Journal of Cleaner Production 16 (2008) 1552–1560 Contents lists available at ScienceDirect Journal of Cleaner Production journal homepage: www.elsevier.com/locate/jclepro Linking supply chain strength to sustainable development: a country-level analysis Stephan Vachon a, b, *, Zhimin Mao c a HEC Montreal, Montreal, Quebec, Canada H3T 2A7 CIRANO, Montreal Quebec, Canada H3A 2A5 c H. John Heinz III School of Public Policy and Management, Carnegie Mellon University, Pittsburg, PA 15213–3890 b a r t i c l e i n f o a b s t r a c t Article history: Available online 12 June 2008 Several global corporations have been severely criticized by different lobbying groups for the impact of their operations on the natural environment and on the local communities. Because corporate operations cannot be studied in isolation but rather as a part of a large network often referred to as a supply chain, this paper investigates the potential link between supply chain characteristics and sustainable development at the country level. In particular, the linkage between supply chain strength, generally defined as the number and quality of the suppliers and customers in a country, and the three dimensions of sustainable development namely environmental performance, corporate environmental practices, and social sustainability is assessed. Using archival data from The Global Competitiveness Report (2004–2005) and the 2005 Environmental Sustainability Index, a statistical assessment of the linkage was conducted. The results indicate that supply chain strength is positively linked to all three dimensions of sustainable development. Ó 2008 Elsevier Ltd. All rights reserved. Keywords: International management Supply chain management Sustainable development 1. Introduction Both the natural environment and social equity are now recognized as major pillars of sustainable development. Over the last decade, increasing concern about the threats from climate change and natural resource depletion has been evident across several industries and in the global population. Besides being asked to contribute to the safeguard of the natural environment, corporations are also required to include social equity aspects in their day-to-day operations. For example, the anti-globalization movement condemns the creation of wealth without an extensive redistribution of that wealth throughout the world. Hence, production capabilities around the globe must/should be more efficient in using both natural and human resources in order to provide optimal environmental and social development. Consequently, all industries will be challenged to reorganize their supply chains while preserving the natural environment and respecting local communities. One consequence of this general concern for sustainable development is the greater scrutiny of manufacturing organizations’ practices by different stakeholders. Over recent decades, increasing attention from different lobby groups regarding worldwide manufacturing organization’s supply chain management has been observed [1,2]. For instance, academic research acknowledges that * Corresponding author. Tel.: þ1 514 340 6714; fax: þ1 514 340 6834. E-mail address: stephane.vachon@hec.ca (S. Vachon). 0959-6526/$ – see front matter Ó 2008 Elsevier Ltd. All rights reserved. doi:10.1016/j.jclepro.2008.04.012 the impact of manufacturing organizations on the natural environment and social equity should not be studied from an isolated perspective but rather by explicitly recognizing upstream and downstream organizations in the supply chain [3,4]. Although several studies linking supply chain management to the natural environment have been published in recent years [1,5–9], very few have focused on corporate social behavior.1 Most of these studies have considered the manufacturing plant or firm as the unit of analysis and rarely have they made an assessment of the entire supply chain, particularly when survey methodology was adopted. This paper departs from the usual supply chain studies by considering aggregate data at the country level. It contributes to the existing literature in two ways. First, it develops the concept of a country’s supply chain strength. Supply chain strength is defined as the availability and quality of local organizations that compose the supply chain. The development and measurement of such a concept allow assessing, from a holistic and more macro perspective, the potential influence of supply chain design. Second, it empirically tests the relationship between a country’s supply chain strength and different dimensions of sustainable development namely: (i) environmental performance, (ii) corporate environmental practices, and (iii) social sustainability. Given the 1 That is except for papers related to corporate ethics that have emerged from recent corporate scandals (e.g., Enron, WorldCom) and which have fostered much research on governance and third party auditors’ behavior. S. Vachon, Z. Mao / Journal of Cleaner Production 16 (2008) 1552–1560 perception of a trade-off between industrial development and sustainability, such an empirical analysis becomes insightful for economic developers around the world and for analysts of international agencies (e.g., the World Bank). From a theoretical and conceptual standpoint, this empirical analysis fits well with the early stage of research on the link between supply chain and environmental management. There are five additional sections to this paper. Next, in Section 2, the literature is reviewed and the concept of supply chain strength is developed. Section 3 presents the theoretical link between supply chain strength and sustainable development and proposes a series of three hypotheses. The methodology, which includes the presentation of the data employed and the construction of the variables needed for the analysis, is found in Section 4. In Section 5, statistical results from the analysis are presented. The discussion of the results and concluding remarks form Section 6, the last section of this paper. 