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Copyright 2008 John Wiley & Sons, Ltd and ERP Environment

* Correspondence to: Dr. Monica Abreu, Av. da Universidade, 2470, Benfica, 60.020-180, Fortaleza, Ceara, Brazil. E-mail: [email protected]

Business Strategy and the EnvironmentBus. Strat. Env. 18, 542556 (2009)Published online 22 September 2008 in Wiley InterScience(www.interscience.wiley.com)DOI: 10.1002/bse.625

How to Define an Environmental Policyto Improve Corporate Sustainability in

Developing Countries

Mnica Cavalcanti S de Abreu*Federal University of Cear, Brazil

University of Cambridge, Institute for Manufacturing, Cambridge, UK

ABSTRACTContinual efforts to work with government and society are crucial to persuade businesses

to become even better engaged in sustainability practices in developing countries. Thisstudy rebuilds the SCP (structureconductperformance) paradigm to incorporate environ-mental variables and to address the environmental strategy choices. Grounded theory wasadopted in a systematic collection of data in petrochemical, textile and beverage companiesestablished in different Brazilian states. In-depth personal interview, site visit and docu-mentary evidence were coded and analysed. The empirical results demonstrate that envi-ronmental regulation and enforcement, environmental risk and demands from stakeholdersplay a central role in increasing the corporate commitment to the natural environment. Thestudy defines four strategic generic types of organization, termed variously as sleeper,reactor, defender and innovator, owing to their solutions to environmental issues. This

typology contributes as a roadmap for business decision makers to choose the appropriateenvironmental strategy in a global economy. Copyright 2008 John Wiley & Sons, Ltdand ERP Environment.

Received 1 October 2007; revised 4 April 2008; accepted 8 April 2008

Keywords: environmental strategy; environmental management; environmental policy; stakeholder engagement; sustainability;

Brazilian industry

Introduction

SINCE THE MID-1980S, COUNTRIES IN LATIN AMERICAN HAVE OPENED THEIR MARKETS TO INTERNATIONAL TRADEand investment. They also have taken steps to stabilize their economies through curbing inflation sub-stantially, controlling budget deficits, privatizing many state enterprises and revaluing their currencies(Dominguez and Brenes, 1997). Following the external debt crisis of 1982, the Brazilian economy entered

a period of profound macroeconomic instability, in spite of successive economic plans and policies aimed atstabilization.

Brazilian industry lagged behind the international trajectory towards technological and managerial changes. Aspointed out by Ferraz et al. (1999), in the period 198094, governments promoted nine major stabilization plans,


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Environmental Strategies Amongst Brazilian Industries 543

Copyright 2008 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 542556 (2009)

DOI: 10.1002/bse

15 different wage indexation policies, 19 changes in the rules governing changes of the exchange rate, 22 differentproposals to deal with the external debt and 20 proposals for the fiscal adjustment of the state.

From the 1990s, a new development strategy, named competitive integration, started to emerge. Changes canbe seen as composed of three main blocks: market focus, industrial structure and a regime of incentives andregulations (Ferraz et al., 1999). Trade liberalization, aiming at increasing both import and exports and exposing

the local industry to international competition, has changed the market focus. The industrial structure, in turn,was set to be modified by means of privatization of state companies and attraction of direct foreign investment.Decreasing government intervention in the economy (deregulation) has been the main feature of the regime ofincentives and regulations. The renewal of environmental consciousness in Brazilian society from the 1990s,together with the corresponding growth in the extent and stringency of related regulations, has brought about achange in the nature of environmental pressures on the industry because these issues began to affect the marketplace directly. By becoming market-related factors, such pressures have promoted an associated change in thenature, source, means and geographical scope of firms environmental response.

The purpose of the current research was to evaluate the environmental strategies adopted by Brazilian companies.The framework used is a traditional structureconductperformance (SCP) approach, common in industrial eco-nomics, and adds the assumption that the environmental performance of a company is the result of its environ-mental competitive practices or conduct standards, depending on the industrial structure in which it is inserted.

The paper is organized as follows, and the next section discusses issues that a company must address in devel-oping an appropriate environmental strategy. Steps to develop the environmental SCP model are presented. Then,the empirical research methodology is introduced. The primary method of investigating was grounded theory(Strauss and Corbin, 1998; Creswell, 2007), a qualitative research method designed to aid in the systematic col-lection and analysis of data. Subsequently, the main results were discussed.

The study postulated that there are four general types of organization. The environmental strategy adopted is afunction of the importance attached to pressure on the industry structure, and the consequent environmentalbehaviour adopted. The final section draws conclusions as to where these efforts have brought us to in respect ofenvironmental strategies in developing countries.

