and external environmental orientations, respectively. The two orientations, in turn, serve as significant drivers of the practice of proactive environmental strategies. This strategic practice is also found to contribute directly to corporate export performance. CEOs' environmental beliefs are further found to exert a direct and positive impact on such practice. Moreover, exporting SMEs operating in areas with strong (vs. weak) ecological infrastructure are found to be more effective in translating their external environmental orientation into the practice of proactive environmental strategies, and finally into higher corporate performance. This study provides academic and practical insights into the complex and contingent processes underlying the development of environmental orientation and its impacts on various organizational outcomes of exporting SMEs.

Keywords Export SMEs ? Emerging economy * Environmental orientation * Capabilities * Environmental strategies * International performance

1 Introduction

Amidst the continued globalization, firms from developed regions such as the US and Western Europe have been increasingly relying on suppliers from emerging economies to achieve cost efficiency and consequently global competitiveness (Platts and Song 2010; Singh 2009). This reliance has led to the flourishing of a group of privately-owned, small to medium-sized enterprises in these economies, serving mainly as exporters of parts or finished products for developed markets (called "exporting SMEs" hereafter) (Ehrgott et al. 2010). However, with the rising environmental awareness in developed markets, these exporting SMEs now have to satisfy increasingly stringent environmental requirements in order to secure their overseas orders (Aguilera-Caracuel et al. 2012; Corporate Climate 2010). In order to enhance their legitimacy and chance of corporate success, these firms have gradually nurtured a pro-environmental corporate culture or environmental orientation to guide their operations in line with these requirements (Roxas and Coetzer 2012). Despite the generally perceived importance of environmental orientation for corporate survival amidst the global increase in environmental awareness (Banerjee 2002), there exists virtually no research on what drives the development of an environmental orientation for these exporting SMEs as well as whether they really benefit from such development. This research paucity is particularly unsatisfactory when considering the significant contribution these ventures have made to exports as well as to the overall economic growth of their home countries (Khavul et al. 2010).

Against this backdrop, this study intends to shed light on the major drivers and organizational outcomes associated with the development of an environmental orientation among exporting SMEs from an emerging economy. Specifically, it involves proposing and empirically testing a model that delineates the major antecedents and consequences of environmental orientation for exporting SMEs from China, the world's largest and fastest growing emerging economy. To this end, it draws on institutional theory (e.g., Oliver 1991; Scott 2014) and Aragon-Correa and Sharma's (2003) contingent resource-based view of proactive environmental strategies (called "the contingent resource perspective" hereafter) to examine if environmental orientation can really drive exporting SMEs to practice proactive environmental strategies, and consequently enhance their international performance. Although some previous studies investigated the performance implications of environmental orientation of larger firms from developed nations (e.g., First and Khetriwal 2010; Menguc and Ozanne 2005), little research was devoted to understanding the same for less resourceful exporting SMEs, and especially those from emerging economies. Moreover, there is even less research on the drivers of environmental orientation in general and for exporting SMEs in particular. To fill this void, this study proposes two firm-specific factors, namely a chief executive officer's environmental beliefs, and an exporting SME's efforts in scanning its developed markets, as essential drivers of environmental orientation. Besides, given China's significant regional differences in infrastructural support for corporate environmental practices (Ma and Ortolano 2000), this study also takes these differences into account by examining the possible moderating effect of 'local ecological infrastructure' on the relationship between environmental orientation and its consequences. This examination provides insights into the contextual conditions that would facilitate or hinder the effective translation of environmental orientation into various organizational outcomes.

With reference to Fletcher (2006), exporting SMEs in this study are defined as those younger, smaller, privately-owned and export-oriented firms that aim at pursuing growth through capitalizing on international opportunities in foreign markets. The present study involves a survey on these firms in China. Since its adoption of the open-door policy- in the late 1970s, China has been experiencing a rapid transition from a centrally-planned economy to a market-driven one. It is now the world's largest exporter (Murray et al. 2011) and emerging economy (Naude and Rossouw 2010). This phenomenal growth makes China an appropriate contextual choice for studying exporting SMEs. When compared with developed nations, China is still in their infancy regarding the pursuit of corporate environmentalism. Indeed, the country hosts 16 of the world's 20 most polluted cities, and has been paying a high ecological price, equivalent to 8 % of its annual gross domestic product (Chan 2010). These contextual characteristics allow the examination of the strategic process of exporting SMEs from an environmentally less advanced country amidst increasing environmental demands from their overseas developed markets.

This study can yield the following significant contributions. First, it extends the premises of institutional theory and the extant environmental management literature (e.g., the contingent resource perspective) to advance understanding of the environmental practices of exporting SMEs from an emerging economy. As mentioned, while these firms rely heavily on their environmentally more advanced overseas markets for growth, little research is on their 'greening' process. Taking advantage of cross-fertilization of knowledge across related disciplines, this study helps bridge this research gap by proposing and validating a process underlying the major antecedents and consequences of environmental orientation for these emerging international players.

Second, while the environmental management literature has long postulated the positive implications of environmental orientation (e.g., Banerjee 2001; Banerjee et al. 2003), this belief is yet to be fully tested especially among less resourceful SMEs. For instance, Menguc and Ozanne (2005) only examined the bivariate environmental orientation--performance relationship among Australian manufacturing firms but without studying the mechanism underlying this relationship. In another study on environmental orientation and environmental strategy among firms in the US, the researchers even did not incorporate any performance indicators into their analysis (Banerjee et al. 2003). However, as a firm's specific strategic orientation needs to be first translated into the corresponding strategic practices (e.g., proactive environmental strategies) before influencing its corporate performance (Ge and Ding 2005; Prahalad and Bettis 1986), this prior research appears inadequate in addressing the performance implications of environmental orientation. The present study thus enriches the extant literature by examining the orientation-strategy--performance link within the context of corporate environmentalism pursuit among exporting SMEs.

Third, this study also examines the moderating effect of local ecological infrastructure on the process underlying the major antecedents and consequences of environmental orientation. Ever since the appearance of the natural resource-based view of the firm (Hart 1995), increasing numbers of environmental researchers have focused on the firm's internal characteristics when studying corporate greening. This approach is far from comprehensive as it undermines the pivotal role of external business conditions in shaping corporate environmental practices (Aragon-Correa and Sharma 2003). By incorporating local ecological infrastructure into the analysis, this study advances understanding of the boundary conditions associated with effective transformation of environmental orientation into favorable organizational outcomes among exporting SMEs.

To summarize, this study provides academic and practical insights into the complex and contingent process underlying the development of environmental orientation and its impacts on organizational outcomes of SMEs in China. These insights will further research endeavors in the area of environmental management and strategy. They can also offer valuable inputs for SME executives and the relevant policy makers to formulate competitively viable environmental strategies at both the corporate and national levels.

2 Theories and Hypotheses

2.1 Environmental Orientation

Conceptually, environmental orientation can be interpreted as a...

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