International Journal of Production Research

ISSN: 0020-7543 (Print) 1366-588X (Online) Journal homepage: https://www.tandfonline.com/loi/tprs20

Effects of green supply chain integration and

green innovation on environmental and cost
performance

Chee Yew Wong, Christina W.Y. Wong & Sakun Boon-itt

To cite this article: Chee Yew Wong, Christina W.Y. Wong & Sakun Boon-itt (2020): Effects of
green supply chain integration and green innovation on environmental and cost performance,
International Journal of Production Research, DOI: 10.1080/00207543.2020.1756510

To link to this article: https://doi.org/10.1080/00207543.2020.1756510

Published online: 28 Apr 2020.

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International Journal of Production Research, 2020
https://doi.org/10.1080/00207543.2020.1756510

Effects of green supply chain integration and green innovation on environmental and cost
performance
Chee Yew Wonga , Christina W.Y. Wongb and Sakun Boon-ittc∗
a Leeds University Business School, University of Leeds, Leeds, UK; b Institute of Textiles and Clothing, The Hong Kong Polytechnic
University, Hung Hom, Hong Kong; c Department of Operations Management, Thammasat Business School, Bangkok, Thailand
(Received 13 November 2019; accepted 12 April 2020)

This paper argues that mechanisms such as information sharing and collaboration used in green supply chain integration
(GSCI) to improve information processing capacity can reduce uncertain outcomes of green product and process innovation.
Based on data from a survey of Chinese (Hong Kong) firms, the paper tests whether the three dimensions of GSCI (green
internal, customer and supplier integration) improve environmental performance and cost reduction by facilitating green
product and process innovation. The results show that green customer integration improves cost and environmental perfor-
mance through green process innovation (not green product innovation). Both green product and process innovations are
facilitated by green customer integration (not green supplier integration), while both green customer and supplier integration
significantly depend on green internal integration. These suggest that the distinctive information processing capacity created
by green internal and customer integration can facilitate the green process innovation required to improve environmental
and cost efficiency, while green product innovation and green supplier integration cannot create such efficiencies.
Keywords: environmental ethics; green supply chain integration; green innovation; performance

1. Introduction
The production research literature recognises two types of green innovation. Green product innovation uses cleaner materials
and product technologies to (re)design products and packaging (Huang and Li 2017). Green process innovation uses green
sourcing, production and logistics technologies without changing the product design (Christmann 2000; Li et al. 2016).
Early evidence shows that both green product and process innovation could drive competitive advantage (Chen, Lai, and
Wen 2006; Chuang and Huang 2015), but a more recent study suggests the ineffectiveness of green process innovation
(Chang 2011). Thus, the performance effects of green product and process innovation may vary. Both green product and
process innovation are shown to be positively linked to environmental and firm performance (Huang and Li 2017; Liu et al.
2018), but green product design failed to improve environmental performance in China (Zhu, Sarkis, and Lai 2007). Green
process innovation (i.e. green production) is shown to be beneficial to both financial and non-financial performance (Peng
and Lin 2008), but no cost advantage is gained if a firm simply adopts known best practices (Christmann 2000; Liu et al.
2018).
There are several reasons why the performance benefits of green product and process innovation may vary. Firstly,
green innovation may not reduce costs because it involves costs of environmental compliance (Christmann 2000; Klassen
and McLaughlin 1996; Shrivastava 1995) and technology (Zhu and Sarkis 2004). Secondly, green product and process
innovation may produce different cost and price benefits. Green process innovation reduces costs through driving resource
efficiency, while green product innovation creates profits through selling green products at a premium price (Christmann
2000). Thirdly, any innovation involves uncertainty in outcomes; few firms have the right capabilities to increase success
rates. It is thus important to explain how different capabilities may address outcome uncertainties of green product and
process innovation to create distinct performance benefits.
The literature has identified some capabilities that increase the success rates of green innovation, such as corporate
environmental ethics, dynamic capability, coordination capability, technical expertise and organisational supports (Chang
2011; de Medeiros, Vidor, and Ribeiro 2018; Govindan, Kannan, and Shankar 2015; Huang and Li 2017; Lee, Kim, and Kim
2018; Li et al. 2016; Lin and Ho 2011). Wu (2013) argues that green supply chain integration (GSCI) is a crucial capability
for green product and process innovation, and shows that three dimensions of GSCI (green internal, supplier and customer

*Corresponding author. Email: sboonitt@tu.ac.th

© 2020 Informa UK Limited, trading as Taylor & Francis Group

2 C. Y. Wong et al.

integration) are positively linked to both product and process innovation. Such links have predominantly been explained by
the natural resource-based view (N-RBV) expounded by Hart (1995). However, the N-RBV does not account for how the
uncertainties inherent in the innovation process are addressed by the three different GSCI dimensions.
To understand the links between GSCI and uncertainty, we refer to the organisational information processing theory
(OIPT). Galbraith (1973) argues that the greater the task uncertainty, the greater the amount of information processed
by decision-makers during task execution in order to achieve a given level of performance. Within an organisation, var-
ious integration mechanisms – e.g. hierarchy and coordination by rules/goals – are used to reduce uncertainty, while
the development of information systems and lateral relationships helps increase information processing capacity (Gal-
braith 1973). This paper argues that it is the integration mechanisms of GSCI dimensions – e.g. information sharing,
management systems integration, process integration and collaboration (Galbraith 1973; Wolf 2011; Wong, Wong, and
Boon-itt 2015) – that improve information processing capacity (Wong, Boon-itt, and Wong 2011; Wong, Wong, and Boon-
itt 2018) and help reduce innovation uncertainty and improve their performance outcomes. Considering that different
supply chain integration (SCI) dimensions use different integration mechanisms (Wong, Wong, and Boon-itt 2015), this
paper divides GSCI into three dimensions: green internal integration (GII), green supplier integration (GSI) and green
customer integration (GCI). We hypothesise that GII improves GSI and GCI, which in turn improve environmental and
cost performance through improving the information processing capacities required to achieve green product and process
innovation. The information processing argument offers a new perspective to reveal nuances behind the varying effects
of GSCI dimensions and green product/process innovation on environmental and cost performance (Christmann 2000;
Liu et al. 2018).

2. Literature review and hypothesis

2.1. Green supply chain integration (GSCI)
The idea of GSCI originates from both the green supply chain management (GSCM) and the SCI literature (Wolf 2011).
GSCM practices such as internal GSCM, external GSCM, investment recovery and eco-design (Zhu, Sarkis, Lai 2008) are
used to manage supply chain environment issues. While GSCM is a rather broad concept, Wolf (2011) applies SCI as a more
focused concept to develop the idea of GSCI, arguing that it ‘may help us to better understand the practices which make
supply chains more sustainable and to assess the impact of such activities on sustainability performance’ (Wolf 2011, 222).
SCI is a fundamental concept of supply chain management (Fawcett and Magnan 2002; Simatupang and Sridharan 2002).
SCI represents a strategic collaborative approach to improve operations through integration mechanisms (e.g. hierarchy,
information sharing and collaboration) embedded within intra-organisational integration and inter-organisational practices
(Wong, Boon-itt, and Wong 2011). Numerous empirical studies have demonstrated various performance benefits of GSCI
(Setyadi 2019; Song, Cai, and Feng 2017; Wu 2013; Yu et al. 2014) with little acknowledgement of the roles of its different
integration mechanisms.
The cost benefits of GSCI remain unclear (Wong, Wong, and Boon-itt 2018). This can be partly explained by the use
of different measurement scales. Paulraj, Chen, and Blome (2017) combined dimensions of GSCI (supplier and customer
collaboration) and green innovation (sustainable product and process innovation) into one broad sustainable supply chain
management construct to explain environmental and financial performance. This broad perspective does not consider that
different performance effects can be created by the use of different integration mechanisms by different GSCI dimensions,
which evidently lead to different outcomes. Evidence shows that customer cooperation can be more effective than supplier
cooperation in improving environmental performance (Lopes de Sousa Jabbour et al. 2017). The three GSCI dimensions
(green internal, supplier and customer integration) are shown to produce different environmental, cost and financial benefits
(Wong, Wong, and Boon-itt 2018). Thus, we divide GSCI into three dimensions: green internal integration (GII), green
supplier integration (GSI) and green customer integration (GCI).
Instead of treating the three GSCI dimensions as resources that can create competitive advantages from the R-NBV
(Setyadi 2019; Song, Cai, and Feng 2017; Wu 2013; Yu et al. 2014), we argue that it is the different information processing
capacities they create that generate varying performance outcomes. To support our argument, we investigate their integra-
tion mechanisms from an OIPT perspective in a supply chain context (Schoenherr and Swink 2012; Wong, Boon-itt, and
Wong 2011). Accordingly, when task uncertainty increases, the amount of information required by decision-makers and
their information processing capacity ought to be increased to maintain a given level of performance (Galbraith 1973).
Information processing capacity can be increased by various integration mechanisms, such as hierarchy and coordination
by rules and goals, information systems, and lateral relationships (Galbraith 1973). Past research shows that integration
mechanisms such as information sharing, collaboration, process linkages, and goal sharing across functional departments
and external partners help firms better understand their supply chain by increasing their information processing capacities
(Wong, Boon-itt, and Wong 2011).
 International Journal of Production Research 3

