ENVIRONMENTAL INITIATIVES: AN EXPLORATION OF SMALL AND MEDIUM ENTERPRISE (SMEs) RESPONSES TOWARD GREEN TECHNOLOGIES by R.Z. Raja Mohd Rasi Faculty of Technology Management, University Tun Hussein Onn Malaysia, Johore, Malaysia Email:
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[email protected] A. Abdekhodaee Faculty of Engineering and Industrial Sciences, Swinburne University of Technology, Vic, Australia R. Nagarajah Faculty of Engineering and Industrial Sciences, Swinburne University of Technology, Vic, Australia ABSTRACT This paper is based on an empirical study of environmental initiatives implementation in the Malaysian Small and Medium Enterprises’ (SMEs). The key focus of this study is to explore SMEs’ environmental initiatives. Environmental initiatives as defined here can be classified into three major areas: green initiatives within internal organization system, such as setting environmental goal and waste audit, environmental or green manufacturing practices, and lastly, green design orientation. This study examines the level of environmental management initiative, ranging from reactive to proactive initiatives, using a survey from SMEs in electric and electronic industry. The data from 192 manufacturing firms have been collected and tested using SPSS. Our survey strongly suggests that SMEs have moved to develop an increasingly proactive environmental orientation. It also demonstrates the importance of further investigations on: (a) environmental management systems orientation, (b) extensive study on the primary stakeholder that could effectively guide and drive SMEs’ environmental strategies, and (c) the contributory role of supply partners and the direct and indirect relationships between these systems and their performances. KEYWORDS Environmental Practices, SMEs, Proactive initiatives, Reactive Initiatives INTRODUCTION Environmental challenges have increased significantly in the last twenty years. Organizations especially small-tomedium-sized enterprises (SMEs) are under increasing pressure to maintain their operations as well as to reduce or eliminate environmental damage. The majority of studies of environmental management initiatives have been conducted in large organizations. This is unfortunate, as the SMEs, collectively represents more than 90 % of manufacturing establishment and they represent a significant share of the business sector economy. Therefore, SMEs play an imperative role in a country’s wealth and have the potential to make a significant contribution to a country’s sustainable industry. Several surveys confirm that most environmental pollution originates from SMEs. An earlier study by Smith and Kemp (1998) identify that 70 percent of manufacturing pollution by SMEs. The Marshall Report (1998) estimates that SMEs produces 60 percent of carbon emissions. More recently, a report for The European Commission, Directorate General Environment, indicates that more than 50% of commercial and industrial waste is produced by SMEs (Berends, Morère et al. 2000), whilst the Environment Agency (2003) estimates that UK SMEs are responsible for 60% of commercial waste and 80% of pollution accidents. Again, work by the Wales Environment Centre in rural Wales, indicates that around 91% of waste in the area is produced by SMEs (Berends, Morère et al. 2000). Accordingly, the environmental impacts of SMEs surpass the combined environmental consequence of large organizations (Hillary, 2000). Until recently, the drive to reduce the impact of business on the environment had been primarily focused on large organizations but all businesses, however small, have an impact on the environment.
