Do sustainable practices mediate the relationship between top management commitment and customer cooperation?

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1 Do sustainable practices mediate the relationship between top management commitment and customer cooperation? Umar Burki School of Business, University College of Southeast Norway, Norway Robert Dahlstrom Farmer School of Business, Miami University, USA Summary Abstract Previous empirical research has largely neglected the mediating role of sustainable practices on the relationship between top management commitment and customer cooperation in b2b relationships. This study empirically investigate this research gap and demonstrate the effect of sustainable practices on the relationship between top management commitment and customer cooperation. Two sustainable practices, namely innovative and environmental performance practices are applied to examine the mediating effect. A sample of 181 manufacturing firms is used. As predicted, innovation practices positively mediate the association between top management commitment and customer cooperation. The mediating effect of environmental performance practices is insignificant. Keywords: Sustainable practices, top management commitment, customer cooperation. Introduction Firms increasingly seek to achieve sustainable supply chains that minimize their impact on the environment. Cooperation among parties within the supply chain is integral to reducing environmental influence and enhancing other aspects of triple bottom line performance. For example, Stanley Black and Decker recognize that cooperation within its supply chain helps them to lower their carbon footprint while enhancing well-being for employees, customers and communities they serve (Business Roundtable, 2013). By contrast, limited cooperation within the supply chain can lead to substantial costs and dysfunctional practices. The Mattel toy company, for instance, was forced to recall one million toys because one of its suppliers used lead paint in the products. It is therefore important for business firms to have close and cooperative relationships with their key supply chain partners when it concerns sustainability. In order to establish better customer cooperation, business firms top management show serious commitment towards developing and implementing environment sustainable resources. Usually business firms top management is encouraged by ethical and commercial motivations to implement sustainable practices (Testa & Iraldo, 2010). Under the ethical motivation, a firm s top management employs environmental focus as a motivation to innovate and achieve better sustainability. The firm s vocal commitment to sustainability, however, has limited influence on a supply chain partner s efforts to implement sustainable practices. Firms that augment their 1

2 commitments to sustainability by engaging in sustainable operations and manufacturing are likely to yield higher levels of cooperation on sustainability initiatives. Previous research has largely neglected the mediating role of sustainable practices on the relationship between top management commitment and customer cooperation. This study empirically offers evidence which types of sustainable practices strengthen the relationship between top management commitment and customer cooperation in b2b relationships. In accordance with the relationship marketing perspective (Morgan & Hunt, 1994), commitment is a sign of firm s desire to maintain a valuable relationship and fulfill the anticipated level of trust. This is due to the fact that trust suppresses opportunistic tendencies and reduces uncertainty in business transactions. In this study, top management commitment refers to the internal support and commitment made by the organization s top management to comply with sustainable practices (Chiou et al., 2011). Customer cooperation refers to the extent to which a customer is willing to work with a trading partner to achieve sustainable outcomes (Sancha et al., 2014). When business partners demonstrate solid commitment to comply with environment sustainable requirements, mutual benefits are achieved by both parties in a relationship (Sancha et al., 2014). Hypothesis 1: Top management commitment will have a positive effect on customer cooperation. In this study, sustainable practices are broadly categorized into innovative and environmental performance practices. Innovative practices refer to adaptations made in manufacturing processes to reduce the negative impact on the environment. (Rao & Holt, 2005; Chiou et al., 2011). Environmental performance practices refer to efforts employed to reduce the adverse impacts of company s operations on environment. Research (Igarashi et al., 2013; Rao & Holt, 2005) suggests that the implementation of sustainable practices significantly improves supply chain integration among business firms. Firms that modify operations and manufacturing procedures signal partners concerning the sincerity and importance of their commitment. Cooperation by downstream partners should increase when corporate commitment and action focus on achieving sustainable outcomes. Hence, we propose: Hypothesis 2a: In the presence of innovative practices, top management commitment will have a positive effect on customer cooperation. Hypothesis2b: In the presence of environmental performance practices, top management commitment will have a positive effect on customer cooperation. Design/methodology/approach Turkish exporting firms, manufacturing industrial products for their customers provided a suitable empirical setting to test our research model. These firms manufacture chemical products, food (dairy and juice) products, textile products, medical equipment, agriculture products, alcoholic and non-alcoholic beverages, printing and packaging materials, automobile and their spare parts, electronics and electrical equipment, and leather products. Production and /or handling procedures are susceptible to cause different degrees of environment pollution. The unit of analysis is the relationship between these exporting firms and their most important customers. After rigorous selection procedures, 181 manufacturing and services providing firms were selected. 2

