Andrei Ciocan

SGEM20, Lund University

30/10/2020

Towards Greening of Industries. A regional network approach.

According to Bair (2009), Global Value Chains (GVC) is a field of analysis which emerged as a

response to the geographical dispersion and changing nature of means of production and trade in

the last decades.

In the recent years, the GVC framework has been used to study the greening of industries,

particularly through the concepts of governance and upgrading. The former refers the type of

actors, specially lead firms, who by means of authority and power relationships determine “how

material, financial and human resources are allocated and coordinated along the chain”. (Khattak

and Pinto 2018)

These authors also point out that, within the theoretical framework of GVC, economic, and, to

some extent, social upgrading of the GVCs have been studied extensively, while the environmental

upgrading has been conceptualized only recently and remains largely neglected. Initially,

environmental upgrading has been conceptualized from economics and management perspectives.

In more recent work, it has been defined as the “process of improving the environmental impact

of value chain operations – including production, processing, transport, consumption and waste

disposal or recycling” (Poulsen et al, 2018). The limited literature on environmental upgrading

describes how the dynamics between lead firms, also termed as buyers and suppliers influence

environmental upgrading. Lead firms are very important actors in stimulating environmental

upgrading. Poulsen et al (2016) found that lead firms that are consumer oriented and face high

reputational risks are more likely to trigger an environmental upgrading.

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SGEM20, Lund University
30/10/2020

Lead firms push towards upgrading by informing their suppliers about environmental trends and

policies in their home countries and transmitting knowledge about certification standards, as well

as implementing environmental strategies across GVCs. (De Marchi, Di Maria, & Micelli, 2013;

Khattak et al., 2015; Khattak & Stringer, 2017). Existing literature also indicates that supplier

firms in developing countries who are pushed by lead firms to upgrade experience significant cost

savings in the long term (Khattak et al., 2015) but also that the costs of upgrading fall mainly on

the suppliers (Golini et al., 2018). The latter study indicated the importance of suppliers’ capability

in upgrading and also highlighted that the type of relationship between the lead firm and the

supplier played a role in who would initiate the upgrading, meaning that if the relationship consists

in a strategic partnership, then the lead firm would the push factor in upgrading.

In line with Golini et al. (2018) findings related to upgrading costs, critical accounts have

emphasized the negative effects of private GVC sustainability governance, focusing on the power

asymmetry and showing that lead firms place the burden of sustainability compliance, in terms of

costs and risks towards upstream producers, raising entry barriers for smaller supplier actors, while

securing the “green profits” and capital (Ponte 2020).

It becomes apparent that lead firms are key players in the governance and upgrading of GVCs.

Nevertheless, the existing literature on environmental upgrading tends to treat lead firms as

monolith actors and does not investigate whether different lead firms may have different

motivations and mechanisms through which they initiate environmental upgrading. For example,

early research by De Marchi, Di Maria, Ponte (2013) attempted to group approaches to governing

the greening of GVCs in two categories: standard-driven approach, thought to be more commonly

associated with large, Multinational Companies and mentoring-driven approach with Small and

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SGEM20, Lund University
30/10/2020

Medium Enterprises, respectively. While this categorization may apply to some extent in some

cases, many other characteristics of lead firms are overlooked in the analysis GVCs upgrading.

In addition, in their comprehensive overview of conceptual developments of Global Production

Networks (GPN), Yeung and Coe (2019) observe the tendency of prior academic work to assess

GPN and GVCs at the industry level, without taking a closer look at how key actors shape these

networks and how the constituted networks shape territorial development locally. Instead, they

suggest adopting lead firms and their configurations as main unit of analysis in the study of GPNs,

arguing that even within the same industry or product category, variations can occur “depending

on the lead firm’s ownership mode, nationality, corporate culture and strategic dispositions”.

The limited academic work with corporations at the core of analysis is also signaled by Goldstein

and Newell (2019), who echo the need for additional studies of “corporations‘ anatomy” in

relation to GPNs, GVCs and GCCs and also with regards to their sustainability performance in

recent calls for papers.

The tendency to treat corporations as a “black box” was also present in past research on corporate

sustainability, which viewed the primary drivers of the adoption process of sustainability practices

to be exogenous to the corporation, such as standards and regulations issued by the government or

external pressure from customers or civil society (Howard-Grenville, 2006).

Consequently, a way of opening the black box would be to take an endogenous approach and look

at the internal dynamics within the lead firm to identify further drivers of sustainability adoption

and willingness to conduct environmental upgrading.

