International Journal of Operations & Production Management

Emerald Article: The impact of external institutional drivers and internal

strategy on environmental performance
Suhaiza Hanim Mohamad Zailani, Tarig K. Eltayeb, Chin-Chun Hsu, Keah Choon
Tan

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To cite this document: Suhaiza Hanim Mohamad Zailani, Tarig K. Eltayeb, Chin-Chun Hsu, Keah Choon Tan, (2012),"The impact of
external institutional drivers and internal strategy on environmental performance", International Journal of Operations &
Production Management, Vol. 32 Iss: 6 pp. 721 - 745
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Environmental
The impact of external performance
institutional drivers and internal
strategy on environmental
721
performance
Received 10 October 2010
Suhaiza Hanim Mohamad Zailani Revised 30 December 2010,
School of Management, Universiti Sains Malaysia, Pulau Penang, Malaysia 14 March 2011,
10 May 2011,
Tarig K. Eltayeb 5 August 2011
College of Commerce and Business Administration, Dhofar University, Accepted 27 September 2011
Salalah, Oman, and
Chin-Chun Hsu and Keah Choon Tan
College of Business, University of Nevada, Las Vegas, Nevada, USA
Abstract
Purpose – Environmental sustainability literature provides extensive evidence that business
organizations, societies, and governments all have a stake in green operations management. Despite
the importance of a firm’s effort to alleviate environmental damages and provide economic benefits to
organizations, little is known about the external institutional drivers that enable firms to adopt
internal proactive environmental strategies. This purpose of this study is to examine the extent to
which an internal proactive environmental strategy (eco-design) and external institutional drivers
(government regulations and incentives, customer pressures) motivate firms to adopt eco-deigns that
influence environmental performance.
Design/methodology/approach – Hypotheses are tested using data from a sample of 132 EMS ISO
14001 – certified manufacturing firms in Malaysia. Specifically, this study uses survey data to
validate the major premises in our proposed model.
Findings – Empirical tests of the hypotheses with structural equation modeling (SEM) support the
posited explanation that external institutional drivers influence a firm’s environmental performance
both directly and indirectly through its internal proactive environmental strategy. These findings
extend prior research by establishing the importance of the relationships among
regulations/incentives, customer pressures, eco-designs, and environmental performance.
Research limitations/implications – Although the research design incorporates extensive
literature reviews, it does not capture every aspect of underlying constructs characteristics. Future
efforts should establish a valid, reliable instrument for these constructs.
Practical implications – This research provides rigorous empirical support of the contribution of
eco-design to environmental performance. This finding helps managers recognize how to leverage
their internally developed eco-designs capabilities by responding to external pressures and
institutional concerns. The response to external institutional pressures provides a basis for creating an
inimitable eco-design resource base, which is critical to environmental sustainability.
Originality/value – This study examines a key factor, eco-design, that may transmit the influence of
regulations/incentives and customer pressures to firm’s environmental performance. The findings
provide strong support for the main thesis, as well as valuable insights about predictors of firm International Journal of Operations
environmental performance. & Production Management
Vol. 32 No. 6, 2012
Keywords Institutional drivers, Eco-design, Environmental performance, Environmental management, pp. 721-745
Management strategy q Emerald Group Publishing Limited
0144-3577
Paper type Research paper DOI 10.1108/01443571211230943
IJOPM Introduction
32,6 Environmental issues are key concerns for governments and organizations worldwide,
largely as a result of deteriorating climatic conditions. Global warming, ozone layer
depletion, waste, and increasing pollution levels create problems all over the world, and
a general belief is that most of the problems are a result of poorly regulated
manufacturing activities (Shukla et al., 2009; King and Lenox, 2001). Increasing global
722 demand and industrialization causes land, water, and air pollution, and degrades natural
resources (Huong, 1999). Accordingly, manufacturing firms face pressures from
stakeholders, including end customers who prefer to buy eco-friendly products, along
with a growing number of legal regulations that establish environmental standards for
products, such as the Waste Electrical and Electronic Equipment Directive and the
Restriction of Hazardous Substance Directive (Hu and Hsu, 2010; Shukla et al., 2009).
These regulations and emergent market pressures have prompted some
organizations to seek ways to reduce their environmental impact and develop green
products. Moreover, companies are starting to recognize environmental performance as
a source of competitive advantage (Wagner, 2005). New initiatives in operations and
manufacturing – such as eco-design, design for the environment, design for
recyclability, green supply chains, reverse logistics, product stewardship, and product
take-back efforts – expand the responsibility of the firm to the post-consumption period.
Because industrial products are a major source of environmental problems, responsible
manufacturers must take environmental impact throughout the entire life cycle of a
product into consideration, rather than focusing solely on environmental pollution
during the manufacture of products. This holistic approach can help minimize resource
consumption, reduce waste, and possibly eliminate environmental pollutants. The firm
extends its environmental responsibility beyond its own boundaries and tries to reduce
sources of waste and pollution throughout the supply chain (Canning and
Hanmer-Lloyd, 2001). Design centered on the environment thus integrates
environmental aspects or considerations, such as product recyclability and
reusability, into product design, with the goal of considering the complete product life
cycle of a product or process (Sarkis, 1998).
These initiatives are relatively well established in developed countries; however,
they continue to lag in developing countries (Gonzales et al., 2010; Shukla et al., 2009).
Recycling, reuse, and remanufacture efforts in developing countries are still considered
a byproduct of waste and end-of-pipe activities rather than strategic options and
elements of change for product design. However, such initiatives could be highly
significant for developing countries in general and Asian countries in particular,
because recent studies have shown that the majority of world’s manufacturing will be
carried out in Asia in coming decades (US-AEP, 1999). Concomitant with the lack of
actual practice, we lack quantitative research about eco-design and performance
improvement, especially in Asia (Zhu and Liu, 2010). Green supply chain research
needs to move away from anecdotal studies and adopt theoretically grounded and
empirical frameworks (Holt and Ghobadian, 2009).
This study examines link among external institutional drivers, internal proactive
environmental strategies, and environmental performance. Drawing on institutional
theory, we explain how drivers of eco-design affect environmental performance. The
model we propose includes direct and indirect effects and provides a more rational
depiction of environmental performance. We thus make two primary contributions.
First, by studying the mediating role of eco-design, we seek to extend knowledge about its Environmental
role in terms of effective green supply chain strategies. Second, we analyze the influence of performance
external drivers (government regulation and incentive, customer pressure) on eco-design,
because we posit that they are core enablers of eco-design and environmental performance.
In the following sections, we present a theoretical background and literature review
and develop our hypotheses. Next, we outline the methodology and results, followed by
a discussion. Finally, we provide our conclusions and managerial implications. 723