This study contributes to environmental management literature and seeks to explore the level of environmental practices among SMEs in Malaysia. The paper is structured as follows. Following the introduction, we review the literature analyzing environmental strategies, paying special attention to SMEs. The research design for the study is then presented. The next section outlines the findings of the study. Identified environmental initiatives are then discussed. Finally, conclusions are drawn, including limitations of the research and future researches. REVIEW OF THE LITERATURE Types of environmental initiatives Over the past 20 years, major stream of environmental management literatures discusses on a range of green strategies development or initiatives. The environmental initiatives can be classified from reactive to proactive approaches. Previous research has identified organizations’ approaches to environmental management (Hunt and Auster 1990; Kopicki, Berg et al. 1993; Walton, Handfield et al. 1998). Earlier models of environmental strategies were suggested more than twenty years ago by Carroll (1979) and Wartick and Cochran (1985). Both models classified organizations’ environmental initiatives into four stages of environmental management strategy based on their survey; reactive, defensive, accommodative, and proactive. Later, in 1992, Roome (1992) classified organizations’ environmental practices into five broad environmental strategies: 1. Noncompliance – occurs when a company can’t react to the environmental standards due to cost and resource constraints. 2. Compliance- driven mainly to comply with legislation. 3. Compliance plus – starts to embark on proactive approaches. Willingness to employ environmental management systems and policies to drive organizational changes. 4. Commercial and environmental excellence – dedicated to addressing environmental issues voluntarily. 5. Leading edge- views environmental practices as a tool for competitive advantage. In 1993, Kopicki (1993), using much simpler categories, identified organization’s environmental initiatives based on their degree of environmental responsiveness. The less responsive organizations are categorized as reactive and then there is a continuum classification to proactive and value-seeking organizations. Reactive organizations can be identified as having minimal resource commitment to environmental practices. They are typically using “end of pipe” initiatives such as recycling material and using filters or treating pollution at the end of a production processes. Proactive organizations start to realize environmental commitment by designing green products and processes. They commit modest resources and assume obligations to re-use and recycle products as a part of environmental initiatives. The ultimate approach is value-seeking, where organizations integrate environmental strategies at a higher strategic level of organization. Their aims are to voluntarily seek solutions to reduce their products and processes impacts on the environment. Recently, Walton et al. (1998) extended the work of Kopicki (1993) by introducing six comparable approaches in environmental management that start with resistant – i.e.: comply with the letter of the law, adaptation, embracing without innovating, reactive, receptive and constructive. Walton et al. (1998) describe proactive organizations as parallel to that of the value seeking approach described by Kopicki et al. (1993). Table 1 lists the classification summary of different environmental initiatives. For the purpose of this study, two main environmental initiatives are researched, which are: Reactive strategy focuses more towards pollution control initiatives. Reactive strategy is a structural investment that treats or disposes of pollution after its occurrence at the end of the production processes (Vachon and Klassen 2008). Pollution control initiatives include both end-of pipe technologies and remediation activities. End-of pipe technologies are for example, installation of manufacturing equipment that is deemed to capture hazardous waste prior to it discharge. Air or water filtration systems are examples of this technology. Remediation activities involve activities to clean up the environmental devastation, for example cleaning up leaking oil tanks. Although this type of strategy could achieve an organization’s source reduction objectives, it incurs unnecessary additional expenditure. However, despite such ineffectiveness, managers often prefer to adopt these types of technologies in their manufacturing processes because of the ease of use and they are less disruptive than product or process based changes. Proactive strategy focuses more on pollution prevention initiatives. The strategy emphasizes a structural investment in production that involves process or product based changes (Klassen and Whybark 1999). Eventually,
investments in green technologies reduce and eliminate pollution by changing or reducing harmful material, eliminating non value added design and/or improving production processes. Environmental management systems, better housekeeping and integration of environmental consideration in production planning and scheduling are other examples of proactive strategies in infrastructural investments. Proactive strategy requires total commitment from the entire organization. Top managers have to ensure employees have adequate environmental knowledge by allocating continuous environmental learning. Therefore, this study seeks to explore evidence of environmental initiatives among SMEs in Malaysia. TABLE 1 ORGANIZATION APPROACH TO ENVIRONMENTAL INITIATIVES
Carroll(1979) Wartick and Cochran(198 5);
Roome (1992)
Kopicki (1993)
Reactive
Non
Reactive
Walton et al (1998)
Resistant
No support from top management No environmental reporting No employee environmental training and involvement
Adaptation
Moderate involvement from top management Ad hoc organization End of pipe solutions Comply with regulations Little employee training and involvement
Compliance
Defensive
Compliance
Reactive
Accommodative
Proactive
Compliance plus
Commercial and environment al excellence
Proactive
Characteristics
Receptive. Constructive
Proactive Value seeking
Leading edge
Some involvement from top management Internal reporting exists Functional approach
Top management commitment Internal and external reporting Employee environmental training and involvement Supply chain initiative Flexible Systematic
Low level
Mod erate level
High level
METHODOLOGY The study is an exploratory analysis of environmental strategies taken by SMEs and their impact on environmental and operations performance. To explore SMEs’ environmental initiatives, it is useful to distinguish different areas where environmental strategies could be established in organizations’ operations. This study includes green practices in three key areas: 1. Internal organization - activities associated with the development of environmental plans and strategies. 2 .Manufacturing - related to processes based activities. 3. Design – related to product based activities.