2. The notion of supply chain strength The relationship between supply chain management and sustainable development has emphasized research associated with environmental management under different terminologies such as green purchasing [10], reverse logistics and reverse supply chain [11], product stewardship [12], and green supply chain [13]. Accumulated knowledge from this segment of the literature supports the fact that inter-organizational activities, whether upstream with the suppliers or downstream with the customers, can be linked to sound environmental management and better environmental performance [3,7,13]. However, this segment of the literature can benefit in two ways by increasing its scope. First, the main focus of previous studies has been on manufacturing organizations and their immediate links in the supply chain (i.e., suppliers or customers). As the essence and the outcome of sustainable development go beyond these dyads in the supply chain, a wider scope to fully examine the influence of operational activities on sustainable development is appropriate and necessary. Furthermore, the analysis needs to include sectors other than manufacturing, in particular the service sector. Second, research on supply chain management rarely paid attention to the link with social aspects of sustainable development such as labor practices, gender equity, wealth distribution, and fair wage [14]. Proximity of customers (markets), the availability and accessibility to quality suppliers, and the existence of supporting services and infrastructures are all elements of a country’s industrial profile that influence location decisions [15]. For example, Doosan Infracore, the major Korean construction equipment manufacturer, has recently announced the construction of a new plant in Gunsan (Korea) to support its international production network. Gunsan was selected because of the presence of an important industrial complex and the proximity of suppliers.2 These industrial profile parameters are also fundamental to economic development and growth [16]. Despite the importance of these elements, very little research has investigated the linkage between a country’s industrial profile and its sustainable development efforts and outcomes. This gap in the literature can be explained by the lack of a clear definition or a concept pertaining to the ‘supply chain’ at the country level. 2.1. Toward a conceptualization of a country’s supply chain strength Networks of corporations existing in a nation are not isolated from the concept of economic clusters [17,18]. In fact, clusters are 2 Source: www.doosan.com (accessed on December 29, 2006). 1553 defined as a critical mass of organizations (private and public) and the synergistic presence within a particular industry. Such synergy, speared by intense competition, quality suppliers and demanding buyers, creates a rich economic environment providing a competitive advantage to firms operating in such a context. Well known American clusters include the electronics/IT industry in the Silicon Valley, the automotive industry in Michigan, and the cinematographic industry in Southern California. While the clusters usually imply the role of policy makers, non-governmental organizations and consumers, in this paper, the notion of clusters is limited to two other important groups, the suppliers and the customers. In other words, the focus is on the supply chain. Building on the principles of economic clusters, the concept of supply chain strength is defined as the richness of a nation’s industrial and commercial networks. Two major dimensions typically compose the value or richness of networks: (i) the availability of suppliers and the presence of sizeable markets (i.e., the ‘‘quantity’’ aspect), and (ii) operating capabilities of suppliers and the degree of sophistication of the customers in the supply chain (i.e., the ‘‘quality’’ aspect). In network theory terms, these two dimensions correspond to the number of ties (direct and indirect) and the value of these ties [19]. In addition to these two dimensions of a network, the interaction between buyers and suppliers needs to be characterized as well. For instance, independent of the availability and the quality of domestic suppliers, the type of relationship among the members of a network is especially important to characterize supply chain strength. Therefore, a country’s supply chain strength is an aggregate assessment of local organizations in the supply chain in terms of (i) their number, (ii) their quality, and (iii) the type of supply chain interaction practiced by them. 3. Linking supply chain strength to sustainable development The notion of sustainable development has attracted a lot of attention over the last few decades particularly since the publication of the Brundtland report in 1987. One major criticism of sustainable development research is the lack of clarity regarding its definition and its applicability. A wide range of issues are covered under the umbrella of sustainable development including public policies, political systems, corporate citizenship, international trade, social equity/justice, economic growth/development. The focus in this study is on corporations with an emphasis on environmental management and social practices. In particular, three dimensions of sustainable development are measured and tested for their relation with supply chain strength: (i) environmental performance, (ii) corporate environmental practices, and (iii) social sustainability. 