This paper identifies specific integration mechanisms used by internal integration (GII) and external integration (GSI and
GCI) to better explain what information processing capacities they can increase. GII uses hierarchy, information sharing,
integrated systems and cross-functional collaboration as mechanisms to integrate a business strategy with the manage-
ment system and cross-functional collaboration to address environmental issues (Wong, Wong, and Boon-itt 2015). Such
mechanisms integrate business and environmental management goals and responsibilities. An integrated environmental
management system drives different functions to integrate environmental criteria into employee codes of conduct, commer-
cial decisions and resource management decisions. An integrated information system based on a product lifecycle approach
supports cross-functional collaboration, joint planning and the implementation of environmental management activities.
Hierarchical coordination, an integrated strategy and the management system serve as an integrated information exchange
and processing capacity.
GSI uses mechanisms such as information sharing, collaboration and closed-loop process linkages with suppliers (Flynn,
Huo, and Zhao 2010; Wong, Wong, and Boon-itt 2015). The emphasis is on collaborating with suppliers to jointly address
environmental issues. Through GSI, a focal firm assists suppliers who require technical and financial support. GCI also
relies on inter-organisational integration mechanisms such as information exchange and collaboration to facilitate strategic
information sharing, collaboration and closed-loop process linkages with customers (Flynn, Huo, and Zhao 2010; Wong,
Wong, and Boon-itt 2015). Information exchange and collaboration add new information for partners to jointly interpret,
hence increasing the information processing capacity of both suppliers and customers in a supply chain (Yu et al. 2019).
Past studies tend to assume equal effects of the three GSCI dimensions on operational and financial performance out-
comes (e.g. Setyadi 2019; Song, Cai, and Feng 2017; Wu 2013; Yu et al. 2014). From an OIPT perspective, the three GSCI
dimensions create different information processing and may therefore complement each other to further increase informa-
tion processing capacity. Integration across operations and marketing functions may generate new knowledge to inform
integration with customers. Wong, Wong, and Boon-itt (2018) show that GII is positively linked to GSI and GCI. Such
emerging evidence suggests that GII may support GSI and GCI, possibly by adding information capacity. This also means
the three GSCI dimensions somehow work together to create the information processing capacity required to reduce the
uncertainties associated with green product and process innovation.

2.2. Green product and process innovation

Green innovation involves the use of environmental technologies, strategies and management systems (Christmann 2000;
Klassen and McLaughlin 1996) to reduce environmental impact by reducing resource use and pollution emissions. It requires
modifications of the design of an existing product and/or process to reduce the negative impact on the environment during
any stage of a product’s lifecycle (Huang and Li 2017). Green innovation that requires product redesign can be more
difficult to achieve, while many firms may be more willing to adopt green innovation that only changes production and
logistics processes without product redesign. It is argued that investment in either green product and process innovation or
both could lead to significant differences in performance outcomes (Christmann 2000). Thus, we divide green innovation
into green product and green process innovation.
Green product innovation occurs when green concepts are integrated into product and packaging (re)design (Huang
and Li 2017) to improve product quality and product differentiation (Chen, Lai, and Wen 2006). Green product design
usually involves significant changes to product technologies, materials and design (Christmann 2000). While green product
innovation is normally conceptualised as eco or green product design (Huang and Li 2017; Liu et al. 2018; Sroufe 2003; Wu
2013; Zhu and Sarkis 2004), we also include green packaging (Hao et al. 2019; Huang and Li 2017; Min and Galle 1997).
Green product innovation may reduce environmental impacts during the production, as well as when the green products
or packaging are used by customers – for example, washing machines that require less water and energy consumption, or
packaging that can be easily reused or recycled.
Green process innovation is defined as ‘the modifications made to manufacturing processes and systems in an effort to
ensure energy savings, pollution prevention, and waste recycling’ (Li et al. 2016, 1092). While the term ‘manufacturing
processes and systems’ can be viewed narrowly as green production, we widen the scope of green process innovation by
considering green or ethical sourcing (Roberts 2003) and green logistics (Christmann 2000; Lin and Ho 2011). Green process
innovation focuses on reducing waste and energy consumption during sourcing, production and logistics activities without
redesign of the products (Christmann 2000). By investing in green process innovation, firms may claim environmental
benefits within their production and logistics activities. Since the product design is not changed, customers may not gain
environmental benefits.
There exists mixed evidence about the effects of green product and process innovation. Studies that separately examine
green product innovation (de Medeiros, Vidor, and Ribeiro 2018; Liu et al. 2018) or green process innovation (Christmann
2000) provide only partial understanding. Studies that examine the effects of both green product and process innovation
4 C. Y. Wong et al.

Figure 1. Theoretical framework.

(Huang and Li 2017; Peng and Lin 2008) do not include cost benefits. Evidence shows that the performance benefits of
green product and process innovation may vary. Green product and process innovation are generally positively related to
competitive advantage (Chen, Lai, and Wen 2006), environmental performance and organisation performance, and finance
and non-financial performance (Peng and Lin 2008), while green process innovation has been shown to be insignificantly
related to competitive advantage (Chang 2011) and cost advantage (Christmann 2000). Little clarification is available to
explain the mixed effects.

2.3. Theoretical framework

The uncertainties involved in green innovation processes require firms to increase their information processing capacity.
We also know that integration mechanisms used in various intra- (internal integration) and inter-organisational integration
(with suppliers and customers) can improve information processing capability (Wong, Boon-itt, and Wong 2011, 2015).
Thus, this paper refers to Galbraith’s (1973) OIPT to explain how firms reduce uncertainty regarding the success rates and
effects of product and process innovation through GSCI. According to Galbraith (1973), the greater the task uncertainty, the
greater the amount of information processed by decision-makers during task execution in order to achieve a given level of
performance. Within an organisation, various integration mechanisms – e.g. hierarchy and coordination by rules/goals – are
used to reduce uncertainty, while the development of information systems and lateral relationships helps increase informa-
tion processing capacity (Galbraith 1973). Each GSCI dimension (GII, GSI, GCI) uses different integration mechanisms,
such as hierarchical coordination, information exchange, collaboration and process linkages to create different information
processing capacities across functional departments, supplies and customers (Wong, Boon-itt, and Wong 2011, 2015).
Based on the OIPT perspective, this paper establishes a theoretical framework as shown in Figure 1 to suggest links
among GSCI dimensions, green innovation and performance. The framework contains three main parts: (1) the relationships
among GSCI dimensions; (2) the relationships between GSCI and green product/process innovation; and (3) the effects of
GSCI and green product/process innovation on performance. While the links between GSCI dimensions have not been
considered in most studies (e.g. Setyadi 2019; Song, Cai, and Feng 2017; Wu 2013; Yu et al. 2014), we use the argument
of Wong, Wong, and Boon-itt (2018) to hypothesise (H1) that GII will positively link to both GSI and GCI. Next, we
hypothesise positive links between GSCI and green product/process innovation (H2–H4) based on the argument that GSCI
acts as an information processing mechanism to reduce the uncertainty (Wong, Boon-itt, and Wong 2011; Yu et al. 2019)
facing green innovation efforts.
The third part of the model clarifies the performance effects of green product/process innovation (H5–H6). Building
upon the main arguments of Christmann (2000) and Zhu and Sarkis (2004) concerning the performance effects of green
process and product innovation, respectively, we consider two performance outcomes, namely environmental performance
 International Journal of Production Research 5

and cost reduction. Moreover, earlier studies argue that the cost of environmental management and technologies could
outweigh their cost benefits (Hart and Ahuja 1996). Thus, the effects of green innovation on cost remain unclear (Chang
2011; Chen, Lai, and Wen 2006; Huang and Li 2017; Peng and Lin 2008). Some studies argue a universal effect of green
product/process innovation (Huang and Li 2017; Paulraj, Chen, and Blome 2017), while Christmann (2000) argues that only
green process innovation can reduce costs. Evidence shows that GSCI can directly affect operational and cost performance
outcomes (Wong, Wong, and Boon-itt 2018; Zhu, Sarkis, and Geng 2005), as well as green product/process innovation
(Wu 2013). To clarify such counterarguments and evidence, we specify hypotheses (H5 and H6) which posit that green
product/process innovation can reduce environmental damage and cost.