Table 2 provides the details of the environmentally oriented activities requested in the questionnaires. Each of these items was responded to using a five-point scale with: 1 = No program 2 = Planning or developing program 3 = Newly Implemented program 5 = Well established successful program 4 = Implemented Program Gaining Experience Higher scores indicated implementation of environmental practices greater levels of which indicate a higher level of proactive environmental responsibility. TABLE 2 ORGANIZATION’S ENVIRONMENTAL PRACTICES Internal organization a. Specific goals to reduce wastes, discharges and emissions b. Specific goals to reduce water use, energy use and/or resource use c. A formal environmental management system procedures manual d. A pollution prevention or source reduction program e. An environmental cost accounting program (full cost accounting) f. A life cycle assessment program g. A recycling activities h. A waste audit or waste management system i. An ISO 14001 environmental management system certification j. Natural environmental training for the firm's employees Manufacturing a. Filters and controls for emissions and discharges. b. Systematic control of energy consumption so as to reduce the organization's demand. c. Recycling and reusing water d. Use of ecological ingredients in the manufacturing of our products. Design a. Natural environmental analysis of the product life-cycle (LCA). b. Design of products and services according to ecological criteria (eco-design).
SAMPLING DESIGN The data for this study is from survey questionnaires administered to top managers of Malaysian SMEs in the electric and electronic industries. Top managers are appropriate respondents for this study because they have adequate knowledge of the business unit’s strategies, resources and capabilities. In addition, they are also familiar with the environmental challenges faced by the organization. The sampling frame of the study comprised of SME organizations in three industrial states, Johor, Melaka and Selangor. A total of 1051 companies are registered with the Small and Medium Development Corporation (SMIDEC) in those states. The questionnaire, comprising 73 items, was mailed out using the Dillman Method (1978) . This includes follow-up letters and phone calls. A week after the first mailing, an email was sent to ensure that the participants had received the mail and to encourage them to participate. After two weeks, a second lot of questionnaires were posted to remind them about the survey. Due to potential difficulties associated with a pure mail survey (Larson, 2005), other options of data collection were adopted to increase the response rate and the quantity of collected data. Two additional methods were; 1. Handing out research packages at SMIDEC workshops (with their permission). 2. Online participation using Opinio. DATA ANALYSIS AND RESULTS The 192 completed questionnaires were analyzed using SPSS 17. To ensure the reliability of the research instrument, a reliability test was performed using Cronbach’s alpha. Alpha values greater than 0.60 are acceptable (Nunnally and Bernstein 1994). Cronbach alpha for environmental initiative measures for the internal organization, manufacturing and design were 0.903, 0.772 and 0.767 respectively. After the validity and reliability of the survey instrument were confirmed, the exploratory analysis was proceeded with.
Exploratory analysis Table 3 shows that SMEs are undertaking environmental initiatives, with a mean scores (out of 5) ranging from 1.88 to 3.82. TABLE 3 DESCRIPTIVE STATISTICS OF SMES’ ENVIRONMENTAL STRATEGIES FROM HIGHEST TO LOWEST Environmental initiatives
N
Mean
Std. Deviation
Recycling activities Specific goal to reduce wastes, discharges and emissions Specific goals to reduce water use, energy use and/or resource use A formal environmental management system procedures manual An ISO 14001 environmental management system certification Natural environmental training for the firm's employees Filters and controls for emissions and discharges Waste audit or waste management system Systematic control of energy consumption so as to reduce the organization's demand An environmental cost accounting program. A pollution prevention or source reduction program. Recycling and reusing water. Use of ecological ingredients in the manufacturing of our products. Natural environmental analysis of the product life-cycle (LCA) A life cycle assessment program Design of products and services according to ecological criteria (Ecodesign.)
192 192 192 192 192 192 192 192
3.86 3.21 2.99 2.88 2.84 2.77 2.74 2.70
1.133 1.103 1.121 1.222 1.235 1.350 1.146 1.334
192
2.70
1.103
192 192 192 192 192 192
2.45 2.44 2.27 2.12 1.98 1.97
1.205 1.124 1.198 1.237 1.160 1.053
192
1.96
1.033
1. 2. 3.