Theoretical background and literature review

The concept of internal proactive environmental strategy: eco-design
A proactive environmental strategy reflects an evolutionary environmental strategy
that applies early compliance to attain pollution-prevention results (Menguc et al.,
2010). A proactive environmental strategy aims to minimize emissions, effluents, and
waste and therefore focuses on well-defined environmental objectives to prevent
pollution rather than expensive “end-pipe” capital investments to control it. Hart (1995)
demonstrates that proactive environmental strategies provide firms with a competitive
advantage, and eco-design represents the most efficient tool to implement a proactive
environmental strategy.
Eco-design, also called design for the environment or green design, refers to the
identification of environmental aspects of a product over its entire life cycle and the
integration of these aspects into product development. As an internally focused type of
green supply chain initiative, eco-design requires the firm to improve the environmental
attributes of its products internally, with little cooperation or interaction with external
parties such as suppliers and customers. Therefore, eco-design differs from externally
oriented green supply chain initiatives, such as green purchasing. The aim is to minimize a
product’s environmental impact over its whole life cycle – from acquiring materials to
manufacturing and use and ultimately to its final disposal – without compromising other
essential product criteria, such as function, cost, performance, quality, or legal and
technical aspects (Johansson, 2002). Thus, eco-design integrates environmental aspects
into the product design process, taking into consideration the entire flow of the product in
its supply chain. This consideration is very important, because most environmental
impact arising from the production, consumption, and disposal of the product are direct
consequences of decisions made in the design stage (Handfield et al., 2001).
The design stage defines the function of the product, process, or service and selects
the raw materials, supplies, and process chemicals to be used. These choices in turn
determine the energy consumed to create products and the waste generated. In
addition, the durability, serviceability, and energy consumption of products during
their lifetime can be determined (WBCSD, 2006). Specific eco-design actions or
activities vary across companies and products, but basic eco-design activities include:
.
design for reduction, or the elimination of environmentally hazardous materials
such as lead, mercury, chromium, and cadmium (Zsidisin and Siferd, 2001);
.
design for reuse, which facilitates the reuse of a product or part of it, with no or
minimal treatment of the used product (Sarkis, 1998);
.
design for recycling, which facilitates disassembly of the waste product,
separation of parts according to material, and reprocessing of the material
(Lin et al., 2001);
IJOPM .
design for remanufacturing, or repair, rework, and refurbishment activities that
32,6 attempt to return the product to new or better-than-new condition (Beamon,
1999); and
.
design for resource efficiency, which reduces consumption of materials and
energy during product use, in addition to promotion of the use of renewable
resources and energy (APO, 2004).
724
The eco-design process usually starts with a lifecycle assessment (LCA), a tool used to
evaluate the environmental impact of a product over its entire life (Zutshi and Sohal,
2004). That is, LCA assesses the environmental burden created by a product from
“cradle to grave,” including material selection, production, distribution, packaging,
consumption, and disposal (Lin et al., 2001; Sarkis, 1998). Such assessments calculate
the consumption of resources and production of waste and pollution, along with other
environmental and social impact, at each stage of the product life cycle (Gauthier,
2005). The result of this calculation is an “impact evaluation matrix,” which quantifies
the various environmental impact over various stages (Hagelaar et al., 2004). The
matrix offers a technique for gathering information about the environmental burdens
of processes at specific points in the supply chain (Hagelaar et al., 2004). It also helps
decision makers identify problems in their supply chains to help them make
appropriate decisions to reduce these problems.
Eco-design thus offers a systematic method for firms to reduce the environmental
impact of their products and processes while simultaneously reduces costs and increases
product marketability (Hu and Hsu, 2010). By reducing the adverse environmental
impact of a product across its raw material acquisition, manufacturing, distribution, use,
and disposal, eco-design addresses environmental problems resulting from both the
production and consumption of a product. In contrast, a conventional product design
view focuses solely on quality, cost, ergonomics, and safety.
In summary, eco-design establishes guidelines for design engineers pertaining to the
environmental safety and soundness of a product. The impact of the product’s entire life
cycle is evaluated according to various aspects, such as alternative options for reducing
waste and energy, recycling, or the elimination of product waste during manufacturing.

Institutional theory
Institutional theory suggests that in the quest for legitimacy and social fitness, firms
adopt homogeneous, institutionalized (rule-like) structures and practices that reflect
the mandates of the institutional environment or field in which they operate (Oliver,
1997; DiMaggio and Powell, 1983; Meyer and Rowan, 1977). Legitimacy is
“a generalized perception or assumption that the actions of an entity are desirable,
proper, or appropriate within some socially constructed system of norms, values,
beliefs, and definitions” (Suchman, 1995, p. 574). Institutional theory in turn specifies
three mechanisms through which the influence of institutional environments transfers
to organizations (Scott, 2001; DiMaggio and Powell, 1983):
(1) coercive isomorphism resulting from pressures exerted by other organizations
on which the firm depends, which may be felt as force, persuasion, or an
invitation to join in collusion;
(2) normative isomorphism or sets of expectations in particular organizational
contexts about what constitutes appropriate and legitimate behavior,
 as established by social organizations, professional associations, or academic Environmental
institutions; and performance
(3) cultural-cognitive isomorphism that results from the firm’s rational desire to
imitate the behavior of other organizations because of its perception that the
imitated behavior is legitimate or has technical value.

Riverta et al. (2006, p. 197) also conclude that “literature on voluntary environmental 725
programs shows a growing consensus consistent with institutional theory that gives
external pressures a significant role in determining the adoption of these initiatives.”
Similarly Delmas and Toffel (2004), Delmas (2002) and Jennings and Zandbergen (1995)
find that institutional theory provides a plausible explanation for the occurrence and
diffusion of green strategies and routines.

External institutional drivers of eco-design

The drivers of eco-design are the motivators that encourage business organizations to
adopt eco-design. According to institutional theory, two primary mechanisms influence
the behavior of organizations: imposition and inducement (Scott, 1987). These
mechanisms are enacted through regulatory institutions and other organizations that
constrain the organization and direct its behavior (Oliver, 1991). When enacted as laws,
the constraints force firms to make necessary changes in their structure and processes
because they would avoid the potential costs, uncertainty, and legal liabilities for
noncompliance (Clemens and Douglas, 2006; DiMaggio and Powell, 1983).
Alternatively, an agency can provide incentives to organizations to induce them to
act in a desirable manner (Grewal and Dharwadkar, 2002). Accordingly, we consider
two major drivers of eco-design: regulation and incentive and customer pressure.

Hypotheses development
Conceptual framework
To guide our subsequent discussion, we show our key constructs in Figure 1. On the
basis of our literature review, we propose that the drivers of eco-design and eco-design
itself contribute differently to environmental performance. Using an institutional theory
perspective, we argue that institutional antecedents associated with governmental

External Internal Proactive Firm’s Environmental

Institutional Drivers Environmental Strategy Performance

Regulation
and Incentive H4
(REG&INC)
H2
Environmental
H1 Eco-Design H6 Performance Outcome
(ECODESN)
(ENVPERF)
H3

Customer Pressure H5
(CUSTPRE) Figure 1.
Research hypotheses
IJOPM regulation and incentive, and customer pressure precede a firm’s eco-design strategy.
32,6 Eco-design in turn relates to the firm’s environmental performance. Our research model
suggests that knowledge of the relationship among eco-design, its antecedents, and its
consequences provides a better understanding of a firm’s environmental performance.