2.4. Hypothesis development

2.4.1. Relationships among GSCI dimensions
GII uses various integration mechanisms to achieve strategic integration (Flynn, Huo, and Zhao 2010; Wong, Boon-itt, and
Wong 2011) of environmental criteria into the business strategy (Wong, Wong, and Boon-itt 2015). Hierarchy is an important
integration mechanism to reduce strategic uncertainty from an OIPT perspective (Galbraith 1973). GII relies on hierarchical
integration mechanisms such as assigning authorities to the appropriate hierarchy to ensure strategic intents are aligned with
environmental goals (Ettlie and Reza 1992). Integrated management systems are another important integration mechanism.
Klassen and Whybark (1999) argue that an integrated management system drives different functions to jointly evaluate
environmental impact, make capital decisions and training provisions, and develop new procedures for cross-functional
coordination.
Goal alignment is another integration mechanism to reduce uncertainty from an OIPT perspective (Galbraith 1973).
When top management is rewarded for achieving sustainable growth, it will set ambitious goals (Hofer, Cantor, and Dai
2012; Montabon, Sroufe, and Narasimhan 2007). They will incorporate environmental goals, performance and respon-
sibilities into codes of conduct, and align functional commercial and human resource decisions across different functions
(Margerum and Born 2000; Tari and Molina-Azorin 2010). Thus, GII facilitates communication, coordination and collabora-
tion (Zhu and Sarkis 2004; Zhu, Sarkis, and Lai 2012) across functional departments to green a firm’s value chain activities,
such as production and logistics activities. Wong, Wong, and Boon-itt (2018) argue that GII drives efforts to integrate with
suppliers (GSI) and customers (GCI). Without the strategic role played by GII, there will be limited commitment to and
investment in green supplier and customer integration. Experience in GII enhances the information processing capacities
required to collaborate more effectively with suppliers and customers (Wong, Wong, and Boon-itt 2018). Thus, we posit:

Hypothesis H1: Green internal integration (GII) is positively associated with (a) green supplier integration (GSI) and (b) green
customer integration (GCI).

2.4.2. Relationships between GSCI on green innovation

Hypotheses H2, H3 and H4, respectively, suggest that the three dimensions of GSCI (GII, GSI and GCI) are important
antecedents of green product/process innovation. We base these hypotheses on OIPT, because any innovation project
requires internal and external knowledge (Cohen and Levinthal 1990) and efforts to reduce uncertainty (Rogers 2003).
According to OPIT, firms deal with uncertainty by reducing information processing needs and/or increasing information
processing capacities (Daft and Lengel 1986; Galbraith 1973). Uncertainties facing green innovation are reflected by the
difficulties in deciding which environmental practices or technologies to adopt and working out how to justify and achieve
their cost benefits. The use of integration mechanisms such as hierarchy, information exchange and collaboration help reduce
such uncertainties (Galbraith 1973; Wong, Boon-itt, and Wong 2011).
GII may drive green innovation through integration mechanisms such as hierarchy, information exchange, integrated
management systems and goal alignments. By clarifying strategic choices, GII aligns business and environmental manage-
ment strategies to invest in green innovation. Knowledge of environmental technologies is created by information exchange.
Hierarchy integration mechanisms (Ettlie and Reza 1992) and integrated management systems (Margerum and Born 2000)
that align with environmental goals can drive efforts to allocate resources to achieve green innovation in design, sourcing,
operations, packaging and logistics activities (Shrivastava 1995). Such integration mechanisms increase internal informa-
tion processing capacities so that product design activity can be aligned to create products that allow premium pricing, cost
efficiency and eco-efficiency; sourcing and operations can achieve cost reduction through cost and waste reduction initia-
tives (Mentzer et al. 2001); and packaging design and logistics activities can be redesigned to enable recycling and reduce
carbon emissions. Thus, we posit:
6 C. Y. Wong et al.

Hypothesis H2: Green internal integration (GII) is positively associated with (a) green process innovation and (b) green product
innovation.

Integration with suppliers (GSI) and customers (GCI) can reduce strategic uncertainties by improving information pro-
cessing capacity. Supply chain integration can be regarded as ‘supply chain information processing and joint interpretation’
mechanisms to reduce uncertainty, because it increases the supply chain partners’ abilities to interpret information (Yu et al.
2019, 789). GSI involves the use of several information processing mechanisms. New information is obtained through the
exchange of information about goals, responsibilities, strategies, benefits, best practices and performance standards with
suppliers (Lai and Wong 2012; Rao 2002). Information exchange coordinates, standardises and integrates closed-loop pro-
cesses and related environmental planning and performance management with suppliers (Bowen et al. 2001; Kleindorfer,
Singhal, and Wassenhove 2005; Montabon, Sroufe, and Narasimhan 2007) to reuse end-of-life products or components.
Supplier assistance provides support and knowledge to suppliers (Hu and Hsu 2010; Rao 2002; Wong et al. 2012) and helps
suppliers to become more cost efficient through energy and resource savings (Grant, Trautrims, and Wong 2017). Upstream
collaborative mechanisms drive joint goal-setting and problem-solving (Vachon and Klassen 2008). Collaboration, espe-
cially with small suppliers (Srivastava and Gnyawali 2011), helps them acquire technological capabilities from various
parties (Lee and Klassen 2008). When the information processing capacity of suppliers is improved, they may, in turn, offer
greener raw materials and new knowledge to green their green product design sourcing, operations and logistics activities.
Hypothesis H3: Green supplier integration (GSI) is positively associated with (a) green process innovation and (b) green product
innovation.

Similar integration mechanisms are used by GCI to increase the information processing capacity for understanding
downstream markets. GCI involves the exchange of information with customers concerning environmental goals, practices
and strategies, cleaner production technology and product lifecycle impact (Darnall, Jolley, and Handfield 2008; Vachon and
Klassen 2008; Wang, Chen, and Song 2018; Zhu et al. 2008). Customers become more aware of the problems and support
the efforts of such proactive suppliers, leading to better and longer relationships with customers (Dyer and Singh 1998).
GCI coordinates communication and collaboration with customers. Collaboration with customers creates mutual environ-
mental responsibilities and achieves environmental goals collectively (Lee, Kim, and Choi 2012; Vachon and Klassen 2008;
Zhu et al. 2008). Through GCI, market-based integration mechanisms are used to offer more environmentally friendly
products to customers (Ettlie and Reza 1992). Collaboration promotes the sharing of environmental impact information and
environment-related problems, and the making of joint decisions concerning the reduction of environmental impact (Vachon
and Klassen 2008; Wong, Wong, and Boon-itt 2015). Collaboration and information sharing help coordinate closed-loop
processes and logistics planning activities. An increased information capacity helps identify and influence customer needs,
and this new knowledge can better inform innovation activities in green product design, packaging and logistics activities.
Hypothesis H4: Green customer integration (GCI) is positively associated with (a) green process innovation and (b) green product
innovation.

2.4.3. How GSCI and green innovation create performance

The link between green innovation and environmental performance is rather straightforward. Green innovation enables
energy and fuel saving; reduced usage of raw, packaging and hazardous materials; reduction of emissions and waste; and
increased use of recycling and cleaner technologies (Shrivastava 1995; Zhu and Sarkis 2004). Hart (1995) argues that inno-
vation in product design and operations (e.g. production, procurement, logistics) activities is required to reduce emissions
and resource usages and improve reputation. This argument has received empirical support (De Giovanni and Vinzi 2012;
Klassen and McLaughlin 1996; Wong, Wong, and Boon-itt 2018; Zhu, Sarkis, and Geng 2005).
The literature argues that the effects of green product and process innovation on cost vary. Green process innovation
can save the costs of compliance and resources by reducing environmental damage and energy usage during production
and logistics activities. However, the design of a product with lower environmental impact during the use stage of the
lifecycle may increase product price. Green product innovation is relevant to a product differentiation strategy that can
potentially create brand loyalty and positive reputation (Hart 1995) rather than being used to improve cost performance. A
price premium can be generated by pre-empting competitors through creating new standards (for core processes) or gaining
early access (through sourcing processes) to critical resources and customers. A differentiation strategy adds costs and may
take time to achieve real profitability (Hart and Ahuja 1996). Instead, green process innovation involves the adoption of
a lifecycle approach and appropriate technologies to reduce the costs of material input and waste disposal, while avoiding
the purchase of end-of-pipe pollution control devices (Walley and Whitehead 1994). This could mean cost advantage over
competitors (Banerjee 2001; Christmann 2000) while reducing environmental performance.
 International Journal of Production Research 7

Also, the levels of difficulty in achieving green product and process innovation may vary. While green process innovation
can only reduce waste in the manufacturer’s production and logistics activities, there are technologies available to adopt and
thus easier to achieve than redesigning products. Green product innovation may help consumers to reduce waste and energy
consumption when using the product, but the need for radical redesign of products means it could be harder for green
product innovation to save costs for the manufacturer and achieve differentiation. These arguments explain why green
product innovation could lead to both positive and negative cost impacts while reducing the environmental impacts of
Chinese manufacturing firms (Zhu and Sarkis 2004). Moreover, Li et al. (2016) show that only green process innovation
(e.g. green purchasing, cleaner production, reverse logistics) was positively related to financial performance, and not green
product innovation. While existing arguments suggest differentiating the performance effects of green products from process
innovation, the most plausible hypotheses suggest they can both have positive effects on both environmental and cost
performance:

Hypothesis H5: Green process innovation is positively associated with (a) environmental performance and (b) cost reduction.