3.1. Supply chain strength and environmental performance One of the key objectives of this paper is to evaluate the impact of supply chain strength on the natural environment. A hypothesis linking supply chain strength to environmental performance can be theoretically developed using the existing literature in supply chain and strategic management. By definition, as supply chain strength increases, manufacturing performance (e.g., costs, quality, delivery and flexibility) of organizations belonging to that supply chain is expected to be higher [20–22]. Such manufacturing improvements are also acknowledged to benefit the natural environment [23]. This correlation between environmental and manufacturing performance was developed under the premise set by the Porter hypothesis [24] and the theoretical development of the natural-resource-based view of the firm [25]. For example, Vachon and Klassen [9] found in a study of package printing plants that green partnership in the supply chain, whether with customers or with suppliers, was positively 1554 S. Vachon, Z. Mao / Journal of Cleaner Production 16 (2008) 1552–1560 associated with quality, delivery and flexibility performance while also improving environmental performance. Furthermore, the positive relationship between environmental performance and financial indicators is now widely accepted [26–28]. Porter and Van der Linde [24] also stated that the process of greening the supply chain promotes environmental innovation improving environmental performance. Interestingly, in network theory, the number of ties and the quality of these ties in a network are positively associated with technological innovation [19]. For instance, collaboration with suppliers and customers has been linked to the adoption of pollution prevention and innovative environmental technologies [4,9]. Geffen and Rothenberg [29] found a link between environmental innovation and supplier involvement in the buying organization’s processes. Such involvement is not possible unless suppliers have strong operating capabilities. Therefore, on more than one dimension, an increase in supply chain strength (i.e., an increase in the number of ties, the quality of the ties, and the degree of relationship with suppliers/ customers) is likely to contribute to less pollution. H1: As supply chain strength increases in a country, environmental performance improves in that country. 3.2. Supply chain strength and corporate environmental practices In recent years, buying corporations have been held more responsible for their suppliers’ practices. For instance, Nike was associated in the 1990s with the child labor practices of its contract manufacturers in East Asia, putting the American sportswear company in a precarious situation and resulting in declining sales [30]. Nowadays, corporations need to implement control and monitoring activities to ensure that their suppliers act in environmentally-sensitive manner. This is usually part of a due diligence and risk minimization strategy [31]. It is not rare for a corporation to reduce that load of control/monitoring activities by requiring suppliers to adopt particular environmental management systems such as ISO 14001 [32] or to participate in a voluntary industry program, such as the Responsible Care code of conduct in the chemical industry [33]. On the other hand, corporate environmental management that includes such activities as adopting an environmental management system (e.g., ISO 14001) or participating in an industry’s voluntary code of conduct can yield significant advantage such as better quality and improved productivity [24,34]. Hence, in supply chains where quality suppliers compete and sophisticated customers dictate the market conditions, proactive environmental management becomes a way to differentiate the products/processes or to be more cost competitive [35]. Hence, a link can be made between the characteristics of a supply chain and corporate practices associated with environmental management in a country. H2: As supply chain strength increases in a country, corporate environmental practices are increasingly adopted by the organizations of that country. 3.3. Supply chain strength and social sustainability As mentioned earlier, an important concept of sustainable development is social equity. The main purpose of sustainable development is to ensure future sustainability and social justice, in other words, intra- and inter-generational equity. More and more companies have started to recognize the necessity of creating social values along with profit generation and environmental protection [36]. An increasing number of studies have examined the concept of corporate social responsibility (CSR) over recent years [37]. The World Business Council for Sustainable Development states that ‘‘corporate social responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large’’ [38]. Thus, the influence on social sustainability from an organization should extend beyond its boundaries to include not just fair labor practices but also social improvement of local communities and equity in the society within which they are operating. Several studies suggested that one important factor for successful CSR is the active coordination between government, business, NGOs and civil society, in other words, a well developed cluster [39]. In fact, best supply chain practices require more transparency along the chain because the social implications of an organization is the sum of the impacts from the inputs and outputs generated throughout the supply chain on the society [40]. Many companies, such as Nike, realized the importance of having a close relationship with their partners in order to tightly monitor their business processes in every aspect. The fair trade movement pushed the influence even further. Several case studies have examined the link between fair trade activities and income equity along the Latin America coffee supply chain [14,41]. Results show that fair trade will improve the income of coffee suppliers in the short run. In order to make the supply chain sustainable, more efforts from organizations are needed to contribute to product and business process improvement at the supply country [41]. In other words, improvement in the supply chain strength can sustain the benefit from fair trade in the long run. H3: As supply chain strength increases in a country, social sustainability will also improve in that country. 