Environmental Strategic Options

Since the late 1980s, academics and practitioners have developed classifications to describe trends in environmen-tal management, using a diversity of labels to designate processes and outcomes, such as strategies, responses orperformance (Kolk and Mauser, 2002). Although environmental management models show a wide variety ofcharacteristics, many are stage or phase models that describe a development in time consisting of an increasingintegration of environmental concerns with business policy and strategy.

Hunt and Auster (1990) suggest that there are five distinct stages in developing an environmental programme.The continuum extends from the beginner, which provides only minimal protection from environmentalproblems, to the proactivist, which is more aggressive in reducing risk. Each stage represents a genericcharacterization.

Hass (1996) utilizes the continuum model proposed by Hunt and Auster (1990) as a research framework for astudy of eight Norwegian firms. Difficulties in classifying the companies lead to the development of a new typol-ogy with four orientations towards environmental management and its implementation. Otherwise, Vastag et al.(1996) proposed a framework to evaluate corporate environmental strategies. The external and internal physicalcharacteristics of companies determine their exogenous and endogenous environmental risks, which in turn havean impact on a companys environmental management characteristics.

Rodriguez and Ricart (1998) developed a matrix combining internal variables (the environmental managementsystem implemented) with external variables (clients and other stakeholders demands). Winn and Angell (2000)found that policy commitment to environmental issues, and approach to implementing environmental activities,are two orthogonal independent dimensions of environmental management strategies of firms.

The principal difference between these models derives from variables used in their analysis; therefore,companies are positioned in a scale according to their attitudes or response to specific environmental issues.


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Classification proposals differ basically in two respects: the evaluation criteria used, and the number of stagesresulting from the scale of progression (Gago and Antolin, 2004). Multiple typologies and taxonomies have pro-posed different levels of proactivity of environmental strategy, ranging from slightly exceeding legal requirementsto environmental excellence or leadership (Aragn-Correa and Rubi-Lopez, 2007; Paulraj, 2008).

Although extant research has tried to categorize environmental strategy, it has focused predominantly on explain-

ing motivations and practices within firms established in developed countries (e.g. Sharma and Henriques, 2005;Buysee and Verbeke, 2003; Winn and Angell, 2000; Henriques and Sadorsky, 1996; Bansal and Roth, 2000).Meanwhile, it is important to consider a different perspective on environmental strategy implemented in compa-nies that operate in developing countries (Christmann and Taylor, 2001, 2002). A new classification scheme helpsto address the fact that stakeholders demands and the dynamic capability for a proactive environmental manage-ment vary amongst industries, peculiar to each country.

Development of the Environmental Strategic Model

The SCP (structureconductperformance) paradigm is used as a framework around which to build an environ-mental strategy model to evaluate the environmental dimension of business strategies. The SCP paradigm (Bain,1956) implies that structure is of overriding importance to competitive advantages. Therefore, research may focus

on structural characteristics and pay relatively little attention to other variables such as firm resources, core com-petencies and the decision-making process (McWilliams and Smart, 1993). Such changes imposed by the efficiencyparadigm were incorporated into the environmental SCP model.

The PSR (pressurestateresponse) model (OECD, 1998) has also been utilized to develop the concepts of pres-sures of the industry structure, conduct and performance. This model states that pressures mean the integrationof environmental concerns into stakeholders demands, response indicators represent the integration of environ-mental concerns into actions by the firms, and the indicators of state evaluate the environmental performance.

The environmental SCP model adds to the assumption that the environmental performance of a company isthe result of its environmental competitive practices or conduct standards, depending on the structure of the marketin which it is inserted, as seen in Figure 1. Companies are influenced by external forces, termed shocks. Theseforces give dynamism to the model, and originate from changes in government policy/regulations, technologicalbreakthrough and changes in taste/lifestyles.

It is also important to consider the existence of internal feedback. According to Scherer and Ross (1990), notall influences flow from industry structure towards performance. A causal relationship running from marketstructure to environmental conduct and from environmental conduct to environmental performance isassumed.

Market and business factors play the most important roles in a decision-making process, but a wide array offorces such as regulatory demands, stakeholder forces, cost factors and competitive requirements drive corpora-tions to adopt proactive environmental management (Berry and Rondinelli, 1998). Gonzlez-Benito and Gonzlez-Benito (2006) also include external factors such as industrial sector (environmental risk, concentration and

Figure 1. Environmental strategic evaluation model


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cohesion) and geographical location. Greater weight should be given to the power of the pressure group, thepotential for accidents and the safety record of industries in high environmental risk rather than industries in lowrisk segments (Jose, 1996).