Relationship between regulation and incentive, and customer pressure

726 Stakeholder theory focuses on the interests of stakeholders (government, investors,
political groups, customers, suppliers, communities, trade associations, and employees)
and assumes that organizations perform to satisfy the benefits and interests of these
stakeholders (Delmas, 2002). Regulation and incentive (REG&INC), and customer
pressure (CUSTPRE) represent the interests of stakeholders and exert coercive
isomorphism in the sense that they use rules, laws, and persuasion to encourage
compliance. Specifically, regulation and incentive are coercive mechanisms that exert
both impositions and inducements on organizations (Scott, 2001), and they reflect the
standards of regulatory agencies both inside and outside the country. Accordingly, we
define regulation and incentive operationally as legislation, standards, and rules that
include imposition and inducement elements, set by the government, parent
companies, foreign governments, or international organizations that can influence
manufacturing organizations to adopt green supply chain initiatives.
Customer pressure also represents coercive mechanisms that exert impositions or
inducements on firms to adopt green supply chain initiatives, but these impositions
and inducements take the form of customer demands or directions to set environmental
standards, the provision of incentives and encouragements to adopt green supply chain
initiatives, and customer rejection of products that contain hazardous elements or
insufficient recyclable or usable contents. If we consider an organization’s institutional
environment as composed of all stakeholder groups with an interest in a particular
issue, greater integration and involvement by these stakeholder groups should grant
them more power to influence the firm’s environmental strategies.
Maxwell et al. (1998) argue that customer pressures affect regulation and incentive on
environmental issues. They propose that individual customers must be aware of the
implications of pollution control on their well-being, and of the efficacy of various feasible
policy remedies. Individual customers of similar interests must coordinate on a mutual
strategy to gain political influence. Conversely, Clark and Lee (2004) show that regulation
and incentive are effective tools for complementing existing environmental protection
policies, especially when they are used to increase customers’ environmental awareness.
The literature shows that there is a correlation between these two external institutional
drivers. That is, regulation and incentive may provide information to educate customers to
increase their awareness of environmental concerns. On the other hand, customer pressure
may also influence regulatory policy through lobbying group, or even news media. This
particular phenomenon cannot be explained by causality. Hence, we propose that
regulation/incentive and customer pressure are positively correlated:
H1. Regulation and incentive are positively correlated with customer pressure.

Effect of regulation and incentive on eco-design

Organizations may adopt eco-design (ECODESN) in response to environmental regulation
and incentive set by regulatory institutions such as government bodies inside the
country, standards established by other firms (mainly export companies), and directives
by parent companies. Such regulation and incentive take the form of formal rules, laws, Environmental
sanctions, and incentives (Ravi et al., 2005; Preuss, 2001). In general, two types of performance
regulatory mechanisms exist to motivate business firms to undertake environmental
initiatives or avoid harmful impact. The first requires industries to monitor hazardous
wastes and submit environmental impact assessment reports for any new projects or new
plants (Abdullah, 1995). Most governments also offer various environmental incentives to
the manufacturing sector such as capital rebates for purchasing recycling machinery and 727
exemptions on import duties and sales tax for such machines or the provision of pioneer
status (which earns tax exemptions) and tax allowances to companies that ensure the
proper storage, treatment, and disposal of toxic and hazardous waste, waste recycling
activities, and conservation of energy (Holt and Ghobadian, 2009).
Yet no government regulations or incentives directly require businesses to
undertake eco-design, even if they might stimulate green supply chain initiatives
indirectly. For example, incentives that encourage recycling and waste reduction may
motivate companies to design recyclable products and increase the recyclable contents
in their products. In addition, firms may respond to regulations set by other countries.
Many countries, especially in Europe, have strict regulations that prohibit hazardous
products and promote recycling and product take-back (Tibben-Lembke, 2002;
Ferguson and Browne, 2001). These regulation and incentive have significant effects,
especially for firms that export products to these countries. Parent companies also may
set rules and standards that oblige subsidiary companies, including those in
developing countries, to adopt certain green initiatives. Therefore, we posit:
H2. Regulation and incentive positively affect the use of eco-design.

Effect of customer pressure on eco-design

Customers, as major financial stakeholders, can exert considerable pressures and may
communicate goals of sustainability or environmental performance to suppliers
(Rao, 2006; Carter and Carter, 1998). Anbumozhi and Kanda (2005) recognize that
customer pressure and expectations for green products provide effective means to
extend environmental practices in Asia. They also noted that many companies in Asia
supply parts or products to big multinational corporations based in Japan, the USA,
and Europe, so pressure from these large buyers may be the most effective way to
improve the environmental performance of Asian companies.
Prominent examples include Ford Motor’s requirement that all its suppliers
achieve the ISO 14001 standard and the statements of environmental responsibility for
Toyota, BMW, and Mitsubishi, which include supplier activities (Young and
Kielkiewicz-Young, 2001). Recently, 11 major international corporations indicated they
would start monitoring the carbon emissions of smaller companies that supply them as
an effective strategy to tackle global warming (INA, 2008). Such pressures should
encourage companies to behave in more environmentally conscious manners to keep
their customers. Thus, we propose:
H3. Customer pressure positively affects the use of eco-design.

Drivers of eco-design and environmental performance

We focus on drivers that emanate from the external environment of an organization:
regulation and incentive, and customer pressure. Both are legitimacy-based activities
IJOPM that exert institutional pressure. With such institutional pressures associated with
32,6 environmental issues, a firm’s desire to enhance its environmental performance
(ENVPERF) may provide a boundary condition for the effectiveness of economic
performance. That is, institutional theory suggests that when there is institutional
pressure from various stakeholders, improved environmental legitimacy can be
observed by stakeholders. Hence, we posit that responding to institutional pressures
728 and considering the public’s perception of the firm and its reputation affect the firm’s
overall environmental performance. As we hypothesize, when there is greater
institutional pressure from stakeholders such as the government and consumers, the
firm’s environmental performance should improve:
H4. Regulation and incentive positively affect environmental performance
outcome.
H5. Customer pressure positively affects environmental performance outcome.