4. Methodology The hypothesized relationships were tested using archival data coming mainly from two international sources: (i) The Global Competitiveness Report: 2004–2005 [42], and (ii) the 2005 Environmental Sustainability Index [43]. The Global Competitiveness Report 2004–2005 is an annual publication of The World Economic Forum (WEF) which provides the most up-to-date data source for 104 countries on their comparative strengths and weaknesses. The dataset comprises data that are publicly available and data from the World Economic Forum’s Executive Opinion Survey. The survey conducted over the first five months of each year targets respondents which include business executives and entrepreneurs from companies of 50 employees and more. A total of 8729 responses were collected for the 2004–2005 report representing a response rate of approximately 8% [44] with an average of about 84 responses per country. The 2005 Environmental Sustainability Index is a composite database which examines 21 elements of environmental sustainability covering natural resource utilization, pollution levels, environmental management efforts, contributions to protection of the global environment, and a society’s capacity to improve its environmental performance over time. Note that the data used here are cross-sectional and therefore a causal link between the constructs of interest (i.e., supply chain strength and sustainability indicators) cannot be tested explicitly. 4.1. Dependent variables A total of 10 variables were selected as indicators of sustainable development. These variables were spread along the three dimensions of sustainable development that are examined in this paper: (i) environmental performance (4 indicators), (ii) corporate 1555 S. Vachon, Z. Mao / Journal of Cleaner Production 16 (2008) 1552–1560 environmental practices (3 indicators), and (iii)social sustainability (3 indicators). Environmental performancedfour variables serve as indicators of environmental performance: (i) waste recycling rate, (ii) energy efficiency, (iii) greenhouse gas emissions, and (iv) environmental innovation. These indicators were selected because their values are associated with the degree and the form of industrial activities. Other indicators such as national biodiversity were also considered. However, a connection between such indicators and supply chain strength (or industrial activities) was hard to make. All of the four variables were directly reported in the 2005 Environmental Sustainability Index [43]. The waste recycling rate was computed as the solid waste recycled for selected cities and was mainly collected by the Organization for Economic Co-operation and Development (OECD) and the United Nations Human Settlement Programme (UNHABITAT). Energy efficiency was computed as consumption of energy per million dollars of GDP. The greenhouse gas emissions were measured as the metric tons of carbon emissions per million dollars of GDP. The greenhouse gas emission was reversed so that all indicators were directionally consistent (i.e., the higher the value, the better it is). Finally, environmental innovation was measured by an index of the level of research and development in each country. Corporate environmental practicesdthree indicators were used to assess the degree of environmental management: (i) the number of ISO 14001 certified facilities, (ii) the participation in Responsible Care (chemical industry), and (iii) the prevalence of green corporatism. The first indicator is measured by the number of ISO 14001 certified facilities normalized by the size of the economy (GDP adjusted for the purchasing power parity) for each country. In their study of the diffusion of ISO 14000 certification, Corbett and Kirsch [45] used the same method to eliminate the influence of country size. The second indicator of corporate environmental practices measures the level of participation in the Responsible Care Program as provided by the Chemical Manufacturer’s Association and reported in the Environmental Sustainability Index [43]. These two objective indicators are supplemented by a perceptual variable using data from the Global Competitiveness Report [42]. This perceptual variable, termed green corporatism, was constructed from seven items such as prevalence of environmental marketing and prioritization of energy efficiency. Each item was measured on a likert scale from one to seven. The seven items were tested for internal reliability and have a Cronbach-a of 0.982, which is above the recommended threshold of 0.70 for new constructs [46]. An exploratory factor analysis (with varimax rotation) using all seven items suggests that the items were loading on one dimension with all factor loadings above 0.93 and variance extracted exceeding 90% (Table 1). The average of the items was computed to form the ‘green corporatism’ variable and subsequently used for analysis, e.g., Refs. [47,48].3 Social sustainabilitydthree indicators were used to measure the degree of social sustainability: (i) fair labor practices, (ii) corporate social involvement, and (iii) the Gini Index. As mentioned in Section 3.3, corporate social responsibility should focus on the well-being of the workforce, the local community and the society as a whole. The three indicators above each measure the level of social sustainability along those three areas. The fair labor practices focus on the gender equity at the workplace; corporate social involvement 3 Summated scale using averages of the items was used in this paper rather than weighted averages using factor scores as suggested by Pedhazur and Pedhazur–Schmelkin [49, p. 125]. Furthermore, all of the regressions were re-run using weighted average scales (based on factors scores) for all of the scales: no difference in the result was detected. Table 1 Rotated factor matrix on green corporatisma Questionsb (items) Green corporatism In your country, environmental marketing, eco-labeling, and other efforts to respond to ‘‘green’’ consumer demand are (1 ¼ unimportant, 7 ¼ widespread and profitable) How many companies in your country adhere to environmental management systems such as ISO 14000? (1 ¼ almost no companies, 7 ¼ most companies) Corporate environmental reporting in your country is (1 ¼ nonexistent, 7 ¼ widespread) Companies in your country consider cleaner production, material flow management, waste reduction and recycling, and life cycle management of products to be (1 ¼ irrelevant, 7 ¼ important) In your country, energy efficiency and the transition to new and renewable sources of energy is (1 ¼ a low priority, 7 ¼ a high priority) Business planning in your country now considers long-term factors such as global climate change and other environmental risks to be (1 ¼ unimportant, 7 ¼ important) Socially and environmentally responsible investing in your country is (1 ¼ absent, 7 ¼ frequent) Cronbach-a Variance extracted 0.959 0.934 0.951 0.971 0.963 0.930 0.956 0.982 0.906 a Extraction method: principal component analysis. Rotation method: varimax with Kaiser Normalization. b Questions 10.08, 10.09, 10.10, 10.11, 10.12, 10.13, 10.14 of The Global Competitiveness Report (2004–2005) [42]. presents the awareness of community relationship; finally, the Gini Index measures the income equity within countries. In this case, the scope of the study increases gradually, from a corporate level to the view of the clusters and to the whole society. The fair labor practices’ indicator measures the social equity within the human resources operations and strategy of a company. The focus here is on gender equity at the workplace. The role of women in sustainable development was documented in several international reports such as Chapter 24 of Agenda 21.4 Several studies indicate that business strategy and operations are forces that have driven gender equity movement forward [50]. At the same time, human resources management plays an important role in linking diversity management to organizational objectives [51,52]. The second indicator measures the degree of corporate social involvement. According to Steurer [53], the social dimension of sustainable development should consider both the internal social improvements for employees (training opportunities) and the external social improvements for other groups of stakeholders such as local communities. The corporate social involvement indicator considered both aspects in the analysis. The first two indicators are both perceptual variables using items from the Global Competitiveness Report [42]. In order to assure the unidimensionality of each of these two dimensions (i.e., fair labor practices and corporate social involvement), an exploratory factor analysis was conducted. Two items were used to assess fair labor practices from a gender perspective: the employment of women and the wage equality of women in the workplace. Both items were loading on the same dimension (with factor loadings exceeding the required threshold of 0.70) with a correlation of 60% (p-value < 0.01).5 4 For more information about Chapter 24 of Agenda 21 please visit http://www. us.org/esa/sustdeb/documents/agenda21/englsih/agenda21chapter24/htm. 5 Pearson correlation with the associated p-value was used to assess reliability because the scale only contains two items. 1556 S. Vachon, Z. Mao / Journal of Cleaner Production 16 (2008) 1552–1560 Corporate social involvement was measured by four related items evaluating: (i) the extent of staff training (ii) involvement in charitable causes, (iii) company promotion of volunteerism, and (iv) the importance of corporate social responsibility. All four items were tested for internal reliability and have a Cronbach-a of 0.882 (Table 2). All of the items were loading on the same dimension in the factor analysis (above the required threshold of 0.70). The average of all items was calculated as a metric for both variables. The last social sustainability indicator is the Gini Index [54]. The Gini Index is a recognized and widely used measure of income distribution [55,56]. Generally, a lower Gini coefficient indicates a higher level of social and economical equity. For the purpose of this study and to be directionally consistent with the other indicators, the Gini Index was standardized and reversed. That way, the higher indicator means a better performance. 4.2. Supply chain strength A total of six related items were used to measure a country’s supply chain strength. These items measure the sophistication of the local buyer, the availability and quality of the local supplier, as well as the state of local cluster development. This last item reflects the size and depth of economic clusters as judged by the respondents. All six items were tested for internal reliability (Cronbach-a ¼ 0.964). An exploratory factor analysis (with varimax rotation) using all the items suggests that they were loading on one dimension with all factor loadings exceeding 0.87 (Table 3). Subsequently, the average of the items was used as a metric for the supply chain strength. 