Changes in the business environment affect strategic decisions sustainably. The problem firms are facing is that due to the ongoing globalization and cross-linking of companies around the globe, strategic decisions are influenced by both our own environmental changes and those happening to business partners. Hence, decision making has become more complex over the last few decades. The business environment is affected by several factors. Ward et. al. (1995) identified four different variables: business costs, labor availability, market hostility and dynamism.
In this paper the focus is on changing environmental regulations and their effects on corporate strategies. As Larsson et. al. (1996) showed legislative changes have a major effect on strategic decisions and can be decided before long. This makes legislative changes a general concern for change management. Moreover, environmental standards differ from country to country or at least from region to region. Environmental regulations have to be kept in mind if investment decisions are to be made.
In this paper it will be discussed how environmental regulations affect company’s strategies on the basis of Rugman’s and Verbeke’s framework. Before introducing this framework two frequently discussed effects in economic research will also be looked at to point out what variables influence companies’ decisions concerning their strategic environmental decisions.
1 Introduction
Changes in the business environment affect strategic decisions sustainably. The problem firms are facing is that due to the ongoing globalization and cross-linking of companies around the globe, strategic decisions are influenced by both our own environmental changes and those happening to business partners. Hence, decision making has become more complex over the last few decades. The business environment is affected by several factors. Ward et. al. (1995) identified four different variables: business costs, labor availability, market hostility and dynamism.
In this paper the focus is on changing environmental regulations and their effects on corporate strategies. As Larsson et. al. (1996) showed legislative changes have a major effect on strategic decisions and can be decided before long. This makes legislative changes a general concern for change management. Moreover, environmental standards differ from country to country or at least from region to region. Environmental regulations have to be kept in mind if investment decisions are to be made.
In this paper it will be discussed how environmental regulations affect company’s strategies on the basis of Rugman’s and Verbeke’s framework. Before introducing this framework two frequently discussed effects in economic research will also be looked at to point out what variables influence companies’ decisions concerning their strategic environmental decisions.
2 Environmental regulations and their impact on industries
In this paper ‘environmental regulation’ refers to the implementation of legal restrictions on individuals, corporations and other entities to reduce the negative effects of human interaction with nature. Two effects are actively discussed in literature that will be upon in the following chapters. Chapter 2.1 explains the pollution haven effect and its effects on businesses before the regulatory chill will be focused in chapter 2.2.
2.1 Pollution haven effect
Shifting away polluting industries to developing countries because of fiercer environmental legislations in developed countries is called pollution haven effect.
This effect has been difficult to prove empirically, but in the recent years a few authors have used panels of data and industry or country fixed effects to find small, statistically significant pollution haven effects1. As Marconi states in her article the existence and magnitude of such an effect is strictly dependent on two different variables: “(a) whether environmental regulations impose substantial additional costs on polluting industries, and (b) whether, absent other compensative policies, regulation differentials are large enough to impact on industry location, output composition and trade” (Marconi 2010, p.5). Zarsky (2006) states that big companies “do not […] actively seek out a ‘pollution haven’ but—if local environmental regulation is weak—create one through their operations.”
To summarize both statements it can be said that the occurrence of pollution havens for a single company is dependent on both its strategy that has to be developed to make use of different international environmental regulations and the difference in existing environmental regulations resp. the low legislative power in at least one country.
Considering that a pollution haven effect exists, and both variables are therefore true, polluting industries tend to use the possibility of moving their production sites away from developed countries.
2.2 Regulatory Chill
Regulatory chill can be described as the lobbying against more stringent standards (mostly) by bringers of financial direct investments (FDI). In this paper, standards are seen by environmental norms and thus regulatory chill is closely connected to companies’ strategies in environmental matters. However, the terms are not limited to the environmental questions in literature but are deployed for e.g. workplace safety as well. A clash of interests exists between proponents of environmental sustainability and those of low production costs.
One of the reasons that developing countries’ regulators not to invent new regulations is that they are dependent on FDIs for further development of industries and economies. Moreover, a shift in bargaining power from governments to multinational companies (MNCs) has developed due to the fact that developing countries compete for FDIs inflows (Zarsky, 2006). Chapter 2.3 will deal with the strategic questions that both legislators and companies have to be answered to make use of both effects (pollution haven effect and regulatory chill) or to minimize its damage potential.
2.3 Strategic questions arising
Both effects raise issues for both, the legislators and the companies, concerning their strategies. Should industrial countries urge emerging nations to adapt their environmental regulations to mitigate the pollution haven effect? Or is it more lucrative not to introduce strict environmental regulations and stay competitive? Or even reduce the regulations and gain a competitive advantage? Can a nation introduce stringent standards without losing its FDI inflows? These are all possible questions for nations’ legislators dealing with the effects of pollution haven and regulatory chill. However, in this paper the focus is not on the states’ strategies but on the companies’ ones and consequently the central question is if companies adapt their strategies to different environmental regulations and why this is (not) done respectively to what extent?
In the following chapter Rugman’s and Verbeke’s framework will be introduced and used to explain companies’ strategic reaction on changing environmental regulations.
[...]
1 See, for example, Becker and Henderson (2000), Greenstone (2002), and List et al. (2003) for recent papers on plant locations, and Ederington and Minier (2003) on international trade. Jaffe et al. (1995) survey the earlier literature, and Copeland and Taylor (2005) review the newer studies and Levinson and Taylor (2008) point out that the pollution haven effects have been underestimated.
- Citar trabajo
- Sascha Müller (Autor), 2011, Discussion of the relation between environmental regulations and corporate strategy, Múnich, GRIN Verlag, https://www.grin.com/document/184328
-
¡Carge sus propios textos! Gane dinero y un iPhone X. -
¡Carge sus propios textos! Gane dinero y un iPhone X. -
¡Carge sus propios textos! Gane dinero y un iPhone X. -
¡Carge sus propios textos! Gane dinero y un iPhone X. -
¡Carge sus propios textos! Gane dinero y un iPhone X.