3 The original structured questionnaire was in English. During the questionnaire-testing phase, language difficulties became apparent and the questionnaire was translated into Turkish by two university instructors who teach marketing and supply chain management. After the modifications, no ambiguity in the language and the structure of the questionnaire was reported. The key informant approach was used to collect primary data from the exporting firms. Measurements The questionnaire items regarding the construct top management commitment (TMC) are adopted from the study conducted by Zhu & Sarkis (2004). The respondents are to report about the levels of commitment and support provided by the top and senior management regarding sustainable practices. Items for the two sustainable practices constructs, innovation practices (IP) and environmental performance practices (EPP) are adopted from previous studies (e.g., Rao & Holt, 2004: Chiou et al., 2011). Customer cooperation (CC) is measured by modifying the items proposed by Zhu & Sarkis (2004). The respondent firms reported about the level of cooperation with their key customers regarding the role of sustainable practices. Constructs Top Management Commitment TMC: 4 items, α =.87, CR =.88, AVE =.65 Environmental Performance Practices EPP: 3 items, α =.84, CR =.86, AVE =.67 Innovation Practices IP: 3 items, α =.93, CR =.93, AVE =.81 Customer Cooperation CC: 5 items, α =.83, CR =.82, AVE =.51 Time Duration (Log T): One item Number of Fulltime Workers (Log L): One item Table 1-Description of Items and Validity Measures. Sample of items. Response format: 5-Point Likert-type scales with end points indicating strongly disagree and strongly agree. TMC1: Our firm s top management strongly support efforts to develop sustainable practices. TMC2: Our firm s top management consider sustainable practices as a vital part of corporate strategy. TMC3: Our firm s top managers firmly implement sustainable practices during procurement procedures. TMC4: Our firm s senior management strongly support sustainable practices efforts. EPP1: Environmental practices have resulted in a reduction of waste water. EPP2: Environmental practices have resulted in a reduction of solid waste. EPP3: Environmental practices have resulted in a reduction of hazardous material. IP1: Our firm has taken measures to lower the consumption of water, electricity, gas and petrol during the production or disposal process. IP2: Our firm has taken measures to recycle, reuse and remanufacture materials or parts. IP3: Our firm has taken measures to achieve savings in the usage of energy, water and waste. CC1: Our firm cooperates regularly with this customer for green packaging. CC2: Our firm cooperates regularly with this customer to achieve green handling procedures. CC3: Our firm cooperates regularly with this customer to evaluate green sustainable practices. CC4: Our firm cooperates regularly with this customer to implement green sustainable practices. CC5: Our firm cooperates regularly with this customer to follow recycle procedures. The length of business relationship that the manufacturing firm has been doing business with the focal customer in the relationship (natural logarithm). The number of fulltime workers employed by the manufacturing firm (natural logarithm). Two control variables are incorporated in our theoretical model to check its robustness. First, we included time duration (Log T) which represent the number of years a manufacturer has been doing business with a particular customer and reflects the stake and leverage of business partner (Heidi & John, 1992). Therefore, it may impact customer cooperation in business relationships. The natural logarithm of the number of years of doing business with the focal customer was incorporated in our model to account for this effect. Second, we incorporated the number of fulltime workers (Log L) employed by manufacturing firms to capture the strategic position of a manufacturer concerning sustainable practice with customers. A natural logarithm of the number of fulltime workers was incorporated the research model. 3