4.3. Control variables Three variables were used to control for other factors which could influence the dependent variables. These variables are population, population density and economic wealth. Currently in the environmental management literature, the size variable usually takes the form of the number of employees in Table 2 Rotated factor matrix on social sustainabilitya Questionsb (items) In your country, private-sector employment of women is (1 ¼ limited and usually takes place in less important jobs, 7 ¼ is equal to that of men) In your country, for similar work, wages for women are (1 ¼ significantly below those of men, 7 ¼ equal to those of men) The general approach of companies in your country to human resources is (1 ¼ to invest little in training and employee development, 7 ¼ to invest heavily to attract, train and retain employees) In your country, individuals and companies contribute to charitable causes (1 ¼ not prevalent, 7 ¼ prevalent) Companies in your country encourage workers to volunteer for social causes and have incentives that facilitate that involvement (1 ¼ never, 7 ¼ common) In your country, corporate codes of conduct and other aspects of corporate social responsibility are (1 ¼ rare or nonexistent, 7 ¼ frequent) Cronbach-a Pearson correlation a Social sustainability 1 2 0.438 0.768 0.019 0.949 0.922 0.096 0.783 0.134 0.844 0.321 0.936 0.165 0.882 60% Extraction method: principal component analysis. Rotation method: varimax with Kaiser Normalization. b Questions 7.08, 7.09, 9.12, 9.25, 9.26, and 9.27 of The Global Competitiveness Report (2004–2005) [42]. a plant or in a company [57]. Thus, the population is a good indicator of a country’s size and should be included to control for size. Because populations across countries vary greatly (e.g., China vs. Canada), this variable was transformed using the natural logarithm of the population for each country [58]. Second, the population density gives the direct measurement of a country’s population pressure on a country’s natural environment. For instance, it is a good proxy for the degree of urbanization and environmental stress coming from the population. When testing the efficiency of sustainable corporations, several studies used population density to pick up the negative effect from urbanization on basic infrastructure [59,60]. Finally, economic wealth is an important variable to be included because it reflects different competitive pressures and, therefore, differences in environmental priorities. For instance, in advanced economies like the United States, strong governmental agencies are monitoring activities and legislating corporate impact on the natural environment: that is most likely not the case for emerging economies such as China. It was suggested that a connection between wealth and environmental protection can be made. That is, the richer the country, the greater the demand for environmentally friendly activities which further promotes the existence of more governmental environmental policies [61]. 5. Empirical results Bivariate correlations presented in Table 4 reveal that supply chain strength has a strong correlation with GDP per capita (Table 4: 0.74, p < 0.01). This correlation between two independent variables, including the variable of interest for this study, can be problematic for the regression analysis as it might render the coefficient estimates unreliable. However, all the varianceinflation-factors (VIF) were not larger than 3.2 below the recommended threshold of 5 [62] suggesting that multicollinearity should not be an issue. Ten models were tested to assess the link between supply chain strength and three groups of indicators associated with sustainable development. Each model was estimated using ordinary least square (OLS) method. To supplement the OLS, two partial correlations were also computed: (i) the correlation between GDP per capita and the dependent variable controlling for the effect of supply chain strength and (ii) the correlation between supply chain strength and the dependent variable controlling for the effect of the GDP per capita. Given the high correlation between the GDP per capita and supply chain strength, these partial correlations will reinforce the interpretation of the results from the OLS analysis. The results for environmental performance are reported in Table 5. The results provide strong support for hypothesis H1 which suggests a positive relationship between supply chain strength and environmental performance. Supply chain strength was positively linked to waste recycling (p < 0.01), greenhouse gas emissions (reversed) (p < 0.01), and environmental innovation (p < 0.01). The relationship between supply chain strength and energy efficiency was, however, insignificant. It is noteworthy that the economic wealth, as measured by the GDP per capita, was also positively and significantly related to waste recycling and energy efficiency (p < 0.10) but negatively linked to environmental innovation (p < 0.01). This last result is unexpected as many studies observed that people in wealthier countries are more concerned about environmental protection and have a higher expectation for corporations to act in an environmentally friendly manner [63]. At the same time, no innovation can be realized without capital funds; thus, national wealth could indicate the availability of a country’s innovation infrastructure. Also, studies suggest that a country’s innovation infrastructure together with the availability of clusters can determine the national innovation 1557 S. Vachon, Z. Mao / Journal of Cleaner Production 16 (2008) 1552–1560 Table 3 Rotated factor matrix on supply chain strengtha Questionsb (items) Supply chain strength Buyers in your country are (1 ¼ slow to adopt new products and processes, 7 ¼ actively seeking the latest products, technologies and processes) Buyers in your country are (1 ¼ unsophisticated and make choices based on the lowest price, 7 ¼ knowledgeable and demanding and buy based on superior performance attributes) Local suppliers in your country are (1 ¼ largely nonexistent, 7 ¼ numerous and include the most important materials, components, equipment, and services) The quality of local suppliers in your country is (1 ¼ poor, as they are inefficient and have little technological capability, 7 ¼ very good, as they are internationally competitive and assist in new product and process development) How common are clusters in your country? (1 ¼ limited and shallow, 7 ¼ common and deep) Collaboration in your clusters with suppliers, service providers and partners in your country is (1 ¼ almost nonexistent, 7 ¼ extensive and involves suppliers, local customers, and local research institutions) Cronbach-a Variance extracted 0.941 a b 0.940 