Eco-design and environmental performance

Environmental performance implies positive results for the natural environment, such
as the reduction of solid/liquid wastes, reduction of emissions, resource reductions,
decrease of consumption of hazardous/harmful/toxic materials, decrease of frequency of
environmental accidents, and increase in compliance with environmental standards
(Geyer and Jackson, 2004; Zhu and Sarkis, 2004). Strategic choice theory holds that a
firm’s strategies drive its performance, and firms choose a specific strategy if its rewards
outweigh the costs. Thus, strategies determine performance. Starik and Marcus (2000)
also find strategic choice theory especially relevant in the environmental field. Firms’
environmental strategies are inherently complicated, due to the number, complexity,
and jurisdictional issues associated with environmental regulation and incentive, as well
as the number, complexity, diversity, and importance of stakeholders. Strategic choice
theory therefore might explain managers’ attempts to apply a rational framework in
such a disorganized environment. If a green strategy produces sufficient resource slack,
environmental performance will follow. Prior literature supports the idea that eco-design
induces positive environmental performance. For example, Geyer and Jackson (2004)
identify the environmental benefits of green supply chains, including the diversion of
products from landfills and the replacement of primary with secondary resources in the
reverse supply chain, which mitigates the environmental burdens of production. Zhu and
Sarkis (2004), in their analysis of data from the Chinese manufacturing sector, also find
significant positive relationships between eco-design and environmental performance:
H6. Eco-design positively affects environmental performance outcome.

Methodology
Sampling procedure
A sampling frame encompasses a list of all elements in a population (Sekaran, 2003).
The sampling frame for this study is the environmental management system
(EMS) ISO 14001 – certified manufacturing firms in Malaysia; the unit of analysis is
the individual firm. The term “firm” therefore refers to companies or individual units
or sites within companies. We chose ISO 14001 – certified firms because they are
more likely to have adopted green supply chain initiatives (Darnall et al., 2008;
Zhu et al., 2008; Sroufe, 2003). Darnall et al. (2008) find higher green supply chain
initiatives adoption rates for EMS adopters. The high level of awareness and experience Environmental
with environmental issues generated by the adoption of EMS facilitated the adoption of performance
green supply chain initiatives. Sroufe (2003) also find a strong positive relationship
between EMS adoption and environmental design, recycling, and waste practices.
Finally, Zhu et al. (2008) show a strong positive relationship between ISO 14001
certification and the adoption of green supply chain initiatives in Chinese firms. They
explain their results in terms of organizational learning: the experience with ISO 14001 729
generated momentum and encouraged the adoption of green supply chain initiatives.
One of our study informants supported this notion in the Malaysian context by noting
that “once a company becomes certified, it tries to put certain requirements to their
suppliers regarding green activities.”
For this research, the sampling frame represents all ISO 14001 – certified firms in
Malaysia, which we obtained from the Standards and Industrial Research Institute of
Malaysia (SIRIM) and the Federation of Malaysian Manufacturers (FMM, 2007)
directory of Malaysian manufacturers. SIRIM is the largest government-sponsored
certifying firm in Malaysia. It has certified hundreds of firms, including those that have
earned the environment management system (EMS) ISO 14000 certification; thus,
SIRIM has extensive experience and knowledge of green practices in Malaysia.
A SIRIM representative, in an interview, provided a list of all firms certified by that
organization prior to 2007. The total number on that list is 396, and the total number of
ISO 14001 – certified companies in the FMM directory is 261. The discrepancy
between SIRIM and FMM lists occurs because the SIRIM list includes all firms certified
by SIRIM, whereas the FMM list includes firms certified by other certifying bodies as
well. Moreover, the FMM list features only firms that voluntarily provided their
certification information to FMM, which excludes some certified firms that did not
provide such information. After combining the two lists and removing duplicate
records, our sampling frame consists of 569 firms.

Survey instrument
We developed the variable measures on the basis of our literature review and interviews.
We interviewed practitioners from firms that have implemented some form of green
supply chain initiatives to discover and clarify emergent phenomena in their practices
and indicate appropriate constructs and explanations, which suggest some key
constructs and associated relationships. With the help of SIRIM, we conducted a series of
interviews with environmentally conscious firms in March 2007. The interviews took
about 2 h each and were recorded with the consent of the interviewees. At the end of this
phase, we transcribed the recordings in preparation for subsequent analysis. To date,
very few large-scale studies have been conducted in the area of eco-design, its drivers, or
environmental outcome (Vachon and Klassen, 2006). Therefore, few reliable and
validated measures are available, and this research includes both the few available
measures and newly constructed items. We pre-tested the questionnaire for content
validity and reliability. Academics familiar with green supply chain survey study
assessed the face validity of each indicator in terms of its readability, clarity, and general
adequacy for representing the concepts. Then we distributed the questionnaire to
16 randomly selected EMRs of certified manufacturing firms who provided feedback
about the items and general structure of the questionnaire. The purpose of this pilot
study is for reliability testing. While the small number of responses may not provide
IJOPM accurate result, it offers a general idea about the consistency of measures. Cronbach’s
32,6 a values were calculated for each construct. The values are 0.705, 0.682, 0.756, and
0.697 for regulation/incentive, customer pressure, eco-design, and environmental
performance, respectively. All the a values are reasonably close to the threshold value of
0.70, especially with such a small sample size of 16 responses.
To assess the coercive mechanisms that induce organizations to perform specific
730 practices, we developed seven items that reflect elements of regulation and incentive.
Some items are newly constructed, and the others are adaptations of measures from
Zhu et al. (2007), Darnall (2006) and Carter and Carter (1998). For the coercive
mechanisms that exert impositions or inducements on firms to adopt green supply
chain initiatives, we use items that reflect the elements of customer pressure, both
newly constructed and adapted from Darnall (2006), Carter and Carter (1998) and
Carter and Ellram (1998). We employ a five-point Likert scale ranging from 1 (strongly
disagree) to 5 (strongly agree).
Eco-design is the environmentally conscious design of a product and its packaging
to minimize the adverse environmental impact throughout its entire life and promote
positive environmental practices. The measurement items, adapted from Sarkis (1998)
and Zhu et al. (2007), rely on a five-point Likert scale, with endpoints of 1 (not at all)
to 5 (very high extent).
The environmental outcome represents the actual impact of green supply chain
initiatives, such as compliance with environmental standards, reduced air emissions,
decreased resource consumption, and lower consumption of hazardous materials.
Specific items come from Zhu et al. (2007) and Rao (2002). Respondents indicate the
environmental performance outcome on a five-point Likert scale (1 – “strongly
disagree,” 5 – “strongly agree”), according to the achievements in the past three years as
a result of their green supply chain initiatives. The Appendix contains the details of the
survey instrument.

