Multinationals, Environment and Global Competition: Volume 9

What if the Academy actually mattered, was the title of a Presidential address at the annual conference of the Academy of Management in the United States ten years ago. My purpose in putting together this volume is no less ambitious than trying to show that in a very real sense, research on strategic management and business economics matters, at least when it comes to the environment. The studies contained in this volume have been selected because all of them reflect empirical research of a high standard that aims to shed some light on the relationship between multinationals and environmental standards. The first chapter by Lundan presents the general theoretical framework within which all of the research reported in this volume can be placed. While each chapter addresses a specific topic, and can be read independent of the other chapters, the sequence of the chapters aims to highlight the most salient aspects of the relationship between multinationals and the environment in the global economy.

This chapter presents a conceptual framework to understand the role of multinational enterprises in the process of environmental standard setting in the global economy. Inside the multinational, we discuss the impact of path-dependency and irreversibility on environmental investment, and the importance of the integrated network structure of the multinational in enabling the transfer of standards within the firm. Outside the firm, we discuss the impact of regulation and market forces, and particularly the role of NGOs, in triggering change in firm behavior both at home and abroad. We conclude by considering the impact of supranational institutions on the environmental behavior of multinationals.

We examine the relationship between the degree of internationalization (DOI) of a sample of 148 U.S.-based MNEs and measures of their corporate environmental performance. Using cross-sectional data for 1993 and 1998, and longitudinal data for 1993–1999, we tested for associations between the two variables of interest. Cross-sectional data suggested a positive relationship between DOI and highly rated environmental performance. Longitudinal findings were similar with positive correlations that grew stronger the longer the “lag” between measurement of DOI and environmental performance. This research supports arguments that MNEs tend to be proactive leaders rather than laggards in fostering better corporate environmental performance.

This chapter aims to determine the financial performance impacts of environmental strategies. The chapter builds upon a sample of firms operating in Belgium and includes both domestic firms and affiliates of foreign multinational enterprises. It appears that an environmental leadership approach is associated with an increase in financial performance, much in line with the mainstream literature on this subject. The surprising result is that a clear linkage can be established between environmental strategy and financial performance for Belgium-based companies, but not for affiliates of foreign multinational enterprises. In contrast, the industry growth rate does not appear to affect the linkages between environmental leadership and financial performance.

The literature on foreign direct investment (FDI) and the environment has paid little attention to the role of home country factors in shaping the global practices of multinational enterprises (MNEs). By analyzing the interface between FDI and the environment from a Danish perspective, this chapter seeks to cast light on this issue. Denmark is a small, highly open economy dominated by small and medium-sized enterprises servicing specialized niche markets for consumer products or large industrial customers. What makes the case of Danish FDI in developing countries interesting from an environmental perspective is that environmental issues for the past three decades have had an exceptionally strong position on the Danish political agenda and have earned Danish environmental regulation a reputation as among the toughest in the world. The question is whether and how this strong environmental home base has spilled over into the environmental practices of Danish MNEs in developing countries. The chapter describes how the issue of corporate environmental responsibility in developing countries reached the Danish agenda with great force in the late 1990s, embroiling a number of Danish MNEs in damaging public battles. The chapter then moves on to review the – embryonic – literature on environmental practices of Danish MNEs. The chapter concludes by discussing whether and how the environmental practices of Danish MNEs may be traced back to distinct aspects of the Danish home country context.

This chapter examines the green face of the world’s one hundred largest firms from developed economies by linking degrees of internationalization to (pro)activity on environmental reporting. A bargaining approach, emphasizing intrinsic and extrinsic motivations, is applied to understand why the most international firms show the greenest face. Bargaining relations within the home country appear to be most important. Country characteristics explored include size, openness and the nature of business-society relationships.

Globalization increases concerns about national governments’ ability to regulate firms’ environmental conduct because firms can avoid complying with stringent environmental regulations by locating polluting operations in countries with low regulations. Business self-regulation is increasingly seen as a force that can counterbalance the decreasing power of governments in the global economy. Previous research identified external stakeholder pressures as an important determinant of business self-regulation. In this chapter we explore how firm capabilities affect the likelihood that firms self-regulate their environmental conduct by adopting ISO 14000 environmental standards. Our findings show that firm capabilities are indeed an important determinant of self-regulation in the global economy. We discuss implications of this finding for governments, other stakeholders, and business decision makers.

Empirical evidence from the past decade confirms that multinationals increasingly see the environment as a strategic issue, whether in terms of limiting damage to the bottom line from adverse publicity, or actually gaining in the marketplace by pioneering more environmentally conscious solutions. During the same period, NGOs have become a visible part of the political process, in influencing the environmental strategies of multinationals through direct action, as well as by forming broader coalitions aimed at influencing the agenda at multilateral institutions such as the WTO and the OECD regarding environmental concerns and the behavior of multinationals. This chapter explores the importance of different environmental drivers on the behavior of firms in the pulp and paper industry, with particular focus on the role of Greenpeace in changing industry practices. We discuss the extent to which the paper industry might be a special case in this respect, and conclude by assessing the implications for public policy.

This chapter analyzes the strategic responses by U.S. and European multinational enterprises (MNEs) in the oil and automobile industries to the global climate change issue. We examine and attempt to explain the differences across regions, across industries, and the changes over time. Traditional economic drivers of strategy do not provide a satisfactory account for these differences, and the chapter focuses instead on the conflicting institutional pressures on MNEs and the implications for their climate strategy. The home-country institutional context and individual corporate histories can create divergent pressures on strategy for MNEs based in different countries. At the same time, the location of MNEs in global industries and their participation in “global issues arenas” such as climate change generate institutional forces for strategic convergence. It appears that local context influenced initial corporate reactions, but that convergent pressures predominate as the issue matures.

Two linked topics concerning environmental issues at the WTO and their implications for MNEs are considered – namely, international business in the environmental goods and services sector, and the relationship of the WTO to the emerging climate change regime, particularly the Kyoto Protocol. Liberalization of barriers to international trade and investment in environmental goods and services could expand market access and otherwise change competitive conditions for multinational firms. The relationship of the WTO to the Kyoto Protocol is on the broader agenda of environmental and economic diplomacy. Decisions concerning these two sets of issues during the next few years will affect multinational firms’ competitive positions, strategies and operations in many industries. For instance, the liberalization of barriers to trade and FDI in the environmental goods and services industry creates new international market opportunities for firms that want to expand abroad; it also creates new competitive threats in home markets. The chapter was in press when the WTO Cancun ministerial meeting collapsed in mid-September 2003.