Hypothesis H6: Green product innovation is positively associated with (a) environmental performance but negatively associated with
(b) cost reduction.

GSCI can arguably have the same performance effects. Studies of GSCI performance effects, in general, have found that
GSCI dimensions (green internal, supplier, and customer integration) are independently associated with operational, envi-
ronmental and economic performance (Setyadi 2019; Song, Cai, and Feng 2017; Wu 2013; Yu et al. 2014). While separate
studies suggest that GSCI (Yu et al. 2014) and green innovation (Wu 2013) can independently improve environmental and
cost performance, we argue that GSCI and green innovation are somewhat related. Figure 1 suggests that green product and
process innovation mediate the effects of GSCI on performance. From the OIPT perspective (Wong, Boon-itt, and Wong
2011; Yu et al. 2019), we argue that the internal information processing capacity created by GII can amplify the informa-
tion processing capacity of external GSCI (i.e. GSI and GCI) required to deal with uncertainties facing green product and
process innovation. This argument is aligned with evidence that environmental and economic performance are more related
to external GSCI, while internal GSCI (GII) acts as an antecedent (De Giovanni and Vinzi 2012; Feng et al. 2018; Wong,
Wong, and Boon-itt 2018).
Arguments for the potential mediating effects of external GSCI (GSI and GCI) on the relationship between GII and
green innovation come from the links between different internal and external integration mechanisms. GII facilitates inter-
nal proactive environmental strategies and green innovation initiatives. GII may drive the allocation of resources to share
information and collaborate with suppliers and customers. GII can inform external GSCI, but it might not have enough
information processing capacity to address external environmental uncertainties (Wong, Boon-itt, and Wong 2011). Exter-
nal GSCI involves the exchange of information and strategic collaboration with suppliers and customers; so, the focal firm
can increase performance by reducing external uncertainty (Wong, Boon-itt, and Wong 2011). External GSCI informs green
innovation initiatives to improve environmental and cost performance. External GSCI also helps align green innovation at
the supply chain level, necessary for reducing environmental impact and cost. External GSCI helps establish joint environ-
mental goals and projects with suppliers and customers, and achieve green product and process innovation (Wu 2013). It is
external GSCI that gathers strategic information about best practices in eco-design, green production and logistics.

2.4.4. Relationships between environmental and cost performance

The last hypothesis relates environmental performance to cost reduction. Past studies seldom link performance outcomes
when two or more performance outcomes are included in a single model. Hart and Ahuja (1996) argue that being green
means being cost effective: hence, the notions of ‘lean and green’ (King and Lenox 2001; Rothenberg, Pil, and Maxwell
2001) and ‘green is profitable’ (Porter and van der Linde 1995) have emerged. Cost saving is arguably the primary reason
why firms invest in corporate environmentalism (Banerjee 2001). The reduction of pollution control cost is the main benefit
of a pollution prevention strategy (Hart 1995). Russo and Fouts (1997) insist that cost advantages come from better environ-
mental performance, not directly from environmental management capabilities. Similarly, Klassen and McLaughlin (1996)
argue that firms achieve better economic performance through first improving environmental performance. Firms improve
environmental performance by different means. By reducing emissions through the use of pollution control technologies,
firms reduce regulatory compliance (penalty) costs. By using pollution prevention technologies, firms reduce material and
energy usages while reducing emissions, operating and compliance costs. Thus, we posit that environmental performance
can lead to cost advantages (Christmann 2000; Klassen and McLaughlin 1996).

Hypothesis H7: Environmental performance is positively associated with cost reduction.

8 C. Y. Wong et al.

3. Methods
3.1. Sampling and data collection
Manufacturers and retail/trading firms in Hong Kong (China) are studied. This sampling frame is appropriate as the empir-
ical setting of this study as Hong Kong remains a major export and import gateway for firms from China and Hong Kong.
China is now one of the largest economies: it has a high level of global production capability and is becoming a major market
for manufactured goods. While many companies manage their manufacturing plants in China, they actively source and trade
with suppliers and customers around the world for cost benefits and business opportunities. We consider both manufacturing
and retail/trading firms as our sample, because they may need to collaborate actively with their global suppliers and cus-
tomers to address environmental issues. These opportunities are also driven by the active role of Hong Kong enterprises as
intermediaries in sourcing from suppliers and supplying to customers around the world to develop environmentally friendly
products.
We randomly drew a sample of 1,000 firms in Hong Kong from the Dun & Bradstreet database. Because the survey asked
questions related to information exchange, collaboration and integration of closed-loop processes between the respondents
and their suppliers and customers, and some respondents do not have a supply chain director or manager to answer such
questions, we asked senior executives who have such a strategic overview and knowledge to respond to the survey. We
contacted senior executives of the sample firms in the functions of environmental management, supply chain management
or operations management, who operate and collaborate across functions and with suppliers and customers to address
environmental issues proactively through collaborative effort. We emailed the executives to explain the purpose of the study
and offer them a URL with access to an online survey system to provide their input. Respondents were asked to focus on the
major value chain activities responsible for their core product (major suppliers and customers) related to GSCI integration
mechanisms and green product/process innovation. They were asked to complete the questionnaire from the perspective of
their internal and external environmental management activities and orientation.
A total of 192 completed questionnaires were received after three rounds of mailing and follow-up phone calls, with
a response rate of 19.2%. The survey was answered by a mixture of executives with various titles, ranging from directors
(34.4%) to chairmen (2.1%), chief executive officers (3.6%), chief operating officers (6.8%), managers of functional depart-
ments (e.g. Operations Management and Environmental Management) (18.2%) and others (34.9%). We asked senior and
chief executives who have such strategic overview and knowledge to respond. In the manufacturing and retail sectors, it
is common for such executive to move to another firm. Thus, the majority (49%) had held tenure in their companies for
more than three years. The majority of the firms (69.3%) were environmentally certified. The major industry sectors of the
respondents were consumer goods production (48.9%) and the retail and trading industry (28.9%) (Table 1).

3.2. Common method variance (CMV) and non-response bias

To test for non-response bias, we followed the literature to conduct two tests. Firstly, we compared early with late responses
(Armstrong and Overton 1977). The chi-squared difference test results suggest no significant difference in early and late
responses. Secondly, we conducted another chi-squared difference test to check for differences between respondents and
non-respondents. To do so, we contacted the non-respondents and asked them to return the questionnaires; their returned
questionnaires were considered as non-respondents. We then conducted the chi-squared difference test to compare the
differences in responses from respondents and late respondents. The results indicated no significant difference between the
two, meaning that non-response bias is not a major issue.
Since we used single informants to respond to the survey questionnaire, we took three steps to detect and reduce the
shortcomings of common method bias. Firstly, in the design phase of the questionnaire, we separated the constructs into
sections. Secondly, we conducted the Harman’s one-factor test by examining the chi-squared difference between single
latent construct and the hypothesised 18-construct structures of the model. A significant difference between the two models
indicated that the fit of the 18-construct model is significantly better than the single-construct model. Thirdly, we followed
Lindell and Whitney (2001) and used firm ownership type as a marker variable in this study. A marker variable is a variable
that is theoretically unrelated to the dependent variables: it is included in the questionnaire to test for potential common
method variance. The results suggest that firm ownership type is not significantly related to any of the variables, providing
further evidence that common method variance posed little threat in this study.

3.3. Measures
Appendix A lists all the constructs and their measurement scales based on five-point Likert-scales, mostly adopted or
adapted from the existing literature. Green innovation is a construct adapted from the existing literature to reflect the extent
 International Journal of Production Research 9

Table 1. Respondent demographics.