However, one determinant factor stands out as central to all the others: the pressure exerted by the companysdifferent stakeholders. It involves recognition of stakeholders environmental concerns, which are translated into

strategic actions designed to improve a firms environmental performance (Buysee and Verbeke, 2003; Banerjee,2002; Delmas and Toffel, 2004).The environmental conduct denotes three practices: planning and organization; operation and communication

(Gonzlez-Benito and Gonzlez-Benito, 2006). The first means the extent to which company has defined an envi-ronmental policy and developed procedures to establishing environmental objectives, the second represents theselection and implementation of operational procedures and assessing the outcomes of the respective processesand the third has allocated responsibilities and communicates the action taken in favour of the naturalenvironment.

Management aspects such as environmental strategies, policies, communication and commitment are frequentlyconsidered as part of environmental performance, and are therefore incorporated as defining criteria in environ-mental management models. Whilst environmental management and performance are closely linked, there is bothpractical and theoretical justification for considering them as different sets of (related) indicators (Kolk and Mauser,

2002).Environmental performance refers to indexes expressed in physical terms. According to Azzone and Noci (1996),

physical indexes are measures that can be expressed on a quantitative scale, but do not refer to any economic basedparameter. Air emissions, solid waste, energy and materials consumptions and wastewater generation can beconsidered within this category.

The concepts of environmental pressures on the industry structure, conduct and performance reflect threeaspects of the greening of the industry. Environmental conduct is driven by pressures, and refers to activity thataims to protect the environment, and therefore the environmental performance represents the results achieved.

Methodology

Qualitative research methods are particularly suited to understanding the dynamics present within single settings(Eisenhardt, 1989). In this field, grounded theory aims to develop a theory derived from data systematicallygathered and analysed through the research process (Strauss and Corbin, 1998; Creswell, 2007). This methodprovided for the generation of an environmental strategy matrix through interrelating categories of informationbased on data collected from petrochemical, textile and beverage companies established in different Brazilianstates. The matrix was derived putting together a series of concepts based on experience, and the idea that the SCPparadigm could be rebuilt, adding the environmental variable.

Interview Protocol Development

The interview protocol was focused on understanding how companies define their environmental strategy andidentify the steps into the process. The first version was tested in a large textile firm established in Cear state.The revised version introduced multiple possibilities and generates a list of 50 questions divided into threesections: industry structure, environmental conduct and performance.

The industry structure section asked question about production, profits, number of employees and mainproducts. There were questions to identify companies market share, who their customers, competitors andsuppliers are and where their customers, competitors and suppliers are located.

The environmental conduct questions reflect the environmental management of a company within its businesssystem, including management and administration, research and development, operations and production, andmarketing. Thus, the ISO 14001 requirements were utilized as an environmental management system reference.In practice, examples of environmental conduct questions are environmental expenditure, number of fines and


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citations, emergency response activities, number of audits conducted, contractor compliance programmes requiredand pollution abatement controls.

Furthermore, issues related to the achievement of planned objectives and targets, environmental policies, envi-ronmental law enforcement, training programmes implemented, environmental demands from stakeholders andcommunication procedures were discussed.

The OECD (1998) core set of environmental indicators was considered as a starting point to develop theperformance questions. The list proposed by OECD is as follows: climate changes; ozone layer depletion; eutro-phication; acidification; toxic contamination; urban environmental quality; biodiversity; landscape; water, forestand fish resources and soil degradation. These issues were considered during the interview in order to identifythe environmental risk, how they measure and control discharges, and the environmental performanceachieved.

This final version was tested in a large petrochemical company, established in Cear state, in order to checkwhether the interview protocol was flexible enough to be applied within different industries and able to establishthe answers accuracy.

Data Collection Activities

Industries were chosen based on their industry structure and environmental risks (high or low), hence they couldbe compared among themselves. Brazilian petrochemical, textile and beverage industries were distinguishedaccording to the structural change, and have relevant implications for the strategy adopted. An overview of eachsector is further presented.

In 1994, the Brazilian Government established the Plano Real. The main idea underlying this developmentstrategy was that, in order to stabilize the economy, Brazil had to accelerate the denationalization of state-ownedindustries and intensify its inclusion in the world economy with the framework of neo-liberal policies (Green,2003).

In this way, Brazil has begun a major process of restructuring the oil, gas and petrochemical industry in orderto reduce the involvement of the state in the economy. The entire petrochemical industry of the country consistedof only few firms. This structural change was aimed at stimulating competition and the participation of interna-tional companies in the Brazilian market.

The impact of the commercial opening on the textile sector during the 1990s was more intense than in othersectors while leading to an intense concentration of movement. According to Kon and Coan (2005), in the 1980s,this industry was technologically obsolete as the investments had been interrupted. Many companies had movedto North Eastern Brazil, expecting government support in order to resist Asias competitive pressure.