Respondents’ profile
The initial sampling frame of the study is the 569 ISO 14001 certified firms. Since two
firms were used for the interviews and 16 firms were involved in the pilot study, the
revised questionnaires were sent to the remaining 551 firms. After two reminder letters
in addition to telephone calls and e-mails, 132 usable questionnaires were received. The
response rate is about 24 percent. All subsequent analyses are based on these
132 responses. We present the characteristics of the responding firms in Table I. About
half (51.5 percent) of the firms belong to the electrical and electronics industry, the
largest industry in Malaysia. The remaining respondents are distributed among the
chemicals, rubber and plastics, and metal and machinery industries. Newly established
firms are relatively rare in the sample (24.2 percent); most firms (75.8 percent) are well
established (more than 15 years). Similarly, most firms are large (more than
250 employees; about 70 percent), which is consistent with the ownership status data
that show that multinational corporations account for roughly 70 percent of the firms.
Firms that are fully Malaysian-owned account for 30 percent.
Regarding the types of product, more than half (57.6 percent) of the firms produce
industrial products, and the rest produce consumer products. Most firms (75.8 percent)
have more than ten suppliers, which indicate their large supplier base. For the average
relationship length with major suppliers and customers, our data reveal that more than
 Environmental
Characteristics of respondent (sample size n ¼ 132) Frequency %
performance
Type of industry Electrical and electronics 68 51.5
Chemicals 19 14.4
Rubber and plastics 14 10.6
Metals and machinery 24 18.2
Others 7 5.3 731
Age of the firm Less than or equal to 15 years 32 24.2
More than 15 years 100 75.8
Number of employees Less than 100 10 7.6
100-250 31 23.5
251-500 37 28.0
501-1,000 17 12.9
More than 1,000 37 28.0
Type of products Consumer products 56 42.4
Industrial products 76 57.6
Number of suppliers Less than or equal to ten suppliers 32 24.2
More than ten suppliers 100 75.8
Supplier relationship length 1-5 years 10 7.6
More than five years 122 92.4
Customer relationship length 1-5 years 4 3.0
More than five years 128 97.0
Source of inputs Domestic 37 28.0
Regional/Asian 30 22.7
Global 65 49.2
Ownership status of the firm Malaysian fully owned 39 29.5
Local and foreign joint venture 18 13.6
American-based company 16 12.1
Japanese-based company 46 34.8
European-based company 10 7.6
Other (Korean/Taiwanese) 3 2.3
Green associations participation Yes 72 54.5 Table I.
No 60 45.5 Respondents’ profile

90 percent of firms maintain long-term relationships (more than five years) with their
suppliers and customers. This finding provides evidence of the widespread
relationship orientation in Malaysian industry. With regard to the sources of inputs,
Table I shows that approximately half of the firms (49.2 percent) obtain inputs from
global sources, and the rest obtain them from domestic and regional sources. Finally,
more than half of the firms (54.5 percent) participate in industry, trade, or professional
associations that have interest in green issues.

Statistical analysis
Measurement model
We used the two-step structural equation modeling (SEM) approach using LISREL 8.72 to
estimate the measurement and structural models separately to assess the psychometric
properties of the scale items for each construct and to establish relationships between the
exogenous and endogenous variables (Anderson and Gerbing, 1988).
The first measurement model tested was the regulation and incentive construct.
Following the suggestions of Byrne (1998), the model was checked to ensure that
IJOPM parameter estimates exhibit the correct sign and magnitude, and are consistent with
32,6 the underlying theory. The modification indices indicated that some of the error terms
are correlated. Since ElTayeb et al. (2010) explain that firms adopt green supply chain
initiatives and set internal environmental standards by following the guidelines
established by legislations, we allowed the errors of a firm’s green supply chain
initiatives (A1) and its environmental standards (A2) to correlate. Also, Setthasakko
732 (2009) shows that cost is the most significant obstacle to the adoption of green initiatives.
Financial incentives offered by the Malaysian Government (A4) and other international
organizations (A5) are major motivators that help to offset the huge cost of
implementing green initiatives. Thus, we allowed these two error terms to covariate.
The second measurement model tested was the customer pressure construct. We
correlated the error terms between the two indicators, customers’ green requirements (B1)
and their threat to withhold contracts for noncompliance (B2) because it is the prerogative
of the customers to do so if suppliers fail to meet their environmental standards
(ElTayeb et al., 2010). Next, we assessed the eco-design construct. Zutshi and Sohal (2004)
and Lin et al. (2001) reveal that the eco-design process begins with a LCA to evaluate the
environmental impact of a product over its lifespan, including its material selection,
distribution, packaging, consumption, and disposal. Thus, we correlated the errors
between the use of recycled materials (C1) and LCA (C2), as well as between ensuring the
use of recyclable materials in its packaging (C5) and reusable packaging (C6). Also, since
using reusable packaging reduces material and energy consumption, we correlated the
error terms between the two indicators, making products that reduce material
consumption (C4) and ensuing packaging is reusable (C6). Finally, the error terms of the
overall environmental performance indicator (D1) and the improvement in compliance to
environmental standards indicator (D2) were correlated because the latter is a subset of the
overall performance (Zhu and Sarkis, 2004). For example, increased compliance with
environmental standards such as reduction of solid waste, pollutants, and consumption of
hazardous materials directly improve a firm’s overall environmental performance.
Figure 2 and Table II contain the results of our measurement models. Table II shows
that the Cronbach’s a statistics for the constructs suggest the scales are sufficiently
reliable, with 0.802 for regulation and incentive, 0.895 for customer pressure, 0.932 for
eco-design, and 0.887 for environmental performance. Critics of Cronbach’s a argue that
it is a simple measure of reliability based on internal consistency that fails to estimate
errors caused by factors external to an instrument, such as differences in testing
situations or respondents over time. For SEM, composite reliability (CR) and average
variance extracted (AVE) offer viable alternatives, because they are more parsimonious
than Cronbach’s a. Thus, in Table II we provide the CR values, which range from 0.899 to
0.964, in excess of the recommended threshold value of 0.60. The AVE values range from
0.604 to 0.816, which exceed the suggested threshold level of 0.50. These statistics show
that the constructs are reliable. Consistent with the two-step modeling approach, we ran
a confirmatory factor analysis (CFA) by testing all the four measurement models
concurrently. The CFA exhibits excellent model fit (x 2/df ¼ 1.50, NFI ¼ 0.91,
NNFI ¼ 0.95, CFI ¼ 0.96, IFI ¼ 0.96).