Percentage of sample
Demographic characteristics (%) (n = 192)
Certification
Uncertified 69.3
Environmental certification 30.7
Annual Sales
< US$10M 28.5
US$10M–20M 16.9
US$20M–$50M 16.3
US$50M–$100M 14.5
> US$100M 23.8
Number of employees
1–10 19.4
11–50 20.6
51–100 11.4
101–500 26.3
> 500 22.3
Industry Sector
Consumer goods production 48.9
Retail and trading 28.9
Engineering/technical service 6.7
Construction 5.0
Electricity and utilities 0.6
Health services 2.2
Automotive 1.1
Hotel/Hostel 0.6
Others 6.0

of adoption of environmental technologies and best practices (Chang 2011; Christmann 2000; Huang and Li 2017; Srivastava
2007; Wu 2013), further divided into green process innovation (including sourcing, operations and logistics as first-order
constructs) and green product innovation (including design and packaging as first-order constructs).
The measures for GSCI dimensions are adopted from the existing literature (Wolf 2011; Wong, Wong, and Boon-itt
2015; Wu 2013). The three dimensions of GSCI are second-order constructs, each containing three or four dimensions.
GII is a second-order construct with three dimensions, reflecting the extent to which firms integrated environment and
business strategy (GII-1), internal integrated environmental management system (GII-2), and cross-functional collaboration
for environmental management (GII-3) (Wong, Wong, and Boon-itt 2015).
External green supply chain integration is divided into GSI and GCI, following Wong, Wong, and Boon-itt (2015) and
Wu (2013). GSI is a second-order construct with four dimensions, including the extent of exchange environmental infor-
mation with suppliers (GSI-1), provide environmental assistance to suppliers (GSI-2), integrate environmental management
process with suppliers (GSI-3), and environmental collaboration with suppliers (GSI-4). GCI is a second-order construct
with three dimensions, including the extent to which firms exchange environmental information with customers (GCI-1),
integrate environmental management processes with customers (GCI-2), and collaborate with customers in environmental
management (GCI-3).
The measurement scales for the two performances outcomes – i.e. environmental and cost-reduction performance – are
obtained from the environmental and operations management literature (Boyer and Lewis 2002; Swink, Narasimhan, and
Wang 2007; Ward and Duray 2000; Zhu et al. 2008). Environmental performance is measured in terms of the reduction of
material and energy use, emissions, waste and hazardous materials (Zhu et al. 2008). Cost reduction measures reduction in
both transaction costs and energy and waste disposal costs relative to major competitors (Christmann 2000; Hart 1995; Zhu
et al. 2008). The respondents were asked to assess their performance relative to their major competitors using a Likert scale
to reduce bias that may be introduced due to different views and standards in actual performance.
While the measurement scales were adapted from existing literature, we applied two additional steps to assess and
improve the content validity of our measurement instrument. Firstly, measurement scales and constructs coded by three
authors following a set of coding rules were compared and inter-coder reliability was measured. After two rounds of coding,
the average pairwise percentage of agreement across the three coders was 79.63%. The Cohen’s kappa was 0.73; Krippen-
dorff’s alpha was 0.73. These results indicate a sufficient level of coding reliability (Neuendorf 2002). Secondly, we invited
10 C. Y. Wong et al.

Table 2. Mean, standard deviation, correlations and discriminant validity tests.

Construct Mean SD 1 2 3 4 5 6 7
1. Green internal integration 3.06 1.04 .91γ
2. Green supplier integration 2.53 1.01 .79 .91
3. Green customer integration 2.91 1.10 .82 .80 .94
4. Green process innovation 3.41 .93 .73 .65 .73 .75
5. Green product innovation 3.30 .97 .67 .64 .69 .68 .75
6. Cost reduction 2.91 .76 .58 .57 .62 .67 .59 .78
7. Environmental performance 3.18 .79 .62 .58 .64 .75 .72 .75 .77
Note: All correlations at p < 0.01 level (2-tailed); γ Square-root of AVE along the diagonal field; Five-point Likert scales.

a panel of academics and practitioners in the field to conduct a three-round Q-sort to sort the scales into groups (Moore and
Benbasat 1991). The results of the Q-sort indicate a satisfactory inter-judge agreement of 96.5%, Cohen’s kappa of 84.7%,
and an overall placement ratio of 87.3%.

3.4. Construct validity and reliability

The dimensionality, composite reliability and validity of the measurement scales were evaluated using confirmatory fac-
tor analysis, using the maximum likelihood estimation of AMOS 25.0. As summarised in Appendix A, all indicators in
their respective constructs have statistically significant (p < 0.05) factor loadings, which suggest convergent validity of the
theoretical constructs. All the major constructs also achieved higher than the 0.70 threshold of Cronbach’s alpha and com-
posite reliability. The average variance extracted (AVE) of each construct also exceeds the recommended threshold of 0.50,
suggesting convergent validity (Fornell and Larcker 1981) and adequate reliability (Nunnally 1984). The goodness-of-fit
indices of the constructs also meet the 0.90 recommended threshold of comparative fit index (CFI), and incremental fit index
(IFI), and the 0.08 root mean square residual (RMR) recommended threshold (Hu and Bentler 1999), suggesting good fit
of the constructs. We tested the discriminant validity of the first-order constructs by comparing the square root of AVE of
each construct with the correlation between each pair of constructs. As summarised in Table 2, the square root of the AVE
is greater than the inter-construct correlation coefficient compared to the correlations for each pair of constructs, providing
evidence of discriminant validity across constructs.
To test if parsimonious measures of our constructs can be formed, we compared goodness-of-fit indices, as well as t-
values of the first- and second-order GSCI measurement models. We conducted three tests to examine if more parsimonious
measures of our constructs should be formed by comparing the first- and second-order models of the constructs. Firstly,
since their GSCI first-order factors are considered complementary, we examined first-order models by allowing their factors
to co-vary and interact with each other. The goodness-of-fit indices of the first-order models and the second-order models
were compared. Appendix A shows the goodness-of-fit index of the first-order model of GII is χ 2 (df) = 222.39 (86);
CFI = 0.93; IFI = 0.93; RMR = 0.06, which is identical to the second-order model. The goodness-of-fit index of the
first-order model of GSI is χ 2 (df) = 507.19 (161); CFI = 0.91; IFI = 0.91; RMR = 0.07, which is almost identical to
the second-order model. The goodness-of-fit index of the first-order model of GCI is χ 2 (df) = 224.80 (71); CFI = 0.95;
IFI = 0.95; RMR = 0.06, which is almost identical to the second-order model. As shown in Appendix A, the first-order
GSCI factors loaded significantly onto the second-order factors at p < 0.05. Lastly, we computed the target coefficient
values (T) to determine if the second-order GSCI constructs account for most of their respective first-order constructs
(Tanriverdi 2006). The t-values of the second-order constructs are 1.0, indicating that the second-order models account for
approximately 100% of the first-order model, suggesting parsimonious measures of the constructs.

4. Results
We tested the hypotheses by creating a structural model, estimated using the maximum likelihood of AMOS 25.0 with the
sample covariance matrix as the input. An item-parcelling technique, in which we aggregate the items and use those aggre-
gates as indicators of latent constructs, was applied to address the sample size ratio limitation (Bandalos 2002). Instead of
testing only the hypothesised model (Model 1), we established two additional models to assess whether there are alternative
more valid models or mediation effects. Model 1 in Table 3 represents the theoretical baseline (hypothesised model). With
a higher degree of freedom (James, Mulaik, and Brett 2006), Model 1 is the most parsimonious and the easiest model to
reject. In model 2, we removed green product and green process innovation from the hypothesised model with the aim of
assessing whether this alternative model (considering the direct effects of GSCI dimensions on performance without green
 International Journal of Production Research 11

Table 3. Alternate SEMs.

Model 1 Model 2 (w/o
(Hypothesised green Model 3 (w/o
Paths [Hypothesis] model) innovation) external GSCI)
GII → GSI [H1a] .758*** .758*** –
GII → GCI [H1b] .835*** .834*** –
GII → Green process innovation [H2a] ns – .744***
GII → Green product innovation [H2b] ns – .756***
GII → Environmental performance ns .577*** − .168***
GII → Cost reduction ns ns ns
GSI → Green process innovation [H3a] ns – –
GSI → Green product innovation [H3b] ns – –
GCI → Green process innovation [H4a] .628*** – –
GCI → Green product innovation [H4b] .657*** – –
GSI → Environmental performance – ns –
GSI → Cost reduction – ns –
GCI → Environmental performance – .525*** –
GCI → Cost reduction – ns –
Green process innovation → .687*** – .680***
Environmental performance [H5a]
Green process innovation → Cost .481* – .441*
reduction [H5b]
Green product innovation → ns – ns
Environmental performance [H6a]
Green product innovation → Cost ns – ns
reduction [H6b]
Environmental performance → Cost .528*** .730*** .599***
reduction [H7]
Model fit index
χ 2 (df) 852.91 (256) 483.763 (157) 557.714 (122)
CFI 0.900 0.920 0.852
IFI 0.900 0.921 0.853
RMR 0.080 0.160 0.184
AIC 990.907 1043.915 655.714
Note: ***P < 0.001; **P < 0.01; *P < 0.05; ns = not significant.