In 1999, two leading Brazilian beverage companies merged and gained in productivity, economies of scale anddistribution logistics. Nonetheless, traditional beverage companies are facing competitive challenges by firmsintroducing a low cost soft drink into the market.

Concerning the environmental risk, it is assumed that the petrochemical industry has higher environmentalrisks than the textile and beverage industries. Petrochemical plants are highly polluting and operate in a social orphysical context in which risks are further increased by external conditions or public attitudes toward environmen-tal hazards. On the other hand, textile and beverage (soft drink) companies use well developed technologies andnonexhaustible resources such as raw materials, and their activities do not involve the transportation of massivevolumes of hazardous materials (Vastag et al., 1996).

The analysis had begun with the first interview and observation, which leads to the next interview or observation,followed by analysis, more interviews or fieldwork. The comparative study of firms within different industries wasdesigned to identify the influences, such as the degree of environmental regulation and enforcement, demandsfrom stakeholders and environmental risk on the environmental strategy adopted. The criteria of technologysimilarity and size of plant were used to select firms for in-depth personal interviews and site visits.

Initially, data from seven textile and four beverage companies were collected in Cear state. One importantbeverage company, established in Pernambuco state, and four petrochemical firms, installed in Bahia state(Camacari Petrochemical Complex), were also interviewed. All these companies were established in NorthEastern Brazil.


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During these interviews, there was a growing need for more environmentally proactive companies. Therefore,one textile company that had implemented an environmental management system and an eco-label was inter-viewed in Santa Catarina state. Additionally, three petrochemical companies, established in Rio Grande do Sulstate (Triunfo Petrochemical Complex), were interviewed. One of them represents an important reference in rela-tion to the environmental quality in the industry. All these companies have been set up in South Brazil.

The data were collected from five different Brazilian states, which allows identification of diverse environmentalconducts and performance, and also stakeholders demands. It is important to mention that the effectiveness ofenvironmental enforcement varies among Brazilian states. Visits were also conducted with officials of the regula-tory body of the states of Cear, Bahia and Rio Grande do Sul in order to meet the agencies infrastructure.

Following Sharma and Vredenburg (1998), data collection was stopped after 20 companies had been studied,and theoretical saturation seemed to have been reached; that is, new information on the phenomena being exam-ined was no longer gained. To examine the environmental strategy, mainly medium or large sized companies wereinterviewed. The phase of data collection occurred in 2001 and interviews totalled approximately 60 hours. Theexecutive interviews in each company included the CEO or a member of top management and line/operationsmanager.

Data Analysis

During all interviews and site visits, notes were taken and these are analysed, together with the observations madewhilst waiting for interviews, on the website, environmental reports, news clippings and other reports in the massmedia. Documentary evidence completed the data set. The data comprised industry structure reports, companiesenvironmental reports, educational and promotional materials and copies of operational procedures.

Closer examination was prepared after each interview to highlight issues concerning industry structure, envi-ronmental conduct and performance. The analytic process was based on immersion in the data and repeatedsorting, coding and comparisons that characterize the grounded theory approach.

Analysis began with open coding. Strauss and Corbin (1998, p. 101) described this coding as that in whichconcepts are identified and their properties and dimensions are discovered in data. After open coding, axial codingputs data back together in new ways by making connections between concepts and the category. From this process,the conditional matrix, which specifies the relationship between environmental pressure and conduct, addresses

the companys strategy choices.

Results

Environmental Pressures on the Industry Structure

In 2000, a disastrous oil leak occurred at Petrobras refinery near Curitiba in the southern state of Parana. It cameonly six months after an oil spill of more than one million litres, which polluted Rio de Janeiros picture-postcardGuanabara Bay (BBC News, 2001). All petrochemical companies visited reported these accidents. Intervieweesargued that environmental pressure from stakeholders increased greatly. Brazilian society was very worried aboutthe chemical risk posed by industry. On the other hand, textile and beverage companies treated them withindifference.

The environmental risks of petrochemical firms are huge and associated with all environmental performanceindicators (as seen in Table 1). The petrochemical companies establish and maintain procedures to identify envi-ronmental aspects of their activities, products and services, and also develop strong operational control and tech-nological investments. Interestingly, all of them were concerned about wastewater treatment and solid wastemanagement.

Textile companies were concerned mainly with wastewater quality, energy consumption and noise. Beveragecompanies were worried only about water depletion, wastewater quality and noise. Nonetheless, these concernsare more related to economic issues and community disturbance than environmental aspects. These companiesmerely comply with local environmental regulations without taking extraordinary precautions to prevent environ-mental damage.