Construct validity tests

The LISREL results support our proposed model. The x 2/df statistics is 1.304, and the
measurement models reveal discriminant, convergent, and nomological validity.
 0.60 A1 Environmental
0.20
0.61 0.25 B1 performance
0.45 A2 0.16
0.76 0.80
0.53 B2
0.32 A3 0.88
0.71
REG&INC
0.88
0.55 A4
1.00
0.18 B3 0.83 CUSTP 733
0.41 0.81
0.67 0.98 B4
A5 0.47
1.00

0.34 A6 0.11 B5
Regulation and Incentive Customer Pressure

0.62 C1
0.14
0.15 D1
0.93 0.06
0.45 C2 0.90
0.74
0.12 D2
0.30 C3 0.83
1.00
0.98 ECODESN 0.25 D3 1.00
ENVPERF
0.35 C4
0.98 0.89
–0.14 0.18 D4
0.28 C5 0.99 1.00
0.15
0.69 0.89
0.24 C6 0.21 D5

0.33 C7 0.24 D6
Eco-Design Environmental Performance Outcome Figure 2.
Measurement models
Note: Parameter estimates

Table III shows the descriptive statistics and correlations of the four constructs.
A preferred structural equation model approach to assess discriminant validity of
measurement models is the x 2 difference test between the constrained model and the
unconstrained model of each pair of the constructs (Anderson and Gerbing, 1988). For
example, to test the discriminant validity of the two constructs, REG&INC and
ECODESN, the constrained model sets the correlation between the two constructs to one
which results in a x 2-value of 122.95 with 60 degrees of freedom ( p , 0.05). Next, the
unconstrained model allows the correlation between the two constructs to be freely
estimated, which yields a x 2-value of 101.59 with 59 degrees of freedom ( p , 0.05). The
statistically significant x 2 difference test between the constrained and unconstrained
models (x 2 diff, df ¼ 1 ¼ 21.36, p , 0.05) indicates that the two constructs, regulation
and incentive, and eco-design, show discriminant validity. Table IV summarizes the x 2
difference tests, confirming discriminant validity of the four constructs.
In terms of convergent validity, we find large and significant standardized loadings
of each measured item on its construct as shown in Figure 2 ( Jöreskog and Sörbom,
1993). We assess nomological validity by determining the root mean squared error of
approximation (RMSEA), confirmatory fit index (CFI), incremental fit index (IFI), and
normed fit index (NFI). The model fit indices (RMSEA ¼ 0.048, NFI ¼ 0.92, CFI ¼ 0.97,
IJOPM
Reliabilities Reg&Inc CUSTPRE ECODESN ENVPERF Acceptable levels
32,6 Standardized Cronbach’s a 0.802 0.895 0.932 0.887 $0.70
Composite reliabilities 0.899 0.918 0.944 0.964 $0.60
Average variance extracted 0.604 0.694 0.710 0.816 $0.50
Structural
Goodness of fit statistic REG&INC CUSTPRE ECODESN ENVPERF equation model
734 x 2/degrees of freedom (x 2/df) 1.094 1.740 1.355 1.519 1.304
p-value for x 2 test 0.363 0.138 0.187 0.145 0.001
RMSEA 0.027 0.075 0.052 0.063 0.048
p-value for (RMSEA , 0.05) 0.57 0.26 0.43 0.33 0.57
ECVI – model 0.27 0.22 0.37 0.32 3.32
ECVI – saturated 0.32 0.23 0.43 0.32 4.58
ECVI – independence 2.78 4.17 9.43 5.01 34.13
AIC – model 35.66 28.96 48.90 38.15 435.03
AIC – saturated 42.00 30.00 56.00 42.00 600.00
AIC – independence 364.27 546.37 1,235.45 656.48 4,471.44
CAIC – model 90.02 71.67 114.91 88.62 679.64
CAIC – saturated 123.54 88.24 164.72 123.54 1,764.84
CAIC – independence 387.57 565.79 1,262.63 679.78 4,564.63
NFI 0.98 0.99 0.99 0.98 0.92
NNFI 1.00 0.98 0.99 0.99 0.97
PNFI 0.46 0.39 0.52 0.52 0.79
CFI 1.00 0.99 1.00 0.99 0.97
IFI 1.00 0.99 1.00 0.99 0.97
RFI 0.95 0.97 0.98 0.96 0.91
Table II. CN 312.95 241.14 215.55 210.10 108.37
Reliability and RMR 0.027 0.019 0.025 0.013 0.056
model fit indices Standardized RMR 0.036 0.024 0.024 0.030 0.068

Mean SD REG&INC CUSTPRE ECODESN ENVPERF

REG&INC 3.703 1.068

Correlation
Coefficient 1.000
Significant (two-tailed)
CUSTPRE 3.844 0.903
Correlation
Coefficient 0.226 1.000
Significant (two-tailed) (0.009)
ECODESN 3.286 1.068
Correlation
Coefficient 0.380 0.325 1.000
Significant (two-tailed) (0.000) (0.000)
Table III. ENVPERF 4.077 0.667
Descriptive statistics Correlation
and correlations Coefficient 0.374 0.200 0.469 1.000
of the constructs Significant (two-tailed) (0.000) (0.021) (0.000)
 Environmental
Paired models x2 df p-value for x 2 test
performance
REG&INC – ECODESN (constrained model) 122.95 60 0.00000
REG&INC – ECODESN (unconstrained model) 101.59 59 0.00048
2
x diff (1) ¼ 21.36 0.00000
REG&INC – CUSTPRE (constrained model) 100.91 41 0.00000
REG&INC – CUSTPRE (unconstrained model) 74.46 40 0.00076 735
x 2 diff (1) ¼ 26.45 0.00000
REG&INC – ENVPERF (constrained model) 100.89 51 0.00004
REG&INC – ENVPERF (unconstrained model) 64.43 50 0.08237
x 2 diff (1) ¼ 36.46 0.00000
CUSTPRE – ECODESN (constrained model) 85.11 50 0.00143
CUSTPRE – ECODESN (unconstrained model) 65.83 49 0.05454
x 2 diff (1) ¼ 19.28 0.00001
CUSTPRE – ENVPERF (constrained model) 92.59 42 0.00001
CUSTPRE – ENVPERF (unconstrained model) 60.06 41 0.02763
x 2 diff (1) ¼ 32.53 0.00000
ECODESN – ENVPERF (constrained model) 107.04 61 0.00025
ECODESN – ENVPERF (unconstrained model) 82.81 60 0.02719 Table IV.
x 2 diff (1) ¼ 24.23 0.00000 Discriminant validity test

IFI ¼ 0.97) show that the model fit is acceptable, so the final structural equation model
adequately reproduces the population covariance matrices (Steiger, 1990).

Results
In Figure 3, we provide the path parameter estimates for our proposed model. The
correlation between regulation and incentive and customer pressure is statistically
significant (b ¼ 0.14) at a ¼ 10 percent, in support of H1. The paths from regulation
and incentive to eco-design (b ¼ 0.58), and from customer pressure to eco-design
(b ¼ 0.23) are statistically significant at a ¼ 5 percent, so H2 and H3 are supported.
The path from regulation and incentive to environmental performance (b ¼ 0.26) is
also statistically significant, in support of H4. However, there is a lack of statistical

Regulation
and Incentive 0.26*1
(REG&INC)
0.58*1
Environmental
Eco-Design
0.14*2 0.21*1 Performance Outcome
(ECODESN) (ENVPERF)

0.23*1

Customer Pressure 0.00*3

(CUSTPRE)

Notes : Statistically significant *1 – α = 5% and statistically significant Figure 3.