innovation) is valid. In model 3, we removed GSI and GCI (external GSCI) to check whether it is still possible for firms to
achieve performance without external GSCI.
Table 3 shows the results for the three models. We first assess their goodness-of-fit. Model 1 has adequate fit with
χ 2 (df) = 852.91 (256); CFI = 0.90; IFI = 0.90; RMR = 0.08. Model 2 has better fit than Model 1 (χ 2 (df) = 483.763
(157); CFI = 0.92; IFI = 0.92), except that the root mean square error (RMR = 0.16) is higher than the threshold. Note
that the fit index for model 3 is unacceptable (e.g. CFI and IFI below 0.90). Model 1 is a more plausible model than Model 2
because Model 2 has a higher Akaike information criterion (AIC) than Model 1 and a poor root means square (RMR). Thus,
results for Model 1 (the hypothesised model) will be used. Even though the results in Model 3 cannot be used, they show
that GII can positively affect both green product (β = 0.744, P < 0.001) and process innovation (β = 0.756, P < 0.001),
but these effects disappeared in Model 1. This suggests that the effects of GII on green innovation could be mediated
by GSI and/or GCI. Moreover, the positive effects of GII (β = 0.577, P < 0.001) and GCI (β = 0.525, P < 0.001) on
environmental performance in Model 2 suggest green innovation may have mediated some of the effects of GII and GCI.
Figure 2 presents structural paths from the results from Model 1 in Table 3. Hypotheses H1a-b and H2a-b suggest signif-
icant GII-external GSCI and GII-green innovation links, respectively. GII is significantly associated with GSI (β = 0.758,
P < 0.001) and with GCI (β = 0.835, P < 0.001). Thus, hypotheses H1a and H1b are accepted. GII has no significant
associations with either green process or product innovation. Thus, hypotheses H2a and H2b are rejected. Figure 2 also
indicates that the effects of GII on green innovation may be created through GCI and GSI. The structural paths of Model 1
provide partial support for our arguments for the effects of GSI (H3) and GCI (H4) on green process product innovation.
However, GSI is not significantly linked to either green process or product innovation. Thus, H3a-b is rejected. Moreover,
the results in Model 1 show GCI is significantly associated with green process innovation (β = 0.628, P < 0.001) and
green product innovation (β = 0.657, P < 0.001). Thus, H4a-b is accepted.
12 C. Y. Wong et al.

Figure 2. Structural equation modelling (SEM) results.

Note: ***P < 0.001; **P < 0.01; *P < 0.05; ns = not significant. χ 2 (df) = 852.91 (256); CFI = 0.90; IFI = 0.90; RMR = 0.08.
AIC = 990.907.

Table 4. Summary of hypotheses and results (Model 1).

Hypothesis Path coefficient Result
H1a. Green internal integration → Green supplier integration .758*** Accepted
H1b. Green internal integration → Green customer integration .835*** Accepted
H2a. Green internal integration → Green process innovation Not significant Rejected
H2b. Green internal integration → Green product innovation Not significant Rejected
H3a. Green supplier integration → Green process innovation Not significant Rejected
H3b. Green supplier integration → Green product innovation Not significant Rejected
H4a. Green customer integration → Green process innovation .628*** Accepted
H4b. Green customer integration → Green product innovation .657*** Accepted
H5a. Green process innovation → Environmental performance .687*** Accepted
H5b. Green process innovation → Cost reduction .481* Accepted
H6a. Green product innovation → Environmental performance Not significant Rejected
H6b. Green product innovation → Cost reduction Not significant Rejected
H7. Environmental performance → Cost reduction .528*** Accepted
Note: ***P < 0.001; **P < 0.01; *P < 0.05.

We also added two paths linking the two performances with GII, GSI and GCI in Model 1. The results show that
GII, GSI and GCI are not significantly associated with either environmental performance or cost reduction. These results
indicate that their effects on performance could be mediated by green innovation, as suggested by the hypothesised model
(Model 1).
The results in Model 1 show the effects of green innovation. The structural paths support those arguments that favour
the positive performance effects of green process innovation (H5a-b) over green product innovation (H6a-b). The signif-
icant positive links between green process innovation and environmental performance (β = 0.687, P < 0.01) and cost
reduction (β = 0.481, P < 0.05) provide support for H5a-b. Green product innovation is not significantly associated with
environmental performance or cost reduction. H6a-b is rejected. In addition, the results support H7, showing a signifi-
cant link (β = 0.528; P < 0.001) between environmental performance and cost reduction. Altogether we concluded seven
significant paths in Model 1. Table 4 summarises the final results.
As an additional robustness test, we also included the links between GII with performance. This is because there is
an argument that green internal integration can directly affect environmental performance (Wong, Wong, and Boon-itt
2018). Our results show that GII did not directly link to either environmental performance or cost reduction. Overall, the
results point out one important performance mechanism – that is, GII-GCI-green process innovation effects, rather than
GII-GSI/GCI-green product innovation effects.

5. Discussion
5.1. Findings and theoretical implications
This paper integrates two streams of literature that separately claim the respective effects of green supply chain integration
(GSCI) and green innovation on performance. While green product innovation is thought to create price differentiation and
green process innovation is dedicated to reducing cost (Christmann 2000), we lack evidence in the literature. Our findings
 International Journal of Production Research 13

confirm that green product and process innovation may not have the same effects on environmental and cost performance, in
that only green process innovation can improve cost performance directly or through improving environmental performance.
Our evidence differs from that of Li et al. (2016), whose data indicate both green product design and the green supply chain
process are positively related to environmental performance. Our data suggest that green product innovation among our
sample failed to reap both cost and environmental benefits, suggesting that the literature must better understand why it is
difficult for a firm to redesign products and packaging to improve environmental and cost performance.
Instead of the claim for a universal effect, our evidence reinforces the argument of Christmann (2000) that green process
innovation (but not green product innovation) can reduce costs. Our findings endorse this argument and inform the literature
that we cannot simply hypothesise that all green innovation can produce cost benefits. Unlike green product innovation,
green process innovation can directly reduce costs and do so through improving resource efficiency (environmental per-
formance). The lack of cost benefit of green product design is found in China (Zhu, Sarkis, and Geng 2005). There is a
need to compare the costs of compliance and technology with the reduction in costs each green innovation can bring about
(Zhu, Sarkis, and Lai 2007). Green product innovation cannot reduce costs or improve environmental performance because
it could add more cost and fail to gain product differentiation effects. This suggests the need for a significantly higher level
of information processing capacity and/or the presence of other factors, such as customer willingness to buy green products
at a premium price.
Thus, new theories are required to distinguish the different ways in which green products and green process innova-
tions create performance. Existing literature regards the benefits of green product innovation highly (Chen, Lai, and Wen
2006; Huang and Li 2017), but our findings suggest otherwise. Here, we suggest that the literature consider the following
distinctions. Green product innovation concerns product design, quality and reliability with respect to environmental issues
(Chang 2011), while green process innovation concerns innovation in operations, sourcing and logistics processes to reduce
resource consumption and emissions. Improvement in the design, quality and reliability of a product involves new technol-
ogy and significant investment. However, reducing resource consumption through green process innovation also reduces
the use of energy and materials (Klassen and McLaughlin 1996). Green product innovation can be costly (Zhu, Sarkis,
and Geng 2005). Thus, it may be more difficult to save costs through green product design compared to green process
innovation.
Ideally, both green product and process innovation can lead to better environmental performance. However, they require
different product and process technologies, and their benefits are realised in different parts of a supply chain. Take washing
machines as an example: greener products could mean less water and energy consumption for consumers, but it could be
hard for suppliers, manufacturers or distributors to gain benefits if they do not gain a price premium having invested in
green product design. The use of new or more complicated process technologies and materials to achieve new greener
product design can thus increase the uncertainty about gaining future environmental and cost benefits. This also explains
why manufacturers prefer a focus on the green operational, sourcing and logistics process, green process innovation, to
reduce the use of materials and energy while saving costs.
Another important implication is that the performance effects of green product and process innovation can become
more complete if we consider how integration mechanisms used in GSCI increase the information processing capacity
required for green innovation. Wu (2013) was among the first to show that GSCI can positively affect green product and
process innovation, but many questions remain unanswered. Due to a lack of suitable theories, most literature considers
the dimensions of GSCI and green innovation to have equal effects on any performance. The natural resource-based view
commonly used (e.g. Wu 2013; Yu et al. 2014) does not consider how the uncertainty facing green innovation can be reduced
in different GSCI dimensions.
By applying organisational information processing theory, this paper explains that the uncertainties associated with green
innovation success can be reduced by improving the information processing capacity offered by integration mechanisms
used in the three dimensions of GSCI. GII uses hierarchy, goal alignment and management systems to improve the internal
information processing capacity. GSI and GCI use information exchange, closed-loop process and collaboration to increase
supply chain level information processing capacities. Because of the use of different integration mechanisms by the three
GSCI dimensions (Wong, Wong, and Boon-itt 2015), they produce different effects on green product and process innovation.
Our more complete understanding suggests that external GSCI (GSI and GCI) can act as a mediator in the relationship
between GII and green process innovation. These findings reaffirm the main role of GSCI as an information processing
mechanism that helps reduce the uncertainties (Wong, Boon-itt, and Wong 2011; Yu et al. 2019) facing green innovation
efforts. Similar evidence reinforces our mediation claim. Liu et al. (2018) show that green product design can mediate
the effects of external GSCI on environmental (not cost) performance. This means we ought to consider how the infor-
mation processing capacity created by one GSCI dimension improves the information processing capacity of another
GSCI dimension. In fact, we realise that the combination effects of GII-GSI (internal-supplier integration) and GII-GCI
(internal-customer integration) may differ, as follows.
14 C. Y. Wong et al.