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The research revealed that the environmental regulation agencies installed in Bahia and Rio Grande do Sulstates are very well equipped, and the monitoring is strict, through monthly mandatory reports and plant visits.Brasil Energia Journal (2001) reported that Rio Grande do Sul state is exemplary in terms of enforcement. Petro-chemical companies have a complete knowledge of environmental law, but, despite this, five companies have beenfined because of environmental accidents.

On the other hand, the environmental regulation agencies installed in Cear and Pernambuco states are not

well equipped. These states are located in North Eastern Brazil which is one of the most underdeveloped regionsof the country. These agencies do not have enough resources to monitor companies thoroughly. Consequently,five textile and two beverage firms have never been fined.

All companies appear to attach substantial importance to complying with regulations. Petrochemical companiesattach more importance to maintaining a good relationship with people living in the surrounding areas and withclients. On the other hand, textile companies attach substantial importance to international customers.

The pressure increments appear to be associated with the largest set of stakeholders perceived as important toinfluence their environmental strategic decisions. Petrochemical customers demand ISO 14001 and specify envi-ronmental patterns to produce and distribute, and some of them also audit the petrochemical plants. In contrast,customers of beverage companies do not have any environmental demands.

Environmentalpressures

Indicators Answers Companies

PetrochemicalN= 7

TextileN= 8

BeverageN= 5

Environmental risks Environmental impacts Waste water quality 6 7 3Solid waste generation 4 1 1

Noise 4 5 3

Energy consumption 2 7 2

Air emissions 3 1 0

Water depletion 2 2 4

Nature resource depletion 2 2 2

Climate change 2 2 0

Ozone layer depletion 2 0 0

Environmental legalsystems

Number of environmentalpenalties

Fines 5 0 1

Warning 0 3 2No fines 2 5 2

Stakeholders demands Demanding stakeholders Regulatory agencies 5 7 4

Community 5 3 2

Domestic customer 5 3 0

International customer 4 4 0

Financial agents 2 1 0

Employees 2 1 0

Nongovernmentalorganization (NGO)

1 1 0

Customers environmentaldemands

Green label 0 0 0

ISO 14001 2 0 0Own EMS 1 4 0

No environmental demands 4 4 5

Table 1. Environmental pressures on the industry structure


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Environmental Conduct Adopted and Performance Achieved

There are significant differences in environmental conduct in the three industrial sectors. To measure the mana-gerial characteristics of the companies, respondents were asked about the following topics: the environmentalpolicy component that is currently installed at their companies, the importance of environmental issues in corpo-rate strategy, knowledge of environmental law, resource allocation to environmental projects and the pollution

prevention technologies implemented (as seen in Table 2).All petrochemical companies and only three textile firms had defined the organizations environmental policy.

The policy forms the basis upon which the organization sets its objectives, targets and programmes. Achievingsustainable development, enhancing a positive image and reducing waste are the key environmental concerns forpetrochemical companies. The textile companies are concerned with complying with regulations and realizing newmarket opportunities. On the other hand, most beverage and textile companies had not implemented any envi-ronmental policy.

Managers were asked about their knowledge of environmental laws. Six petrochemical and only one textile firmhad a complete knowledge. Most textile and beverage companies do not have a thorough understanding of Brazil-ian environmental laws. There are significant differences in environmental investments by the companies. Thepercentage of environmental investments out of total company investments was significantly higher in petro-chemical companies than in the other firms.

Overall, petrochemical firms, three textile and one beverage company had appointed a manager responsible forenvironmental management. The petrochemical firms had to prove reasonable care in their operations to offsetcriticism from a relatively well organized social movement favoured by the media. The employees are also com-mitted to protect the environment because of the training programme. The petrochemical firms mainly developtechnology to optimize the process; the textile ones use technology to reduce consumption of energy and materi-als. On the other hand, beverage companies do not invest in technology to reduce environmental risks.

ISO 14001 had been implemented in five petrochemical firms and one textile firm. Only one beverage companyhad implemented its own environmental management system, following its international holding company. Inorder to implement their environmental management systems, companies must identify environmental aspectsand impacts, run environmental audits and establish procedures to monitor and measure environmental perfor-mance indicators, as shown in Table 3.

The petrochemical firms are highly polluting and have more aggressive safeguards to prevent or reduce envi-ronmental damage, establishing restricted operational controls. Only a few petrochemical firms had publishedtheir environmental reports. Five petrochemical companies and only one textile firm had procedures and channelsto receive and treat the stakeholder demands. The rest did not register stakeholders demands or complaints.

