Abstract
Companies strive to distinguish their products and services. They do their best to present them with features that consumers eventually value higher than rivals’. Such efforts often lead to higher costs, and aiming at price premiums via differentiation strategies is a viable solution for these companies to cover such costs. When it comes to eco-oriented products, it is not much different. As explored in detail in Chapter 5 if being green costs more, the company has little choice but to try to obtain returns from eco-investments via eco-branding strategies. This is okay for firms that are able to tap into niches for eco-oriented products but, by their very nature, niches represent only a small slice of the market. No matter what efforts companies make, markets have limited scope for differentiation. Industrial markets (or business-to-business — B2B), in particular, have a very strict sense of costing, and obtaining price premiums is normally attached to eventual savings during product use. In other words, no matter how eco-friendly a product is, when competing in price-sensitive markets, it has to be cheap first.
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Notes
The Ecolean case has been previously presented in: Renato J. Orsato, “Competitive Environmental Strategies: When Does It Pay to Be Green? California Management Review, 48/2 (2006): 127–141.
For a discussion of the concept and potential of Eco-design, see Chris Ryan, “Learning from a Decade (or So) of Eco-Design Experience, Part I,” Journal of Industrial Ecology, 7/2 (2003): 1–12; and
Chris Ryan, “Learning from a Decade (or So) of Eco-Design Experience, Part II Advancing the Practice of Product Eco-Design,” Journal of Industrial Ecology, 8/4 (2005): 3–5.
Practical Eco-design methods, tools and guidelines are presented by: Ursula Tischner et al., How to Do EcoDesign?: A Guide for Environmentally and Economically Sound Design, 1st edn (Birkhauser, 2002);
John Gertsakis, H. Lewis and C. Ryan, A Guide to EcoReDesign. (Melbourne: Centre for Design at RMIT, RMIT University, 1996);
H. Lewis and J. Gertsakis. Design + Environment. (UK: Greenleaf Books, 2001);
J. C Brezet and C. G. van Hemel. EcoDesign: A Promising Approach to Sustainable Production and Consumption (Paris: UNEP, 1997).
This section is based on: Renato J. Orsato, Frank den Hond, and Stewart R. Clegg, “The Political Ecology of Automobile Recycling in Europe,” Organization Studies, 23/4 (2002): 639–665;
see also: Chapter 11 of Renato J. Orsato, “The Ecological Modernization of Industry: Developing Multi-disciplinary Research on Organization & Environment” (PhD diss., University of Technology, Sydney, 2001).
For an overview of the Extended Producer Responsibility (EPR) concept, see: T. Lindhqvist, “Extended Producer Responsibility in Cleaner Production: Policy Principle to Promote Improvements of Product Systems” (PhD diss., University of Lund, 2000).
The 12 million ELVs generate approximately 2.2 million tons of permanent waste per year. D. Kurylko, “Europe to Regulate Recycling,” Automotive News Europe, 13 October, 1997, 1;
C Wright et al., “Automotive Recycling: Opportunity or Cost?” (London: Financial Times Business Limited, 1998).
This section is based on Clovis Zapata’s “Environmental Regulation and Firm Strategy: The Evolution of Automotive Environmental Policy” (PhD diss., Cardiff University, 2008); Clovis Zapata and Peter Nieuwenhuis, “Driving on Liquid Sunshine — The Brazilian Biofuel Experience: A Policy Driven Analysis, Business Strategy and the Environment” (forthcoming). Peter Wells also contributed to the section.
Benjamin Warr and Renato J. Orsato, “Greening the Economy — New Energy for Business Creating a Climate for Change” (paper presented at the European Business Summit 21–22 February, 2008).
Jose Goldemberg. P. Coellho, P. Nastari and O. Lucon. “Ethanol Learning Curve — The Brazilian Experience,” Biomass and Bioenergy, 26 (2004): 301–304.
Associacao Nacional dos Fabricantes de Automoveis — ANFAVEA (2008) Anuario Estatistico da Industria Automobilistica Brasileira. Sao Paulo: Anfavea.