Structural equation model
*2 – α = 10% and statistically insignificant *3; Parameter estimates
IJOPM evidence to support H5. Finally, the path from eco-design to environmental
32,6 performance (b ¼ 0.21) is also significant, in support of H6.
Among regulation and incentive, eco-design, and environmental performance
(H2, H4, and H6), we discover partial mediation, such that the significant path
relationships among the three constructs demonstrate regulation and incentive have
both direct and indirect effects on environmental performance, the latter through
736 eco-design. Hence, only part of the total effect of regulation and incentive on
environmental performance is due to mediation through eco-design.
Customer pressure has no direct effects on environmental performance (H5), but we
confirm the direct effect on eco-design (H3). Also, it has an indirect effect on
environmental performance (H6) through eco-design, which indicates a complete
mediating model among customer pressure, eco-design, and environmental
performance, where customer pressure is the antecedent, eco-design is the mediator,
and performance is the consequence. The indirect effect of customer pressure on
performance through eco-design shows that customer pressure does not affect
environmental performance directly, but via eco-design.
Regulation and incentive affect eco-design (b ¼ 0.58) and environmental performance
(b ¼ 0.26) suggesting that it affects a firm environmental performance directly and
indirectly via eco-design. The results support a partially mediated relationship among
regulation and incentive, eco-design, and environmental performance.

Discussion
An interesting observation of this research is the statistically significant correlation
between the regulation and incentive construct and the customer pressure construct.
Policy makers and government agencies often institute new environmental regulations,
laws, and incentives in response to issues raise by environmental organizations, and to
protect the environment and the consumers. Similarly, manufacturers typically respond
to the same group of organizations to fulfill the demand of the consumers, to comply with
legislations, and take advantage of any financial incentives. Thus, it is not surprising
that regulation and incentive, and customer pressure are statistically correlated.
The significant effect of customer pressure on eco-design is consistent with the
findings of Sroufe et al. (2000) and Walker and Sisto (2008). Our respondents are
suppliers of big firms overseas, and these large customers exert significant pressures
on their suppliers to ensure they comply with strict environmental product standards.
Multinational companies try to ensure that all products in their supply chain meet all
environmental requirements in Europe, Japan, or the USA. The firms respond to such
customer pressure to avoid losing their customers. They remain concerned about their
long-term survival, in terms of earning consistent contracts and maintaining good
relationships with customers that provide business opportunities.
Because eco-design is an internally focused green supply chain initiative, the firm tries
to improve the environmental attributes of its products and processes internally with little
cooperation or interaction with external business entities. Therefore, the impact of such an
improvement links directly to the internal performance of the firm. For example, Zhu et al.
(2007) find a significant effect of internal environmental management on economic
performance but no effect of externally oriented green supply chain initiatives (e.g. green
purchasing, customer cooperation). Both regulation and incentive, and customer pressure
represent coercive pressures; the only difference is the source of that pressure.
For regulations, the pressure comes from government and other regulatory bodies, Environmental
whereas for customer pressure, it is exerted by direct customers of the firm. performance
We cannot confirm that customer pressure affects environmental performance
(b ¼ 0.00) directly, which is not surprising. Prior research has suggested that the
positive impact of customer pressure is attributable to infrastructural decisions made
as part of broader compliance with governmental regulation and incentive. However,
our analysis shows that customer pressure influences environmental performance 737
indirectly through eco-design. The coefficients of the path from customer pressure to
eco-design and from eco-design to environmental performance are 0.23 and 0.21,
respectively. This finding may help explain why in some cases, customer pressure fails
to enhance firm environmental performance.

Managerial implications
Figure 4 synthesizes the results and managerial implications of this study. Policy
makers and firms attempting to nurture their eco-design should not overlook the
important role of environmental regulation and incentive. However, new regulation and
incentive for eco-design are emerging that may require specialized knowledge and
expertise, as well as significant capital investment and a willingness to assume risk.
Also, product life cycles are shrinking rapidly and global competition is escalating the
availability of competing product offerings simultaneously. These factors have made it
extremely difficult for firms to implement eco-design to products and processes on their
own in a timely, viable manner. However, the statistically significant path from the
regulation and incentive construct to eco-design hints that the threat of noncompliance
with legislations and financial incentives from government agencies and international
organizations play a crucial role in encouraging eco-design that emphasizes the use of
recycled and recyclable materials in the product and its packaging, LCA, and
encourages companies to produce energy conscious products, among others. Policy
makers and government agencies should realize that their proactive role in formulating
relevant environmental standards and legislations has a profound impact on the
eco-design of the products and processes of manufacturing firms. Government agencies
and policymakers should also develop cooperative relationships with environmentally
conscious manufacturers to educate and encourage them to implement effective
eco-design. The indicators in the regulation and incentive construct suggest that a
“carrot and stick” approach is preferred over a “carrot on a stick” tactic.

External Drivers Firm’s Environmental Performance

Regulation & Incentive
- Threat of non compliance with legislations
- Parent company’s environmental standards
- Government environmental inspections
- Financial incentives from government
- Financial incentives from international
organizations
- Government environmental regulations
Customer Pressure
- Customers’ green SC requirements
- Customers’ threat to withhold contracts
- Customers’ commitment to environment
- Customers’ encouragement to go green
- Customer associations’ green requirements
Environmental Performance Outcome
- Overall environmental performance
- Compliance to environmental standards
- Reduction in air pollution
Environmental Strategy - Reduction in energy consumption
- Reduction in material usage
Eco-Design - Reduction in hazardous materials
- Use recycled raw materials
- Use life cycle assessment
- Products with recyclable contents
- Materials and energy conscious products
- Packages with recyclable contents
- Reusable packages
- Minimize packaging materials
Figure 4.
Green supply chain
management framework
IJOPM Although our study shows that customer pressure has no direct significant impact on
32,6 environmental performance outcome, savvy managers of downstream manufacturing
firms should continue to exert pressure and encourage key suppliers to adopt green supply
chain management. The rationale is that customer pressure affects the eco-design of
strategic suppliers, which ultimately impact environmental performance outcome. This is
especially important because regulation and incentive, and customer pressure must be
738 considered simultaneously due to the positive correlation between them. It is through the
simultaneous consideration of regulation and incentive, and customer pressure that the
greatest effect on eco-design is achieved. A successful eco-design that stresses the use of
recycled and recyclable raw materials in the products and their packages, LCA, and the
design of products and packages that minimize waste and energy consumption will in due
course improve environmental performance.
Another key implication of this study is that policy makers should not underestimate
the role of regulation and incentive in improving environmental outcome. Without the
proper guidelines, regulations, and financial incentives, few companies are likely to
initiate green supply chain management, especially in the developing countries. Relying
solely on customer pressure in isolation of regulation and incentive is unlike to achieve
the desired environmental performance outcome. Regulation and incentive affect
environmental performance outcome directly, and also via eco-design. Indeed, the direct
impact (b ¼ 0.26) on the performance outcome is larger than the effect of eco-design
(b ¼ 0.21). Thus, policy makers should exploit the “carrot and stick” approach to induce
manufacturing firms in developing countries to adopt green supply chain management.