Indicators used by the petrochemical, textile and beverage companies to assess their environmental performancewere identified and also confirmed the environmental conduct adopted (as seen in Table 4). The research intendedto obtain quantitative dates about environmental performance in order to compare companies. Most petrochemi-cal companies gave their internal or published environmental reports. Otherwise, one textile company and twopetrochemical firms presented the environmental performance monitoring programme but did not permit carry-ing it out. The other firms (textile and beverage) have even had this environmental performance followed up. It isnot important for these companies to measure environmental performance; they have other priorities, and theregulatory agency has never demanded this information from them.

All petrochemical companies and two textile firms defined their indicators in accordance with the legal require-ments. However, the monitoring and measurement system is fully implemented in five petrochemical firms andone textile firm. These companies administer a quantitative environmental performance assessment and haveteams responsible for developing a work plan to treat environmental issues by corrective and preventive action.

Environmental Strategy Matrix

Two types of causal relationship emerged from the data, which ultimately led to certain typologies related to envi-ronmental strategy. These were (a) environmental pressures that affect the structure of the industry and (b) envi-ronmental conduct. Environmental risks, demands from stakeholders, and all-pervasive environmental regulations


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and the consequent potential for liabilities are environmental pressures on the industry structure that can affectbusinesses and their choice of strategy.

Petrochemical companies are subjected to strong pressure when the environmental risk is high, the environ-mental legal system is structured and the environmental enforcement is effective, and also the stakeholders havemany requirements. On the other hand, companies such as textile and beverage are affected by weak environmen-tal pressures whenever their environmental impact is low, the environmental legal system and the enforcementare fragile, and, additionally, the stakeholders demands are only potential.

Environmentalconduct


PetrochemicalN= 7

TextileN= 8

BeverageN= 5

Management andadministration

Environmental policy Yes 7 3 1No 5 4Importance of environmental

issuesSustainable development

commitment4

Image improvement 2 1Pursuing new markets 3 Improve waste management 1 1 Complying with regulations 4 4

Knowledge of environmentallaw

Yes 6 1 Partial 1 2 1No 5 4

Financial resource allocationper year

US$ 1 000 000 1 Percentages of environmental

investments01% 5 312% 3 2 125% 2 1510% 1 1

>10% 1

Reasons for environmentalinvestments

To attempt the environmental law 1 5 5Environmental objectives and

targets6 3

Human resource allocation Environmental manager 7 3 1No specific environmental

manager representative

5 4

Environmental training anddevelopment programme

Yes 5 3 1In process of implementation

process2 1 1

No 4 3Research and

developmentPollution prevention

technologiesClean technologies 2 1 Green label 1 Process optimize 4 Reduce the consumption of

energy and/or materials1 5 1

No investments 2 4

Table 2. Environmental conduct of the companies within management and administration, and research and development,

business systems


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According to the axial coding process, environmental conduct is laid out in two categories: developed and notdeveloped. Five petrochemical companies and one textile were clearly categorized as having a developed environ-mental conduct. The environmental management system (EMS) is in place and their top management has a keyrole to play in building awareness and motivating employees by explaining the organizations environmental valuesand communicating its commitment to sustainable development. They identified all significant environmentalaspects and also take into account the degree of practical operational controls and environmental requirements tosuppliers and contractors.

These companies have set up a procedure to continually review legal requirements. Roles, responsibility andauthorities are well defined and documented. Environmental audits were conducted on a periodic basis. Firms



PetrochemicalN= 7

TextileN= 8

BeverageN= 5

Operation andproduction

Environmentalmanagement system

ISO 14001 Implemented 5 1 Responsible Care Programme 2 In process of implementation (ISO

14001) 2

Own EMS 1Not implemented 5 4

Environmental aspects Identified 5 1 In process of identification 2 2 1Not identified 5 4

Operational control Wastewater treatment 7 4 4Solid waste management 7 4 3Water conservation 6 8 4Air pollution controls of stationary

sources

5 3 1

Air pollution controls of mobile sources 1Air pollution controls of fugitive sources 2 Electric energy conservation 5 7 4Steam, oil, natural gas, GLP conservation 5 2 Noise control 4 5 1

Purchasing and contractrequirements

Defined 4 1 1In process of definition 2 Not defined 1 7 4

Environmental audit Done 5 3 1Not done 2 5 4

Measuring andmonitoring system

Done 5 1 In process of implementation 2 2 1

Not done 5 4Marketing Environmental reports Published environmental reports 2

Not published environmental reports 5 Not done 8 5

Communicationschannels

Procedure to receive stakeholderdemands

5 1

Procedure to receive stakeholderdemands in process ofimplementation

2 2 2

No communication channels 5 3

Table 3. Environmental conduct of the companies within operation and production, and marketing, business systems


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seek to reduce environmental impacts of operations beyond regulatory requirements and invest resources inhuman and technology development.

