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Sustainable environmental innovation: An empirical analysis of

the close friends in the supply chain

Maria Cristina De Stefano
Universitat Autonoma de Barcelona

Mara Jos Montes-Sancho

Universidad Carlos III de Madrid

This paper examines whether logistics and product integration within supply chain encourage
buyers and suppliers to cooperate in sustainable environmental innovation. By combining the
Natural Resource Based View and Transaction Cost Theory, we suggest that logistics and
product integrations are critical factors to understand the cooperation between buyers with
some of their suppliers in sustainable environmental innovations. Using an inter-firm
perspective, we argue that mechanisms established in the logistics and product integrations
lead to cooperate in environmental R&D, even though when the innovations are characterized
by high technological uncertainty such as sustainable environmental innovations. We met
support to the hypotheses analysing 111 buyer-supplier relationships in the automobile
industry during the period 2003 to 2008.

Key words: Sustainability, sustainable environmental innovation, supply chain integration,

cooperative environmental R&D, technological uncertainty, automobile industry.

The competitive global landscape has changed the traditional patterns of doing business. The
idea of competition "firms versus firms" has evolved to "supply chain versus supply chain"
(Boyer et al., 2005; Ketchen and Guinipero, 2004), being vital the cooperation between
partners. Indeed, firms have recognized the importance to look outside their organizations for
opportunities to cooperate with their supply chain partners (Lambert and Cooper, 2000;
Wisner and Tan, 2000). In the environment context, legislations and voluntary agreement
have been challenging firms to pursue distruptive environmental innovations to reduce
climate change effects (Hoffman, 2005; Kolk and Pinkse, 2005; Pilkington and Dyerson,
2006). In this sense, cooperation between supply chain partners may be the most efficient way
to manage the natural environment (Rao, 2002; Sharfman et al., 2009; Vachon and Klassen,
Most of the studies have examined how cooperative relationships affect the performance from
a buyer or supplier perspective (Azadegan, 2011; Azadegan and Dooley, 2010; Azadegan et
al., 2008; Bowen et al., 2001; Cao and Zhang, 2011, 2010; Corsten and Gruen, 2011; Dyer,
1996; Flynn et al., 2010; Nyaga et al., 2010; Ragatz et al., 2002; Simpson et al., 2007;
Takeishi, 2001; Vachon and Klassen, 2006, 2008; Vachon and Mao, 2008; Yang et al., 2009;
Zhu and Sarkis, 2004) and the perceptions that partners have about the profitability of their
relationships (Ambrose et al., 2010; Lettice et al., 2010; Narayandas and Rangan, 2004;
OToole and Donaldson, 2002; Terpend et al., 2008; Wagner et al., 2011). Others have focus
on how buyers select some of their suppliers to invest jointly in innovation (Hong et al., 2009;
Oh and Rhee, 2008; Song and Di Benedetto, 2008; Vachon and Klassen, 2006), using an
enduring bias towards the buyer perspective. However, little attention has been paid to the
relational factors such as integration that may encourage cooperation within supply chain.

The aim of this research is to analyse whether supply chain integration encourages
cooperation in environmental innovations, in particular, in sustainable environmental
innovations. We suggest that partners can deliver jointly operational aspects or even they can
be integrated. However, this does not necessary imply that they also cooperate for
environmental innovation. Moreover, cooperation between partners can vary with the level of
technological uncertainty associated to the innovation, and high levels of technological
uncertainty can be associated to high level of transactions costs. In these cases, governance
mechanisms like supplier integration are likely to find favor in conditions of high
technological uncertainty (Das et al., 2006; Rindfleisch and Heide, 1997; Srinivasan et al.,
2011) because they can reduce transaction costs. Thus, we posit that integration in the supply
chain could encourage cooperation between partners in highly uncertainty environmental
We draw on two theoretical bases to examine this issue. First, the Natural Resource Based
View is used to identify those innovations with the highest level of technological uncertainty.
According to this perspective these innovations are sustainable environmental innovation.
Hence, we focus on sustainable environmental R&D projects since they should require the
development of new kind of knowledge that not necessary will be related to the existing one
in the buyer and supplier relationship. Second, Transaction Cost Theory is utilized under a
relational view to explain from a theoretical perspective the process through which integration
could promote cooperation in sustainable environmental R&D projects.
The context of analysis is the automobile industry. In this sector, the capacity of companies to
achieve environmental regulation through sustainable environmental innovations has actually
became crucial to guarantee their survival on the global market (Madsen, 2009; Pilkington
and Dyerson, 2006). Automobile companies have to invest in sustainable environmental
innovations to remain competitive (Pilkington and Dyerson, 2006; PricewaterhouseCoopers,