According to P. Nastari et al., Observations on the Draft Document Entitled Potential for Biofuels for Transport in Developing Countries (Washington, D.C.: The World Bank, Air Quality Thematic Group. July, 2005), between 1976 and 2004, ethanol for automotive fuel purposes provided savings of up to US$60.74 billion, in constant dollars of 2005, to the Brazilian government. If external debt interest rate is included in the calculations the figures add up to US$121.26 billion;
see also: A. Ashford, “Tanked up on Sugar: Brazil Launched an Experiment to Substitute Alcohol for Oil. How Has It Worked Out?” New Internationalist (1989): 95, who provides different figures that add up to a less optimistic, though still positive outcome. His analysis calculates savings of US$10.4 billion, between 1975 and 1989, with government subsidies of US$9 billion.
J. Magalhaes, N. Kuperman, and R. Machado, “Proalcool: Uma Avaliacao Global” (Sao Paulo Astel Assessores tecnicos, 1992).
Vincente Assis, Heinz-Peter Elstrodt and Claudio F.C Silva, “Positioning Brazil for Biofuels Success: The Country Now Produces Ethanol More Cheaply than Anywhere Else on Earth, but that might Not Be True for Long.” McKinsey Quarterly, Special Edition: Shaping a new agenda for Latin America (2008): 1–5.
Luciara Nardon and Kathryn Aten, “Beyond a Better Mousetrap: A Cultural Analysis of the Adoption of Ethanol in Brazil,” Journal of World Business, 43/3 (July, 2008): 261–273 argue that the success of the Brazilian ethanol program was strongly influenced by socio-cultural elements, which are difficult to be replicated in other contexts.
In 1998, C. J. Campbell & J. H. Laherrère, “The End of Cheap Oil,” Scientific American, 278/3 (1998): 60–65 estimated that 1,000 billion barrels of petroleum remained underground, 850 billion in oil reserves, and 150 billion in undiscovered oilfields. At rates of 2 percent growth in consumption per year, the authors predicted that this amount of oil would be able to “fuel” societies for approximately 40 more years (Hence, till 2038). Contrary to popular concern, however, identifying the exact date when the world runs out of petrol is irrelevant. Instead, what is of consequence is when world production will start to decline, or the “Peak Oil” moment. According to the authors, oil production should peak in 2010 and, unless technological and social factors significantly reduce demand for oil, the peak oil will mean increasingly higher oil prices.
Jose Goldemberg, “The Ethanol Program in Brazil,” Environmental Research Letters, Institute of Physics Publishing edition (2006): sec. Lett: 1.
NatureWorks’ CEO Marc Verbruggen made this comment when interviewed on the Dow Jones newswire in the article: Anjali Cordeiro, “In the Pipeline: Bioplastics Draw Consumer Sector’s Attention,” Dow Jones News Service, October, 2008.
Anjali Cordeiro, “In the Pipeleine: Bioplastics Draw Consumer Sector’s Attention,” Dow Jones News Service, October, 2008.
Megan Lampinen, “US: DuPont Danisco Joint Venture Breaks Ground for New Ethanol Facility,” Automotive World (October, 2008).
The science of Eco-n can be found in: J. Moir, K. C. Cameron, and H. J. Di, “Effects of the Nitrification Inhibitor Dicyandiamide on Soil Mineral N, Pasture Yield, Nutrient Uptake and Pasture Quality in a Grazed Pasture System.” Soil Use Management, 23 (2007): 111–120;
H. J. Di and K. C. Cameron, “Mitigation of Nitrous Oxide Emissions in Spray-irrigated Grazed Grassland by Treating the Soil with Dicyandiamide, a Nitrification Inhibitor,” Soil Use Management, 19 (2003): 284–290;
H. J. Di and K. C. Cameron. “The Use of a Nitrification Inhibitor, Dicyandiamide (DCD), to Reduce Nitrate Leaching from Cow Urine Patches in a Grazed Dairy Pasture under Irrigation.” Soil Use Management, 18 (2003): 395–403.