4 Validation of constructs Each of the multi-item constructs (TMC, EPP, IP and CC) was analyzed by inspecting the itemto-total correlation. Next, an exploratory factor analysis (EFA) was carried out and items that showed low or insignificant loading, related to the dependent and independent variables were rejected. In order to verify unidimensionality (i.e. internal consistency) and reliability of our measurement model, we applied AMOS 22 to assess factor structures (CFA) and relationships among independent and dependent variables. The overall statistics show a good model fit to the four factor solution. The indexes χ2/df=2.97, GFI=0.83, CFI=0.94, IFI= 0.94 and RMSEA=0.08 endorse an acceptable fit for our model. We also examined and found no possibility of the common method variance via Herman s one-factor test for the variables used. Respective values of Cronbach s alpha, composite reliability (CR) and average variance extracted (AVE) are given above in table 1. Empirical analysis and results To test the hypothesized associations between the constructs, a structural model was conducted by using AMOS 22. The analysis revealed a satisfactory structural equation model fit, as indicated by the ratio of Chi-square and the degrees of freedom (χ2/df=1.95) and the fit indices (CFI=.94, IFI=.94 and the RMSEA=.073). As predicted in H1, top management commitment has a positive effect on customer cooperation (path coefficient 0.133, p<0.05). When innovation practices are the mediator, the total effect from top management commitment on customer cooperation is 0.26 (0.49 x 0.54). Hence, hypothesis 2a is supported. When environmental practices is the mediator, the total effect from top management commitment is insignificant. This negates our argument regarding the mediating role of environmental performance practices on the relationship between top management commitment and customer cooperation. Concerning the effects of control variables, the number of fulltime workers (Log L) has a positive association with customer cooperation (path coefficient 0.085, p<0.05) which is in line with strategic stakes argument in exchange relationships. Time duration (Log T) has an insignificant negative association with customer cooperation (path coefficient , p>0.10). Taken together, the predictor variables maintain the exploratory power when relevant control variables are implemented, demonstrating a satisfactory robustness of the model. Conclusions, implications and limitations Our study s empirical evidence suggest that top management commitment for sustainable practices has positive impact on customer cooperation. However, the willingness to adapt and follow sustainable practices is dependent on the type of a sustainable practice. A greater mediating impact of innovative practices demonstrate that firms are willing to cooperate with their customer in managing environmental pressures. Innovative practices also increase new opportunities for green product development, environmental efficiency, cost savings and enhance the green reputation of business firms. In this manner, the strong mediating role of innovative practices generate competitive advantages for business firms in the existing and new markets. This is a key element in today s business world. Green car manufacturer Tesla is one of the shining examples of profitable business model. Therefore, this study suggests that business firms should integrate their business strategies in line with the emerging innovative practices in their respective business fields. 4

5 Concerning managerial implications for business firms, the study shows that innovative practices will be more boldly visible in managing sustainability issues in business relationships. Therefore, it is important for buying firms mangers to engage timely with their suppliers/manufacturers to develop, adapt or innovate manufacturing processes that reduces the negative effect on environment. In terms of research limitations, the data were collected only from one side of the dyad and from one country. Future investigations that duplicate this research in varied other research settings and that collect dyadic data stand to augment our results. References Business Roundtable (2013), Create, Grow, Sustain: How Companies Are Doing Well by Doing Good (March 1, 2016). Chiou, T-Y., Chan, K.C., Lettice, F. & Chung, S. H. (2014). The influence of greening the suppliers and green innovation on environmental performance and competitive advantages in Taiwan. Transportation Research Part E: Logistics and Transportation Review, 55, Heide, J. B., & John, G. (1992). Do norms matter in marketing relationships? Journal of Marketing, 56, Igarashi, M., de Boer, L., & Fet, A. M. (2013). What is required for greener supplier selection? A literature review and conceptual model development. Journal of Purchasing and Supply Management, 19(4), Morgan, R. M., & Hunt, S. D. (1994). The commitment-trust theory of relationship marketing. Journal of Marketing, 58, Rao, P., & Holt, D. (2005). Do green supply chains lead to competitiveness and economic performance? International Journal of Operations & Production Management, 25(9), Sancha, C., Wong, C. W. Y. & Thosen, C. G. (2014) Buyer-supplier relationships on environmental issues: A contigency perspectice. Journal of Cleaner Production, Testa, F., & Iraldo, F. (2010). Shadows and lights of GSCM (Green Supply Chain Management): determinants and effects of these practices based on a multi-national study. Journal of Cleaner Production, 18(10),

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