2007; Reuter et al., 2010). Hence, it seems relevant to examine whether automakers and
suppliers are cooperating to develop environmental innovations (Vachon and Klassen, 2006,
This study mainly contributes to the literature in green supply chain management. Few studies
have tried to understand the rationale that lead buyers and suppliers to cooperate in
environmental innovations (Hong et al., 2009; Klassen and Vachon, 2003; Vachon and
Klassen, 2006). Most of the efforts are focused on the analysis of which green initiatives or
practices have been adopted within a supply chain (Rao, 2002; Rao and Holt, 2005); what
factors determine their diffusion (Bowen et al., 2001; Darnall et al., 2008; Delmas and
Montiel, 2009; Zhu et al., 2008b; Zhu et al., 2005; Zhu et al., 2007; Zhu et al., 2008a) and
how these affect either buyers or supplier performance (Vachon, 2007; Vachon and Klassen,
2007, 2008; Vachon and Mao, 2008; Zhu and Sarkis, 2004, 2007). To the best of our
knowledge, the assessment of whether logistics and product integration within supply chain
can encourage buyers and suppliers to cooperate in environmental R&D projects has not deep
explored in this area. By combining arguments from Natural Resource Based View (Hart,
1995) and Transaction Cost Theory (Coase, 1937; Oliver, 1975; Williamson, 1981, 1985), we
provide more comprehensive insights about whether the relational characteristics such as
integration are relevant factors to lead cooperative innovation. Second, most of the studies
have tried to understand how buyer-supplier relationships affect cooperation using a singlerespondent and dyadic samples. However, the antecedents and dynamics have mainly been
tested on separate groups of buyers and suppliers, rarely between buyers and suppliers in the
same relationship. Drawing away from previous studies, we adopt an inter-firm perspective
(Dyer and Singh, 1998) to provide a better understanding of how integrated buyer-supplier
relationship work in cooperative sustainable environmental R&D projects. The inter-firm

level of analysis allows examining contemporary characteristics of both buyers and suppliers,
keeping relevant information that individual perspective studies do not capture.
In the following section, we review the literature on the motivations for cooperative R&D
projects. In section 3, we develop the theoretical framework using argumentations from
Natural Resource Based View and Transaction Cost Theory under a relational view. In the
section 4, we explain research methodology, including data collection, measurement and
hypothesis testing. In the section 5, we present the results of model. Finally, we discuss the
findings and the limitations of the study, offering some guidelines for future research in
section 6.


The literature on cooperation shows essentially four large areas of interest: the reasons that
lead firms to cooperate, the measurement of results of cooperation, the selection of partners
and, control and conflicts of cooperation (Bayona et al., 2001). These four streams of
researches seem to be summarized in three main groups of motivations that lead companies to
cooperate in innovations. These are related to i) the stage of development of a technology and
its level of uncertainty; ii) the need to access to external resources and knowledge; iii) the
research of new market opportunities (Hagedoorn, 1993).
Focusing on the stage of development of a technology, many factors can contribute to
technology uncertainty and, therefore, lead companies to cooperate. Stock and Tatikonda
(2000) identify three essential subdimensions of technology uncertainty: technology novelty,
technology complexity and technology tacitness. Technology novelty refers to the degree of
prior experience with the technology and the degree of change in the technology relative to
prior technologies. Technology complexity includes the level of interdependence between

components in the technology. Finally, technology tacitness refers to the degree to which the
technology is physically embodied, codified, and complete. High levels of each subdimension
increase the level of technology uncertainty (Stock and Tatikonda, 2000).
Innovations with high technological uncertainty are those that destroy existing firms
competencies (Pisano, 1990; Stock and Tatikonda, 2000; Teece, 1992; Tushman and
Anderson, 1986; van den Hoed, 2007). Companies face technological uncertainty because
they need to invest in new knowledge to develop new generations of technology. These new
technologies can increase the probability to make obsolete the existing ones (Robertson and
Gatignon, 1998) without ensuring economic returns (Magnusson and Berggren, 2001). In fact,
technological uncertainty is positively associated with the risk of business failure (Shing,
1997). Thus, companies should cooperate to reduce, minimize and share uncertainty and its
associated costs (Hagedoorn, 1993).
However, there are opposite views about this rationale in the literature (Robertson and
Gatignon, 1998). In the specific case of the automobile industry, for example, Walker and
Weber (1984) posit that as technological uncertainty increases, the transaction costs between
parties increase, reducing the likely to cooperate. On the contrary, there are other studies that
even though they recognize a positive relationship between technological uncertainty and
transactions costs, they suggest that the cooperation with suppliers that have particular
characteristics (Hoetker, 2005; Oh and Rhee, 2008) can reduce transaction costs.
Hence, the motivations to cooperate for technological uncertain innovations could be the same
as motivations to do not cooperate. Positive or negative arguments would be basically
dependent on who cooperates and with whom (Bayona et al., 2001; Miotti and Sachwald,
2003). This idea leads to the second groups of motivations to cooperate, i.e. the need to access
to external resources and knowledge. Firms may enter into cooperation agreements due to the
lack of required resources and knowledge to develop innovation (Tether, 2002). Specially,