Under the Kyoto Protocol, NZ is obliged to maintain its GHG emissions during the first commitment period (2008–2012) at 1990 levels. Emissions have increased from 10 MT CO2e in 1990 to 13 MT CO2e in 2003. (Ministry for the Environment (2005) “New Zealand’s Greenhouse Gas Inventory 1990–2003” Wellington, New Zealand: New Zealand Government.)
Oksana Mont, Singhal Pranshu, and Fadeeva Zinaida, “Chemical Management Services in Sweden and Europe — Lessons for the Future,” Journal of Industrial Ecology, 10/1–2 (2006): 279–291.
Oksana Mont, Singhal Pranshu, and Fadeeva Zinaida, “Chemical Management Services in Sweden and Europe — Lessons for the Future,” Journal of Industrial Ecology, 10/1–2 (2006): 279–291.
Several examples of PSS can be found in: O. Mont, “Product-Service Systems: Panacea or Myth? Doctoral Dissertation (PhD diss., Lund University, 2004);
Chris Ryan, Digital Eco-sense: Sustainability and ICT — A New Terrain for Innovation (Lab 3000: Melbourne, Australia, 2004); See also: special issue on PSS of the Journal of Cleaner Production, 14 (2006);
Robin Roy, “Sustainable Product-Service Systems”, Futures, 32 (2000): 289–299.
Robert U. Ayres, “A New Growth Engine for Sustainable Economy,” American Chemical Society, 32/15 (1998): 367;
Robert U. Ayres, “Products as Service Carriers: Should We Kill the Messenger — or Send It Back?” (Fontainebleau: INSEAD-UNU CMER, 1999).
These theories are: property rights theory, transaction costs theory, information economics, and principal-agent theory. Gerd Scholl, “Product-Service Systems Taking a Functional and Symbolic Perspective on Usership,” in Perspectives on Radical Changes to Sustainable Consumption and Production, System innovation for sustainability 1, ed. Arnold Tukker et al. (Sheffield: Greenleaf, 2007).
Robert Kaplan, Measures for Manufacturing Excellence (Boston, MA: Harvard Business School Press, 1991), demonstrated that accounting techniques used by contemporary manufacturing companies are inadequate for the control of modern practices of operations management. According to Kaplan, there has been a relevant loss of information about manufacturing processes as a result of the increasing complexity of systems of production. In essence, accounting cost differs greatly from technical costs mainly because the basic principles of financial accounting have practically not evolved over a century. While the general principles of financial accounting have become institutionalized practices in most industrialised countries, technological innovation significantly has changed the nature of management practices, as well as the organizational structure and processes. Kaplan’s critique generated new proposals for measuring the production and performance of companies such as “activity-based cost” (ABC) accounting, in which costs are broken down and assigned to the causative activities. The advent of ABC systems showed that traditional accounting systems were based on principles and concepts that do not reflect the real performance of organizations.
Oksana Mont and Tareq Emtairah, “Systemic Changes and Sustainable Consumption and Production: Cases from Product-Service Systems,” in Perspectives on Radical Changes to Sustainable Consumption and Production, System innovation for sustainability 1, ed. Arnold Tukker et al. (Sheffield: Greenleaf, 2007).
Sidney J. Levy, “Symbols for Sale,” Harvard Business Review, 37/4 (July, 1959): 117–124.
Such logic is in line with the definition of strategy by Michael Porter, “What Is Strategy?” Harvard Business Review, 74/6 (1996): 61–79, 61–62; and
Joan Magretta, What Management Is: How It Works and Why It’s Everyone’s Business (London: Profile Books, 2003).
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© 2009 Renato J. Orsato
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Orsato, R.J. (2009). Environmental Cost Leadership. In: Sustainability Strategies. INSEAD Business Press Series. Palgrave Macmillan, London. https://doi.org/10.1057/9780230236851_6
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