Supply Chain Sustainability—Drivers, Inhibitors, Solutions - Technology Management for Sustainable Production and Logistics - page 64

of environmental regulations are also neutral or negative. Triebswetter and
Wackerbauer ( 2008 ) have studied the impact of integrated environmental product
innovation on company competitiveness using qualitative analysis of case
studies in selected firms in Munich in Germany. Their analysis have shown that
environmental regulations of waste water, packaging waste and clean air have
not resulted in an improvement in the economic performance in the German
manufacturing industry but at the same time have not damaged the economic
performance. On the other hand there are many examples of other numerous
negative consequences of strict regulations.
3.3 Negative Consequences of Strict Regulations
Firms might have experienced a negative influence of regulations on their
economic performance. The opponents prove that environmental regulations
are harmful to the competitiveness. The traditional, neoclassical cost-based
approach suggests that private costs induced through strict environmental
regulations reduce competitiveness and productivity. A negative effect on
productivity and competitiveness leads to increased expenses and therefore
induces boundaries for businesses (Palmer et al. 1995 ). The traditional view
argues that the costs incurred by a firm as a result of strict environmental
regulations, reduces its competitiveness and productivity, because resources
are diverted away from productive investments (Doran and Ryan 2012 ). The
introduction of environmental regulation raises costs and results in a negative
outcome for businesses. Thus regulations interfere also with the performance of
firms. Higher costs of industry limits competitive advantage of domestic firms
in international markets (free of such regulation). It leads to a decrease in the
international competitiveness of a firm or industry when compared with those
from other countries where regulations are not very stringent (Ramanathan
et al. 2010 ).
Environmental regulations usually require significant level of capital, especially
in case of pollution-intensive industries. Environmental regulation is treated as an
instrument which forces companies to internalize external costs they would normally
impose to society. According to the traditional view, although environmental
regulations may be necessary and desirable from a social perspective, they force
polluting firms to internalize costs that they would not have previously considered.
This rise in costs is then reflected in a worsening of financial performance
(Ramanathan et al. 2010 ). There are many examples showing a negative relationship
between environmental regulations and companies' performance, showing that
companies have viewed sustainability initiatives as driving additional costs
(Abbasi and Nilsson 2012 ).
Rassier and Earnhart ( 2010 ) have found that eco-regulation increases costs and
hence reduces the profitability of publicly held firms operating within the chemical
manufacturing industries.