Supply Chain Sustainability—Drivers, Inhibitors, Solutions - Technology Management for Sustainable Production and Logistics - page 63

The environmental regulations prompt firms to look for ways of “lean
manufacturing”, which lead to implementation of economical methods of production.
Christmann ( 2000 ) argues that if a firm takes action to control pollution and
other environmental problems ahead of time, then the firm may be able to lower
the future cost of compliance. If companies can innovate as the regulation evolves,
they can also use the existing regulation to obtain a competitive advantage. In
such situation companies innovate to raise resource productivity so that regulation
becomes not an obstacle but a driver for innovation. Higher environmental
standards mean greater protection for the environment, and will also encourage
innovative practices that reduce costs and lead to new products development,
making firms more internationally competitive (Ramanathan et al. 2010 ).
Bonato and Schmutzler ( 2000 ) derived strategic effects (spillover) explaining
why environmental regulation could spur cost-reducing innovations that would not
have been carried out without given regulation.
Product offsets occur when environmental regulation influences manufacturers
which produce not just less pollution but also creates better performing products,
safer products or lower cost products. Process offsets leads not only to reduced
pollution but also higher resource productivity, materials savings, better utilization
of by-products or lower energy consumption (Smith and Crotty 2008 ).
Berman and Bui ( 2001 ) have found that stricter regulations in the USA petro-
leum refining industry tend to increase abatement costs, but also increase produc-
tivity. Salama ( 2005 ) has found strong positive relationships between corporate
financial performance and corporate environmental performance for top perform-
ing companies in Great Britain.
Sanchez and McKinley ( 1998 ) have studied the moderating roles of organiza-
tional characteristics on the relationships between environmental regulation and
product innovation in USA firms (Sanchez and McKinley 1998 ). They have found
that the relationships between regulatory impact and product innovation were
moderated by age of the plants, with the extent of impact increasing with age.
Regulatory impact had a positive impact on product innovation for older plants
and had a negative impact for younger plants.
Bansal and Clelland ( 2004 ) have used regression analysis to study the influence
of corporate environmental legitimacy on risk. Using relevant stock market data
from highly polluting firms in the USA, they have found that firms with higher
corporate environmental legitimacy have experienced lower unsystematic risk.
Manufacturing firms that can align these requirements into new green products
and processes are better able to meet customer demands, thereby outperforming
competitors in the market through first-mover advantages (Reinhardt 1998 ).
Regulation can stimulate innovation. There is even more evidence of regula-
tion spurring radical innovation than of market-based instruments doing so
(Leitner et al. 2010 ). However, the statement “regulation will lead to innovation”
is ambivalent since any response pattern to new standards can be labeled innova-
tive (Leitner et al. 2010 ).
These examples show that it is possible to adhere to regulation while at the
same time improve economic performance. But opinions about effectiveness