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SGEM20, Lund University
30/10/2020

Some studies identified internal factors related to the organization such as top management

support, environmental training, teamwork and reward systems, change in employee values to lead

to corporate sustainability, suggesting that organizational change and adaptation on different levels

are key. Existing literature on the link between corporate sustainability and organizational culture

established that organizational rigidity and existence of subcultures throughout the organization

can limit the sustainability adoption, while practices such as publication of corporate sustainability

reports, employee training can shape the values and beliefs of employees. Further findings of the

study show that cultural background of employees has an impact on the way they pursue corporate

sustainability (Linnenluecke and Griffiths 2010).

Corporate culture as focal point of analysis of lead firms is a novelty in the GVC literature,

however other branches of geography such as cultural economic geography and relational

economic geography, as well as, like highlighted before, management literature, are abundant in

such studies.

The existing literature on cultural economic geography makes clear connections between

economic behaviour of firms and the surrounding culture.

After reviewing past contributions, Gertler (2003) comes to the conclusion that “economic

behaviour is embedded in regional culture”, explaining that there are region specific social

attributes such as conventions, routines, understandings, which enable inter-firm learning. He

integrates Storper’s (1997) work on untraded interdependencies, conceptualized as “bonds,

linkages and commonalities” that occur outside of market exchange of goods and services, which

lead to knowledge or common practice spillovers.

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Andrei Ciocan
SGEM20, Lund University
30/10/2020

Saxenian’s (1996) seminal work on the network-based industrial organization also offers valuable

insights on the role of locality, clustering and regional culture on firms’ behaviour. Her

contribution in this context is even more relevant, as the network approach blurs the line between

exogenous and endogenous dynamics of the firm.

It indicated that locality had an important effect on the corporate organization and the degree of

hierarchical or horizontal coordination, on local culture and shared practices and on the relations

between different actors of the Value Chain. In Silicon Valley, the successful response of firms to

exogenous factors, such as intensification of international competition, was attributed to the

existing network of firms which allowed competition and knowledge exchange on changing

markets and technologies and through informal channels and labour mobility. Firms from this area

were relatively decentralized and had a lower degree of hierarchical coordination than their

counterparts situated elsewhere.

Combining these findings with those of Linnenluecke and Griffiths (2010) highlighted above, we

could ask ourselves if the competitive advantages derived from the specificity of the region, like

those of Silicon Valley, might have a positive effect on the way cultural change facilitates

sustainability adoption. It could be argued, that, in the light of the findings of Saxenian (1996), the

less “rigid” corporate organization, coupled with labour mobility and intra-firm knowledge

transmission that characterize Silicon Valley firms might be an enabler of sustainability adoption

and thus of environmental upgrading.

Another curiosity stems from the improved relationships between lead firms and outside suppliers

in Silicon Valley, as it has been already established that this has a positive effect on environmental

upgrading by suppliers (Golini, 2018).

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Andrei Ciocan
SGEM20, Lund University
30/10/2020

As already mentioned, although all firms faced external pressure in form in increased global

competition, Silicon Valley firms were the ones who largely prevailed. Similarly, nowadays most

global lead firms face outside pressure from regulations and civil society to improve their

environmental record. Yet some are more successful than others.

Furthermore, the lacking focus on the internal cultural dynamics within and between lead firms in

the GPN/GVC literature established earlier, but also the missing link with the existing findings in

the fields of relational and cultural economic geography of production, gives raise to a future

research direction.

It would be worth investigating whether the apparent success in innovation and economic

performance of the firms based in Silicon Valley can be replicated also in the environmental

upgrading of GVCs. In this regard, there might be a possible positive effect of the regional

environment on the performance in environmental upgrading of lead firms clustered in the

respective region.

Hence, the following research question emerges: To what extent is the performance of

environmental upgrading of lead firms dependent on the regional environment of the area where

they are located?

To answer this question, qualitative analysis in form of anonymous interviews with sustainability

officers and managers and other relevant employees of the lead firms with regards to intra firms’

interactions and organizational culture can be conducted.

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SGEM20, Lund University
30/10/2020

The resulting insights can be corroborated with the results of an analysis of the supply chain of the

selected firms with regards to their environmental performance. This can be done using the

TRACAST method developed by Goldstein and Newell (2019).

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SGEM20, Lund University
30/10/2020

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SGEM20, Lund University
30/10/2020

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SGEM20, Lund University
30/10/2020

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