0.933 0.949 0.872 0.927 0.964 0.860 Extraction method: principal component analysis. Rotation method: varimax with Kaiser Normalization. Questions 7.04, 8.01, 8.02, 8.03, 8.06, and 8.07 of The Global Competitiveness Report (2004–2005) [42]. corporate environmental management (negative, p < 0.01). Another control variable, GDP per capita, shows a strong and positive relationship with the adoption of a Responsible Care code of conduct (p < 0.01); however, it was not the case for the adoption of ISO 14001. It is noteworthy that a country’s wealth was negatively related to green corporatism. This link is unexpected because companies spend considerable resources to make environmental improvements [45,65]. Again, the collinearity between GDP per capita and supply chain strength can be responsible for the result. The partial correlations indicate that no relation exists between GDP per capita and corporate environmental management (correlation ¼ 0.029, p ¼ 0.770) when such correlation is controlled for the effect of supply chain strength. In contrast, the partial correlation between supply chain strength and corporate environmental management was highly significant (correlation ¼ 0.815, p ¼ 0.00) enhancing the support for hypothesis H2. capacity [64]. This unexpected result can be explained by the collinearity between GDP per capita and supply chain strength. The partial correlations indicate that, when controlled for the effect of supply chain strength, GDP per capita was not significantly linked to environmental innovation; the correlation was, however, negative (correlation ¼ 0.138, p ¼ 0.179). The partial correlations also confirm the strong link between supply chain strength and environmental innovation (correlation ¼ 0.751, p ¼ 0.00). The results in Table 6 support hypothesis H2 as the link between supply chain strength and corporate environmental practices was positive. In particular, the relative number of ISO 14001 certifications in a country was positively linked to supply chain strength (p < 0.01). Supply chain strength was also significantly related to green corporatism (p < 0.01). The country size as measured by the population also showed a strong relationship with Responsible Care (positive, p < 0.01) and Table 4 Correlations Variables Environmental performance 1 Recycle rate 2 Energy efficiency 3 Greenhouse gas emission 4 Environmental innovation Environmental management 5 ISO 14001 Adoption 6 Responsible care 7 Green corporatisma Social sustainability 8 Fair labor practicesb 9 Corporate social involvementc 10 Gini Index Supply chain strength 11 Supply chain strengthd Control variable 12 Populatione 13 Density 14 GDP per capitaf 1 2 3 4 5 – 0.203 0.341* – 0.573* – 0.633* 0.001 0.348* 0.601* 0.614* 0.771* 0.039 0.127 0.020 0.182 0.312* 0.281* 0.552* 0.471* 0.864* 6 7 8 9 10 0.427* 0.638* – 0.011 0.597* – 0.182 0.244* – 0.100 – 0.012 0.393* 0.091 0.593* 0.033 0.325* 0.842* 0.406* 0.537* 0.874* 0.432* 0.575* 0.154 0.339* 0.488* 0.276* 0.434* 0.110 0.119 0.742* 0.117 0.836* 0.541* 0.640 0.899* 0.300* 0.875* 0.403* 0.036* 0.202 0.712* 0.202* 0.071 0.264* 0.003 0.120 0.566* 0.140 0.001 0.556* 0.292* 0.079 0.642* 0.050 0.113 0.655* 0.161 0.244* 0.129 0.002 0.230* 0.620* 0.028 0.002 0.433* 0.084 0.046 0.122 13 – 0.082 0.229* 12 – 0.065 0.090 11 0.321* – *p-value < 0.05. a Mean of 10.08, 10.09, 10.10, 10.11, 10.12, 10.13, 10.14 in Section X of The Global Competitiveness Report (2004–2005). b Mean of 7.08 and 7.09 of the Global Competitiveness Report (2004–2005). c Mean of 9.12, 9.25, 9.26, and 9.27 in Section IX of The Global Competitiveness Report (2004–2005). d Mean of 7.04, 8.01, 8.02, 8.03, 8.06, and 8.07 of The Global Competitiveness Report (2004–2005). e Natural logarithmic transformation of population for each country. f Natural logarithmic transformation of GDP per capita for each country. – – – 0.149 0.219* 0.738* 1558 S. Vachon, Z. Mao / Journal of Cleaner Production 16 (2008) 1552–1560 Regression results in Table 7 show strong support for hypothesis H3 which proposes a link between social sustainability and supply chain strength. Supply chain strength had a positive and significant relationship with both fair labor practices (p < 0.01) and corporate citizenship (p < 0.01). Among the three control variables, results indicate a connection between population and social sustainability. This connection was positive with the Gini Index (p < 0.10) but negative with corporate social sustainability practices whether in regards to women rights in the workplace or corporate citizenship (p < 0.01). We also encountered odd results regarding the link of GDP per capita with social sustainability. A negative and significant link was found between GDP per capita and corporate citizenship (p < 0.01). The partial correlations reveal that no significant link exists between GDP per capita and corporate social sustainability. 6. Discussion and conclusions Table 5 Regression analysis of environmental performancea Population GDP per capita Density Supply chain strength Summary statistics F-statistics R2 Number of observations Partial correlations GDP per capitac Supply chain strengthd Recycling rate Energy efficiency Greenhouse emissionsb Environmental innovation 0.055 0.344* 0.125 0.460** 0.131 0.296y 0.040 0.068 0.218y 0.252 0.015 0.456** 0.264** 0.317** 0.050 1.135** 26.5** 0.610 73 2.5* 0.100 97 2.3y 0.092 97 74.3** 0.764 97 0.265** 0.119 0.071 0.207* 0.138 0.751** 0.364** 0.456** y p < 0.10, *p < 0.05, **p < 0.01. a Standardized beta reported. b In order to be directionally consistent with the other indicators, the greenhouse gas emission was standardized and reversed. c Correlation controlled for the effect of supply chain strength. d Correlation controlled for the effect of the GDP per capita. Table 6 Regression analysis of corporate environmental practicesa Population GDP per capita Density Supply chain strength Summary statistics F-statistics R2 Number of observations Partial correlations