Our findings show that GII has significant effects on both GSI and GCI, while only GCI can affect green product and pro-
cess innovation. That means the information processing capacity increased by GII is effectively used to achieve innovation
by the mechanism of integration with customers. The argument that GII can enable GSI and GCI is not new (Wong, Wong,
and Boon-itt 2018). Our findings suggest that the use of hierarchical integration mechanisms in GII enhances or informs the
use of integration mechanisms to improve information processing with suppliers and customers. The mediating role of GCI
(customer integration) is supported by past evidence that cost reduction is often achieved by customer integration (Lopes de
Sousa Jabbour et al. 2017). The combination of GII and GCI emphasises the downstream customer information processing
capacity required for green process innovation to improve both costs and environmental performance. These findings sug-
gest the importance of working collaboratively with customers to develop green process innovation for greening operations,
sourcing and logistics activities.
Our findings suggest an absence of the combination effects of GII and GSI and the upstream information capacity
they create. Recent evidence from Thailand shows that GCI is more vital in generating environmental performance, while
GSI plays a background role in supporting GCI (Wong, Wong, and Boon-itt 2018). Contrary to evidence from Taiwan
reported by Wu (2013), our findings suggest that GSI is ineffective in supporting green product or process innovation.
Perhaps due to differences in industries or other unknown factors, we suspect that GSI in our sample is used to reduce the
environmental impact of upstream suppliers and not necessarily for the focal firms we studied. Also, sharing information and
collaboration with suppliers through GSI can be resource- and cost-demanding. Perhaps suppliers lack the knowledge and
capabilities to contribute to green product and process innovation in our sample firms, while their customers may have more
knowledge or put more pressure on driving the focal firms to green their operations. This scenario illustrates an important
chain effect – that it is the intention to respond to downstream customers through GCI that drives a focal firm to implement
green innovation, and that focal firms may, in turn, drive their suppliers through GSI (though the benefit to the firm is less
salient).
It is important to recognise the central role of GII as the main mechanism to improve internal information processing
capacity. Without an integrated environmental strategy created by hierarchy and goal alignment mechanisms, it is perhaps
not possible for a firm to drive external GSCI and green innovation. It is therefore important to consider the fact that
green innovation originates from top management’s efforts to integrate the business strategy with environmental criteria
and management systems, and its ability to instil collaboration across functions (Wong, Wong, and Boon-itt 2015, 2018).
The use of hierarchical and cross-functional integration mechanisms, similar to those in GII, is known to be essential for
process innovation (Ettlie and Reza 1992). When a firm has successfully implemented such internal integration mechanisms
(GII), then the external GSCI (i.e. GSI and GCI) and green innovation initiatives can be implemented to create performance
benefits.
There are some methodological contributions, even though the methods (survey and structural equation modelling) used
in this paper are fairly standard. The main contribution to the methods is the way we measure the constructs and model
the relationships among the three GSCI dimensions, product and process innovation and performance outcomes. In the
measurement development, we enhance the construct validity of the more comprehensive measures of green production and
process innovation by the use of refined multiple-item measures, and incorporate different integration mechanisms into the
measurement of GSCI dimensions as first-order constructs. Compared to simpler models in the existing literature (Wong,
Wong, and Boon-itt 2018; Wu 2013; Yu et al. 2014), our model differentiates internal from external GSCI, green product
from process innovation, and how GSCI dimensions affect performance through the two types of innovation. In terms of
data, we contribute to new data by conducting mass survey targeting at firms in Hong Kong (China).

5.2. Implications for practice

The paper offers several implications for practice. The first implication concerns which integration mechanisms to emphasise
to improve information processing and ultimately achieve the required green product and process innovation and outcomes.
We evidence that firms need to use hierarchical integration and internal collaboration mechanisms to first establish strategic
integration among strategy, management systems and functions, working towards a strong environmental orientation and
internal information processing capacity. However, internal integration alone is not enough. Internal integration is important
to support the mechanisms used to integrate with suppliers and customers. Also, it is important to recognise differences
between upstream and downstream information processing capacities, though both are important. To redesign products and
change existing processes so that they produce less environmental damage, it is important to emphasise integration with
customers using integration mechanisms such as information exchange, closed-loop process and collaboration. Integration
with customers is crucial for both green product and process innovation.
The second implication is that it is important to distinguish the performance mechanisms between green product/green
process innovation, and green supplier/customer integration. Though equally important, green integration with suppliers is
 International Journal of Production Research 15

more likely to benefit the suppliers, not the focal firms. Green customer integration is very beneficial for the focal firms
to enable both green product and process innovation. To achieve green process innovation, firms are advised to estab-
lish integration mechanisms internally and then with customers. The lack of internal integration – e.g. integrated business
and environmental strategy, integrated management system and collaboration across functions – must be addressed before
commencing collaboration with suppliers and customers.
The third implication is that it is important to understand that the information processing capacity increased by green
supply chain integration can be used to achieve green product/process innovation and produce performance outcomes. Green
supply chain integration alone may not directly produce results, because its main outcome is better information processing
capacity. This improved information processing capacity or knowledge base can support green product and process innova-
tion activities to improve performance if there is deliberate investment in innovation projects and organisational structures
are in place to drive green process innovation. It is the green process efforts informed by the mechanisms used to integrate
internal functions and customer integration that a firm needs to develop to improve environmental and cost outcomes.

6. Conclusion and limitations

This paper sets out how different GSCI and green innovation dimensions may interact, and how they jointly affect envi-
ronmental and cost performance due to the information processing capacities increased by GSCI integration mechanisms.
It shows the use of mechanisms to integrate strategy, management systems and functions to create the internal information
processing capacity required to inform mechanisms for integration with suppliers and customers and ultimately achieve
green process innovation to improve environmental and cost performance. This information-processing perspective offers
a more nuanced view to explain how integration mechanisms can improve information capacity to address the uncertainty
inherent in green innovation.
This paper has some limitations, the first of which is a reliance on cross-sectional data, which limits our ability to
infer causality. Future study may consider adopting a multi-method approach to improve the research rigour and establish
causality. Secondly, even though we have established rigorous measurement scales for the GSCI and green innovation con-
structs and tested our hypotheses using several alternative models, it is likely that we have not captured all the complex
relationships among our constructs. For example, we have not incorporated potential moderators. Future research is needed
to identify the boundary conditions of the relationships identified. Thirdly, because we conceptualised and measured GSCI
and green innovation as second-order constructs, we do not have a sufficient sample size to include additional factors in our
structural models. Furthermore, by relying on single informants, our data may have suffered from common method vari-
ance. Future study may consider collecting data from multiple informants from each single company. Finally, although we
gained insights into the mediation effects of green product and process innovation, and the relationship between GSCI and
performance, future research may consider examining the complementary effects of green product and process innovation,
as well as the complementary effects of the various dimensions of GSCI on performance.

Disclosure statement
The authors confirm that there are no known conflicts of interest associated with this publication.

Funding
This study is collaboratively supported by Bualuang ASEAN Chair Professorship and Bualuang ASEAN Fellowship Program, Thmmasat
University and Thailand Research Fund under grant number BRG6080012.