On the other hand, five textile and four beverage companies were positively categorized as not having developedenvironmental conduct. Their top management has not defined the organizations environmental policy. Thesecompanies do not have a specific management representative to handle environmental issues. Therefore, employ-ees and contractors do not have the requisite knowledge and skills to perform the work in an environmentally

responsible manner. Communication is limited to dealing with the concerns of the external stakeholders legalcomplaints. These companies merely established internal operational controls for nature resource consumptionand few controls for wastewater and noise. The importance of the environmental issues is limited to fulfilling legalrequirements.

Two petrochemical companies, two textile companies and one beverage company can be categorized as nothaving a developed environmental conduct. These companies are in the process of implementing an environmen-tal management system. Top management has approved the policy, although they do not have it in place yet. Theprocess to establish objectives and targets is at an early stage. Hence the main focus is on reducing waste and thedepletion of resources.

These companies are reviewing legislative and regulatory requirement; environmental aspects, operational pro-cedures and monitoring systems. Training to integrate environmental awareness into daily business process isjust beginning. The appropriate human, physical and financial resources are not well defined because they do not

have procedures to track the benefits as well the cost of their environmental or related activities.From the empirical results there emerged an environmental matrix that categorizes companies with four labels:

sleeper, reactor, defender and innovator (as shown in Figure 2). For each level of environmental pressure (weakor strong) it is possible to have two different degrees of environmental conduct, not developed to developed.Once the position of each firm is determined, it is easier for management to lay out strategic plans for counteringcompetition.

There are two main categories: defender and sleeper. Most petrochemical companies are defenders, whichrepresents a mature response to the pressures they face. This is the most sustainable and strategically advantageousposition for a business subjected to strong pressure. Environmental demands are imposed mainly by regulatoryagencies, customers and community. These companies are large with multinational characteristics and equally


PetrochemicalN= 7

TextileN= 8

BeverageN= 5

Process to identify the environmentalperformance indicator

Following the legal requirements 7 2 Benchmarking 1 1Do not have environmental performance

indicator 5 4

Continuous improvement process Monthly monitoring and definition ofcorrective and preventive plan action

2 1

Establish environmental objective andtargets

3 2

Corrective action plan to solve the noconformances

2

Do not have a continuous improvementprocess

5 5

Reasons for nonestablishment of

environmental performanceindicators

Not important 4 1

Other priorities 3Never asked by regulators agency 1

Table 4. Environmental performance evaluation


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exposed to international competition. They represent one of the most important industrial activities for the localeconomy; however, they need a social licence to operate.

These companies incorporate this matter into their strategic planning and top managers adopt environmentaldecisions. Ample environmental information is generated and many corrective and preventive measures areadopted. Their strategies include an environmental management system, such as ISO 14001 or EMAS, and eco-efficient and pollution prevention practices that require investment in changes in processes, products and opera-tions to reduce energy and material use at source.

On the other hand, seven textile and all beverage companies are sleepers, signifying that environmental issuesdo not influence the firms strategy. The situation typically occurs when environmental issues mean cost withoutany competitive advantages. These companies operate domestically and their resource commitment and manage-ment involvement in this matter is minimal, with a limited range of organizational compatibilities. However, thesecompanies have located their production facilities in industrial states and represent an important source of employ-ment for nearby towns. Social pressure is lower and there are fewer motives to develop environmentalstrategies.

Just one textile company is an innovator. This company is concerned about Asias influence on the market,and it is looking to establish its strategy by differentiation and by increasing its participation in the internationalmarket.

This firm is a market leader and innovator, enjoying first-mover advantages, and invests in environmentaltechnologies and green labels. Efforts were made to maintain and augment its core strength. In short, the impor-tance of the environmental issues in relation to stakeholders is to capture premium profits from environmentalprocess improvements and increase competitive advantage.

Petrochemical companies subjected to high pressure that maintain a nondeveloped environmental conduct arereactors. Businesses in this risk category should attempt to improve their environmental conduct. This area hasno significant competitive advantage in terms of either market or environmental attractiveness. The market shareis in danger of being captured by competitors who adopt a strong environmental conduct. They merely aim tomeet legal requirements, involve end-of-pipe investments in already developed technologies and do not requirethe firm to develop expertise or skills in managing new environmental technologies or process.

Reactor organizations should consider a more comprehensive response to stakeholder demands by changingtheir conduct. The current position of these firms may be untenable. Environmental accidents, for example,


Developed

INNOVATOR

(1 textile company)

DEFENDER

(5 petrochemical

companies)

Notdeveloped SLEEPER

(7 textile and 5

beverage companies)

REACTOR

(2 petrochemical

companies)

Weak Strong

Environmental pressure

Figure 2. Environmental strategy matrix


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DOI: 10.1002/bse

strengthen stakeholders concerns and the business environment could change too quickly for them to attempt toanswer it.