GDP per capitab Supply chain strengthc ISO 14001 Responsible care 0.176y 0.210 0.028 0.422** 0.387** 0.613** 0.092 0.128 Green corporatism 0.146** 0.128y 0.106* 1.039** 12.8 0.370** 92 32.0 0.582** 97 121.3 0.831** 104 0.275** 0.234* 0.327** 0.321** 0.029 0.815** y p < 0.10, *p < 0.05, **p < 0.01. a Standardized beta reported. b Correlation controlled for the effect of supply chain strength. c Correlation controlled for the effect of the GDP per capita. Table 7 Regression analysis of social sustainabilitya Fair labor practices Population GDP per capita Density Supply chain strength Summary statistics F-statistics Rb Number of observations Partial correlations GDP per capitab Supply chain strengthc y Corporate social involvement Gini Index 0.283y 0.019 0.102 0.220 0.372** 0.500** 0.146 0.693** 0.215** 0.225** 0.015 1.070** 7.8 0.239** 104 99.5 0.801** 104 5.9 0.212** 93 0.144 0.307** 0.080 0.789** 0.219* 0.138 p < 0.10, *p < 0.05, **p < 0.01. a Standardized beta reported. b Correlation controlled for the effect of supply chain strength. c Correlation controlled for the effect of the GDP per capita. Supply chain strength was defined in this paper as the availability and quality of the organizations along the supply chain, as well as the value added by the interaction among them. One key finding was to establish a link between such an industrial structure and sustainability indicators at the country level. Supply chain strength, which can be viewed as an outcome of cluster development in a country, is known to favor economic growth and wealth. As such, concerns regarding the potential trade-off between economic development and wealth creation on one hand and sustainability on the other are legitimate. The results here suggest that such a trade-off does not exist. First, the results indicate clearly that a positive link between supply chain strength and natural environment is possible. In this paper, strong statistical evidence was found for the relationship between supply chain strength and environmental performance as measured by the waste recycling, lower level of greenhouse gas emission, and environmental innovation. Thus the findings are consistent with previous studies at the firm level. For example, anecdotal evidence suggests that improved customer–supplier relationship led to better environmental performance at Nestlé [66]. Noticeably, a positive and significant relationship between supply chain strength and environmental innovation was also found. Some studies suggest that a leaner and greener supply chain can increase the competitiveness of a corporation [67]. Thus, the significant relationship with environmental innovation further supports the Porter’s hypothesis that corporate competitiveness and environment performance can be mutually beneficial. As supply chain strength increases, that is, the network of suppliers and customers becomes richer, proactive environmental management can be considered as a competitive advantage, a way to differentiate. Thus, the paper proposed that a link between the supply chain strength and corporate environmental practices can be made. Statistical results show support for such a proposition. For instance, the adoption and implementation of ISO 14001 standards and corporate environmental behavior were positively affected by the quality and quantity of ties in the supply chain. Globalization brings extensive opportunities for businesses to develop in a much wider market. At the same time, people start to pay attention to the vulnerable groups in the global trading chain. For example, the fair trade movement aims to redistribute revenue more equally along the supply chain. The success story about fair trade in the coffee industry suggests that better supply chain practices may improve the income equity among participants in the supply chain which will further strengthen the sustainability of the partnership. This paper provides strong support for such a relationship between supply chain management and social sustainability. Strong competition among suppliers and more demanding customers not only promote fair wage and human rights within the corporation itself but also motivate companies to contribute more to the well-being of the society through involvement in local communities. Limitations to this paper exist. First, it focuses solely on country level supply chain strength and its relationship to sustainable development. With that degree of aggregation, the practical implications for business managers are limited, but the policy makers can certainly see added benefits in fostering industrial clusters. S. Vachon, Z. Mao / Journal of Cleaner Production 16 (2008) 1552–1560 Another shortcoming was the inability to capture the outcome for the private sector in each country caused by inadequate data. For example, other factors such as domestic policy content and their impact on aggregate corporate behavior were not considered in this paper. Another limitation is the nature of the data. While the hypotheses and the theoretical development suggested that supply chain strength lead to better environmental and social performance, a cross-sectional dataset does not allow testing for a causal link and its direction. Therefore, the results of this research show a relation between the constructs of interest rather than a causal link. Several other interesting research avenues exist with aggregate data. Husted [63] found a link between countries’ cultural characteristics and environmental indicators. Hence, should we consider such cultural elements in the corporate willingness to engage in developing a stronger supply chain? As supply chain strength comprises a strong relational component, it can be expected that the national culture might affect corporate behavior in that regard. In addition, the role of national culture in the corporate adoption of environmental and social behavior can also be assessed. 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