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 International Journal of Production Research 19

Appendix A. Construct validity and reliability

Construct / Indicatora / [Reliability and validity] Loading t-value

Green Internal Integration (GII) [χ 2 (df) = 222.39 (86); CFI = .93; IFI = .93;
RMR = .06; α = .96; COR = .97; AVE = .83]b
GII-1: Integrated environmental and business strategy [χ 2 (df) = 7.35 (2); 1.05b –
CFI = .99; IFI = .99; RMR = .04; α = .83; COR = .86; AVE = .61]
Integrate environmental responsibility in business strategy .83 –
Establish business strategy based on the balance between commercial and .92 14.35
environmental goals
Establish a unified environmental and business strategy .80 12.68
Establish business strategy which reward top management based on successful .53 4.39
achievement of environmental goals
GII-2: Internal integrated environmental management system [χ 2 (df) = 28.86 .85b 10.36
(9); CFI = .96; IFI = .96; RMR = .05; α = .86; COR = .87; AVE = .53]b
Environmental management system integrates environmental responsibility into .81 –
employee codes of conduct
Environmental management system includes environmental criteria into commercial .72 10.53
decisions
Environmental management system integrates environmental criteria into resource .83 12.37
management decisions
Integrate environmental, quality and other standards into one management systems .67 9.72
Environmental management system based on life-cycle approach .70 10.15
Environmental management system supported by an integrated information system .62 7.37
GII-3: Cross-functional collaboration for environmental management [χ 2 .80b 10.40
(df) = 23.51 (5); CFI = .97; IFI = .97; RMR = .04; α = .91; COR = .90;
AVE = .65]b
All functions cooperate to achieve environmental goals collectively .70 –
Develop mutual understanding of environmental responsibilities among functions .68 13.82
All functions work with each other to reduce environmental impacts .83 11.01
All functions jointly plan to resolve environmental-related problems .92 11.95
All functions jointly make decisions about ways to reduce overall environmental .86 11.36
impacts
Green Supplier Integration (GSI) [χ 2 (df) = 507.19(161); CFI = .91; IFI = .91;
RMR = .07; α = .96; COR = .95; AVE = .83]b
GSI-1: Exchange environmental information with suppliers [χ 2 (df) = 34.62 (5); .93b –
CFI = .95; IFI = .95; RMR = .05; α = .90; COR = .89; AVE = .63]
Exchange information about environmental goals with suppliers .77 –
Exchange information about environmental practices with suppliers .76 16.42
Exchange information about cleaner production and technologies with suppliers .74 10.62
Exchange information about product environmental requirements with suppliers .87 12.50
Exchange information about life-cycle environmental impacts of products with .82 11.77
suppliers
GSI -2: Provide environmental assistance to suppliers [χ 2 (df) = 63.76 (9); .74b 4.37
CFI = .94; IFI = .94; RMR = .06; α = .92; COR = .92; AVE = .67]
Help suppliers to improve environmental awareness .70 –
Guide suppliers to establish their own environmental programmes .80 10.67
Provide resources to help suppliers to purchase equipment for pollution prevention, .78 10.44
wastewater and recycling
Facilitate learning among suppliers in the same industry .86 11.46
Assist suppliers to improve the environmental performance of supplier processes .90 11.91
Help supplier to share environmental best practice information with each other .87 11.57
GSI -3: Integrate environmental management process with suppliers [χ 2 .96b 6.46
(df) = 21.04 (2); CFI = .95; IFI = .95; RMR = .08; α = .84; COR = .84;
AVE = .59]
Integrate management of closed-loop return process with suppliers .50 –
Integrate process of measuring environmental impact with suppliers .90 6.87
Integrate process of managing environmental initiatives with suppliers .92 6.88
Integrate process of managing distribution and outbound logistics planning with .67 6.16
suppliers
20 C. Y. Wong et al.

GSI -4: Environmental collaboration with suppliers [χ 2 (df) = 65.90 (5); 1.00b 11.24
CFI = .94; IFI = .94; RMR = .07; α = .92; COR = .93; AVE = .72]
Cooperate with suppliers to achieve environmental goals collectively .80 –
Work with suppliers to gain mutual understanding of environmental responsibilities .78 12.68
Work with suppliers to reduce environmental impacts .93 16.19
Jointly plan with suppliers to resolve environmental-related problems .96 16.87
Jointly make decisions with suppliers about ways to reduce overall environmental .87 14.61
impacts
Green Customer Integration (GCI) [χ 2 (df) = 224.80 (71); CFI = .95; IFI = .95;
RMR = .06; α = .96; COR = .96; AVE = .89]b
GCI -1: Exchange environmental information with customers [χ 2 (df) = 8.92 (4); .92b –
CFI = .99; IFI = .99; RMR = .02; α = .92; COR = .92; AVE = .71]
Exchange information about environmental goals with customers .91 –
Exchange information about environmental practices with customers .98 25.25
Exchange information about cleaner production and technologies with customers .88 19.53
Exchange information about product environmental requirements with customers .71 12.61
Exchange information about life-cycle environmental impacts of products with .68 11.90
customers
GCI -2: Integrate environmental management process with customers [χ 2 .84b 8.97
(df) = 3.80 (3); CFI = .99; IFI = .99; RMR = .02; α = .84; COR = .84;
AVE = .58]
Integrate management of closed-loop return process with customers .62 –
Integrate process of measuring environmental impact with customers .90 9.34
Integrate process of managing environmental initiatives with customers .86 9.35
Integrate process of managing distribution and outbound logistics planning with .63 9.13
customers
GCI -3: Environmental collaboration with customers [χ 2 (df) = 15.68 (4); 1.06b 9.38
CFI = .99; IFI = .99; RMR = .05; α = .93; COR = .94; AVE = .76]
Cooperate with customers to achieve environmental goals collectively .85 –
Work with customers to gain mutual understanding of environmental responsibilities .91 17.22
Work with customers to reduce environmental impacts .90 16.76
Jointly plan with customers to resolve environmental-related problems .86 15.49
Jointly make decisions with customers about ways to reduce overall environmental .85 15.34
impacts
Green Process Innovation [χ 2 (df) = 337.54 (107); CFI = .90; IFI = .90;
RMR = .08; α = .89; COR = .87; AVE = .57]b
Sourcing [χ 2 (df) = n/a; CFI = n/a; IFI = n/a; RMR = n/a; α = .82; COR = .81; .64b –
AVE = .60]
Sources non-hazardous/toxic materials .69 –
Sources from suppliers who comply with environmental regulations, e.g. REACH .79 9.08
Sources environmental friendly raw materials .83 9.05
Operations [χ 2 (df) = .13 (1); CFI = 1.00; IFI = 1.00; RMR = .01; α = .95; .65b 5.93
COR = .95; AVE = .63]
Controls operations process to reduce waste from all sources .88 –
Monitors operations process to reduce waste from all sources .96 20.06
Audits operations process to reduce waste from all sources .89 18.05
Uses cleaner technology to reduce waste from all sources .23 3.20
Logistics [χ 2 (df) = 7.13 (2); CFI = .98; IFI = .98; RMR = .03; α = .79; .96b 6.41
COR = .79; AVE = .50]
Utilizes cleaner transportation modes .63 –
Improves vehicle fill .63 7.05
Careful schedule transportation routes to reduce emission .80 8.13
Compact packaging the reduces space requirement .75 7.95
Green Product Innovation [χ 2 (df) = 337.54 (107); CFI = .90; IFI = .90;
RMR = .08; α = .89; COR = .87; AE = .57]b
Design [χ 2 (df) = n/a; CFI = n/a; IFI = n/a; RMR = n/a; α = .83; COR = .83; .79b 6.24
AVE = .63]
Designs products to reduce consumption of materials .76 –
Designs products to reduce consumption of energy .94 9.86
Designs products to reuse, recycle, and recovery .65 9.21
 International Journal of Production Research 21

Packaging [χ 2 (df) = n/a; CFI = n/a; IFI = n/a; RMR = n/a; α = .84; COR = .83; .69b 5.87
AVE = .63]
Recycles packaging .82 –
Reuses packaging .90 10.68
Reduces packaging .66 9.41
Cost-Reduction (CR) [χ 2 (df) = n/a; CFI = n/a; IFI = n/a; RMR = n/a; α = .83;
COR = .83; AVE = .62]
Cost reduction per business transaction .65 –
Cost reduction on energy savings .88 9.00
Cost reduction on waste disposal .82 9.15
Environmental Performance (EP) [χ 2 (df) = 92.65 (12); CFI = .92; IFI = .92;
RMR = .03; α = .92; COR = .92; AVE = .59]
Reduction in hazardous/harmful materials used in manufacturing product/service .77 –
delivery
Reduction in the use of electricity .79 9.49
Reduction in total fuel consumption used in transportation of products/services .84 9.69
Reduction in total paper used .79 10.07
Reduction in total packaging materials used .87 9.66
Reduction in air emissions .75 10.39
Reduction in solid waste disposal .65 9.34
Note: a The respondents were asked to indicate their extent of implementation on a five-point Likert scale with 1 = almost never and
5 = almost always; All indicators have statistically significant at p < 0.05.
b Loadings and fit indices for second-order models; Shaded Bold = second-order constructs; Italic bold = first-order construct; χ 2
(df) = Chi-square (degree of freedom); CFI = comparative fit index; IFI = incremental fit index; RMR = root mean square residual;
α = Cronbach’s Alpha; COR = composite reliability; AVE = average variance extracted.