The approach complements strategy management theory, as it suggests that both environmental pressures andorganizational characteristics influence firms to adopt environmental management practices. The movementacross the matrix may be constrained by factors that are outside management control. This will limit the strategy

alternatives that the business may choose.For example, when attempting to move horizontally, factors such as overall market size, annual market growthand barriers to entry and exit can be influenced. Whilst moving vertically, firms can manipulate factors such asenvironmental awareness and motivation, resource allocation, environmental technologies, energy usage, opera-tional efficiency, safety precautions and emission levels.

The empirical work carried out allows us to understand how Brazilian manufacturing industry is dealing withenvironmental issues. In addition, the environmental matrix can be used by companies to evaluate their environ-mental positions and compare them with those of their closest competitors. Companies should understand stake-holders demands and pay special attention to market contexts and their internal organizational capabilities beforemaking individual decisions about environmental approach.

Conclusion

This paper provides a model to develop and evaluate the environmental components of business strategies. Theenvironmental SCP model is expanded from the structureconductperformance paradigm to add the assumptionthat the environmental performance of a company is the result of its environmental competitive practices orconduct standards, depending on the industrial structure into which it is inserted. From the empirical resultsemerges a framework to develop and evaluate the environmental components of business strategies, which relatesthe environmental conduct to the forces exerted on the industrial structure.

Most petrochemical companies are multinational and operate under the pressure of the international marketand shareholders in order to present a good environmental image and, hence, performance. Environmental man-agement is part of their core business. On the other hand, textile companies define their strategy by low cost tocompete against Asias products. Similarly, beverage companies just attempt to comply with the stakeholders

demands, which mean products with quality and low price. These companies argued that they cannot afford toinvest a large amount of money for a number of years to improve environmental performance of their productsand process. Also, they faced limited interest from customers in green products or environmentalmanagement.

Assessing the environmental strategy, innovator and reactor companies have been identified. The textile companyis an innovator, as it voluntarily adopts stringent environmental standards and controls in anticipation of its rivals.In 1997, this company became ISO 14001 certified to provide credibility and trust among the many stakeholderswho interact with the firm. On the other hand, reactor petrochemicals firms have no longer recognized the needto address the pressure with their existing environmental conduct.

In addition, the studies demonstrate that industrial sectors, such as petrochemicals, that present more environ-mental risk and that generate larger amounts of residues are usually subject to greater control and higher pressure.The location of production facilities seems to be an important factor insofar as it relates to two other variables:environmental regulations and social pressure. Textile and beverage companies, for instance, are located in Brazil-ian states (Cear and Pernambuco), where society and the government have more economic than environmentalconcerns.

As pointed out by Jenkins (2001), there is no doubt that the environmental issue has moved up the policy agendain Brazil. It is also clear that environmental regulation has been one of the key factors driving firms to improvetheir performance. However, besides the enforcement on firms to deal with environmental problems, the pressureincrements appear to be associated with the largest set of stakeholders perceived as important to influence theirenvironmental strategic decisions.

Market characteristics and industry structure in emerging economies like Brazils could change in the future ifa number of trends observed in developed countries also materialized here. For example, international agreements


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and foreign stockholder and client demands could become more influential in targeting stronger environmentalbehaviour.

This study is not without limitations. First, it relies on self-reported measures provided by company managers,but it also attempts to confirm their environmental conduct, asking for evidence, analysing documents and observ-ing the environmental performance by site visit. Other limitations, it should be noted, include the investigation

of only three different Brazilian industry sectors.In spite of these limitations, the paper sheds light on the multifaceted aspects of environmental strategy in

Brazil, which has an extraordinary social, cultural and ecological diversity. The survey implications to get businesseven better engaged in sustainability practices require ongoing efforts in conjunction with government and society.Government should strengthen the enforcement of regulations but also provide adequate infrastructure, trainingand incentives that support the joint environmental goals. Stakeholder engagement and partnerships with civilsociety are still limited. Collaborative efforts including increasing public awareness and facilitating activities thatenable information and knowledge sharing can encourage advances in the sustainability agenda. As long as theseactions become real, companies will lead the process of change.

AcknowledgementsI owe Dr. J. Ignacio Canales-Manns (University of St. Andrews School of Management) and the two anonymous reviewerswho strongly contributed with their time and ideas to this study. I would like to thank the CNPq (National Counsel of Tech-nological and Scientific Development) for funding part of this research.

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