For the purpose of this study, environmental initiatives are divided into three different levels. The levels are: High: those initiatives with a mean score above 3.00 Moderate: those initiatives with a mean score between 2.00 to 3.00 Low: those initiatives with a mean score below 2.00
The highest mean for environmental initiatives is 3.86 for recycling activities. This implies that on average, SMEs have either “Newly Implemented program” or “Implemented Program Gaining Experience”. This is not surprising because recycling activities are considered to be a reactive approach using “end-of-pipe” practices. This practice does not eliminate the source of emissions, but it is the first move of SMEs when embarking on proactive initiatives. Many SMEs had specific goals to reduce waste, discharges and emissions and specific goals to reduce water use, energy use and/or resource use (mean 3.21 and 2.99 respectively). Next, with a mean score between 2.00 and 3.00, indicating “Planning or developing program” or “Newly Implemented program”, were:
A formal environmental management system procedures manual. An ISO 14001 environmental management system certification. Natural environmental training for the firm's employees. Filters and controls for emissions and discharges. Waste audit or waste management system. Systematic control of energy consumption so as to reduce the organization's demand. An environmental cost accounting program. A pollution prevention or source reduction program
Recycling and reusing water. Use of ecological ingredients in the manufacturing of our products.
The lowest level of environmental practices implemented were “Natural environmental analysis of the product life-cycle (LCA)”, “A life cycle assessment program” and “Design of products and services according to ecological criteria (Eco-design.)” DISCUSSION Even though the results clearly show that SMEs are adopting environmental practices in their operations, most of the practices seem to take place at a management level. These practices are, for example, setting up specific goals to reduce waste and resource use, implementation of an environmental management system (EMS) and adoption of ISO 14001. However, these environmental systems are not properly translated into practice in their operations. This is evident because environmental practices associated with process-based changes are at moderate implementation levels. Product-based changes are even lower than other environmental improvements. These results are evident in Table 3, with most items of manufacturing attaining mean values around 2, while items for product based practices such as “Design of products and services according to ecological criteria” and “Natural environmental analysis of the product life-cycle” have the lowest mean scores, around or even less than 2. One of the reasons for this may be that SMEs often deal with large organizations as suppliers. Accordingly, their products are based on customers’ specifications. Generally, SMEs may not even have a department or a unit specialized for activities related to product research and development. Therefore SMEs’ investments in green product development are still lagging. Moreover, it is no surprise that SMEs’ pay less attention to eco-design or LCA, since SMEs typically have fewer resources, inadequate expertise and lower awareness. Recycling activities are the most popular end-of-pipe practices implemented by SMEs. Optimization of these activities, by carefully and systematically sorting production waste could improve the environment as well as reduce costs. In Malaysia, recycled materials are sold to a third party or a waste collector. Indeed, recycling activities give SMEs additional income. SMEs often take this opportunity to achieve both environmental performance and cost saving. CONCLUSIONS AND FUTURE RESEARCH This study shows that SMEs have a significant potential for developing proactive environmental strategies. Although SMEs are making slow progress on the pathway to sustainability, they are integrating proactive environmental strategies into their operations. Appropriate guidance and support, from relevant entities or stakeholders are fundamental to the effective development of proactive environmental strategies by SMEs. Despite this positive trend, important issues that need to be addressed regarding SMEs and environmental challenges are twofold. First, organizational capabilities, in terms of skills, knowledge, experience and intellectual resources are important for SMEs to uphold sustainability challenges. Secondly, a tremendous amount of cooperation is needed to achieve greater progress beyond compliance. Clearly, stakeholders, such as customers, suppliers, the government and employees might play imperative roles in influencing the implementation and adoption of green technologies and strategies. Thus it is appropriate for future research to study the roles of stakeholders in steering SMEs’ environmental initiatives. Which stakeholders could influence SMEs the most? What are the appropriate elements for mutual relationships between SMEs and stakeholder? Are different kinds of stakeholders correlated with different operational performance? REFERENCES Berends, H., M. Morère, et al. (2000). Report on SMEs and The Environment. Brussel, Ecotech Research and Consulting. Carroll, A. B. (1979). "A Three-Dimensional Conceptual Model of Corporate Performance." Academy of Management Review 4: 497-505. Don, A. D. and D. A. Dillman (1978). Mail and telephone surveys : the total design method. New York, New York : Wiley.
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