Conclusions
This study examined the drivers of eco-design and their impact on environmental
performance. The results provide empirical support for the central thesis of this study.
That is, eco-design mediates the impact of regulation and incentive, and customer
pressure on environmental performance. We provide support for the institutional theory
as it relates to environmental sustainability. Eco-design allows firms to react to
regulation and incentive, and customer pressure by leveraging their inimitable core
competency and expertise for green designs. With the proper regulation and incentive,
firms can achieve environmental performance levels in excess of those that they might
achieve by their own voluntary efforts to protect the environment. This study helps
managers to understand the value of their internally developed eco-design capability to
respond to external pressures and institutional concerns. The response to external
institutional pressures provides a basis for creating an inimitable eco-design resource
base, which is critical to environmental sustainability. The results show that eco-design
is a key factor to sustainable environmental performance, and our study provides
further evidence of the influence of external institutional pressures and internal
eco-design on environmental performance.

Limitations and future studies

This research is not without limitations. First, our attempt to offer a theoretical green
supply chain management framework is ambitious and creates some inherent
limitations. The most noteworthy limitation of this study is the range of developed
constructs for eco-design characteristics. Our research design incorporates multiple
rounds of theory building through literature reviews and expert opinions, but it does not
capture every aspect of the complex concept of eco-design characteristics. Establishing a Environmental
valid, reliable instrument to capture the multiple facets of eco-design is an ongoing performance
process, and no psychometric technique can achieve an absolutely complete
measurement. Therefore, it is possible that other dimensions of eco-design that
influences a firm’s environmental performance are not captured herein. Similarly, there
are other stakeholder pressures and issues being excluded from the regulation and
incentive, and customer pressure constructs. Future studies should collect data from 739
different countries to validate our findings and results to provide a thorough
understanding of the eco-design construct and its antecedents and consequences.
Second, this study uses subjective measures as indicators of performance outcome,
which may not be able to subsume the achievement of strategic objectives and
exploitation of competitive advantages. Moreover, some successful green-oriented
enterprises may fail to achieve profitability. Other financial ratio measures therefore
could add richness to the measure of environmental performance outcome. However,
financial ratios derived from accounting data represent short-term performance
measures, whereas subjective measures commonly reveal long-term performance.
Future research should examine the effect of eco-design on firm performance using both
financial ratios and subjective measures.
Third, longitudinal data would have been useful to determine whether the effect of
the variables is short-term or enduring. Longitudinal data might indicate how changes
in certain variables affect environmental performance outcome. A revised model that
uses changes in antecedents (e.g. regulation and incentive, customer pressure, and
eco-design) and changes in consequence (e.g. environmental performance outcome) may
yield better results, because a dynamic formulation eliminates the influence of variables
whose levels remain comparatively stable (e.g. it takes time to develop eco-design). Also,
a lagged relationship between changes over time helps clarify the causation in the model.
Fourth, though theory lends support to the generalizability of our results, there may
be significant differences caused by the homogeneous nature of the sample gathered
from one country. If researchers use a more heterogeneous sample, they may face more
variance noise, which could result in less explained variance. Manufacturing firms in
different countries (e.g. Western countries) may face different institutional pressures.
Future study should examine manufacturing firms in different countries to compare
whether they benefit from different levels of eco-design, and how regulation and
incentive, and customer pressure affects environmental performance outcome.

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Appendix. Survey instrument

I. Drivers to adopt green supply chain initiatives
This section assesses the drivers that encourage firms to adopt green supply chain initiatives.
We ask respondents to indicate on a five-point Likert scale (1 – strongly disagree, 5 – strongly
agree) how the following issues apply to their firm’s supply chain initiatives.
(A) Regulation and incentive (REG&INC):

A1. Through adopting green supply chain initiatives, my firm tries to reduce or avoid the
threat of current or future government environmental legislations.
A2. My firm’s parent company sets strict environmental standards for my firm to comply
with.
A3. There are frequent government inspections or audits on my firm to ensure that the firm
is in compliance with environmental laws and regulations.
A4. Financial incentives offered by the Malaysian Government, such as grants and tax
reductions, are significant motivators for my firm to adopt green supply chain
initiatives.
A5. Financial incentives offered by international organizations, such as the United Nations,
are significant motivators for my firm to adopt green supply chain initiatives.
A6. There are a large number of environmental regulations or restrictions imposed by the
government on my firm’s industry.
IJOPM (B) Customer pressure (CUSTPRE):
32,6 B1. My firm’s major customers frequently require my firm to adopt green supply chain
initiatives.
B2. My firm’s major customers would withhold their contracts if my firm did not meet
their environmental performance requirements.
744 B3. My firm’s major customers have a clear policy statement regarding its commitment to
the environment.
B4. My firm receives requirements from consumer associations to be more
environmentally conscious firm.
B5. My firm’s major customers frequently encourage my firm to adopt green supply chain
initiatives.

II. Existence of green supply chain implementation in terms of eco-design

This section assesses the existence of green supply chain implementation in terms
of eco-design. We ask respondents to indicate on a five-point Likert scale (1 – not at all, 5 – very
high existence) the existence of the following eco-design in their firm. We stated in the survey that
“Eco-design is an environmental-conscious design of a product that aims to minimize the negative
environmental impact of the product throughout its entire life and to
promote positive environmental practices such as recycling and reusing of the product or its
packaging”.
(C) Eco-design (ECODESN):

C1. My firm produces products that have reused or recycled materials in their contents
such as recycled plastics and glass.
C2. My firm uses LCA to evaluate the environmental load of its products.
C3. My firm makes sure that its products have recyclable or reusable contents.
C4. My firm produces products that reduce the consumption of materials or energy during
use.
C5. My firm makes sure that its packaging has recyclable contents.
C6. My firm makes sure that its packaging is reusable.
C7. My firm minimizes the use of materials in its packaging.

III. Environmental performance outcome of green supply chain initiatives

This section assesses the performance outcome of the firm’s green supply chain initiatives. We
ask respondents to indicate the environmental performance outcome on a five-point Likert scale
(1 – strongly disagree, 5 – strongly agree) that have been achieved in the last three years as a
result of their green supply chain initiatives.
(D) Environmental performance outcome (ENVPERF). During the last three years my firm
achieved:
D1. Significant improvement in its overall environmental situation.
D2. Significant improvement in its compliance to environmental standards.
D3. Significant reduction in emission of air pollutants.
 D4. Significant reduction in energy consumption. Environmental
D5. Significant reduction in material usage. performance
D6. Significant reduction in consumption of hazardous materials.

Corresponding author 745

Keah Choon Tan can be contacted at: kctan@unlv.edu

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