when the level of technological uncertainty is high, companies prefer to cooperate to facilitate
knowledge transfer between them (Dutta and Weiss, 1997). Existing research suggests a
distinction between knowledge transfers. These can involve relatively simple technical
exchanges and higher-level sharing or transfer of whole technological capabilities (Teece,
1977). These two forms of exchange differ in the scope and level of the knowledge involved
(Arora and Gambardella, 1994). Kotabe et al (2003), for example, highlight that buyers and
suppliers in the automobile industry can exchange either technical or technological
knowledge. Technical knowledge consists of discrete know-how required to solve a particular
operational problem. Its transfer, thus, involve relatively narrow and simple informational
resources and knowledge. Technological knowledge concerns a broader body of knowledge
encompassing a set of related techniques, methods, and designs applicable to an entire class of
problems. Thus, its transfer involve higher-level capabilities (Kotabe et al., 2003). When
buyers and suppliers cooperate for technological uncertain innovations, high level of
knowledge transfer should be favoured (Kotabe and Swan, 1995). Therefore, companies may
prefer to cooperate to acquire from their partners knowledge and abilities which they lack
(Bayona et al., 2001; Cohen and Levinthal, 1990). In other words, companies attempt to
maximize the flows of incoming spillovers from partners through cooperation (Cassiman and
Veugelers, 2002). In addition, when companies cooperate for innovation, they have the
opportunity to acquire knowledge that they lack over the market of new products (Bayona et
al., 2001). Thus, cooperative innovation offer the opportunity to companies to entry in new
markets, giving them further possibilities to get profits (Silverman, 1999).


Natural Resource Based View (Hart, 1995) classifies environmental innovation according to
their environmental driving forces, key resources and competences (Hart, 1995; Russo and

Fouts, 1997; Shrivastava, 1995; Vachon and Klassen, 2008). These innovations are pollution
control and prevention, product stewardship and sustainable environmental innovations (Hart,
Pollution control or end-of-pipe innovations involve investments in technologies that capture
ex-post pollutions generated by manufacturing processes and products (Gupta, 1995; Sharma
& Henriques, 2005). Pollution prevention innovations involve investments in technologies
focusing on preventing pollution at the source, i.e. reducing the creation of wastes before
they are generated (Gladwin et al., 1995; Klassen, 2000). Product stewardship or eco-design
innovations integrate environmental concerns into product design decisions (Gupta, 1995).
The products are designed to be recycled, disassembled, reused and remanufactured (Gupta,
1995; Shrivastava, 1995a). Finally, sustainable development innovations preserve ecosystem
resources and reorienting energy use and industry to ecologically sustainable directions (Hart,
1995). A company that invest in sustainable environmental innovations, for instance, attempts
to obtain energy entirely from renewable sources, such as wind and solar power, or use
conversion technologies, such as fuel cells that minimize ecological footprints (Hart, 1995).
These innovations represent a continuous of increasing levels of innovativeness with rising
levels of technological uncertainty (Hart, 1995; Tushman and Anderson, 1986). Sustainable
environmental innovations would be, therefore, the environmental innovations with the
highest technological uncertainty (Magnusson and Berggren, 2001; Tushman and Anderson,
1986) and, cooperation between buyers and suppliers for their development might imply the
highest transaction costs. Consequently, according to Transaction Cost theory (Coase, 1937;
Oliver, 1975; Williamson, 1981, 1985), buyers and suppliers should not cooperate for
sustainable environmental innovations.
However, when Natural Resource Based View and Transaction Cost theory are analysed
under a relational view (Dyer and Singh, 1998), the framework changes and the incentive to

cooperate for high technological uncertain innovations depend on specific buyer-supplier

relational characteristics, which might reduce the costs of cooperation (Dyer, 1997).
According to Transaction Cost theory when the degree of interdependence between parties
increases, more resources will be devoted to their coordination. In this context, mutual
adjustment and effective coordination through informal mechanisms, such as trust and
reputation, can reduce transaction costs (Dyer, 1997) and favour cooperation (Song and Di
Benedetto, 2008). In other words, when innovations involve increasing technological
uncertainty like sustainable environmental innovations, specific relational characteristics
between buyer and suppliers, such as logistics integration, may avoid that supplier-buyer
cooperation incur in large transaction costs and, thus, encourage cooperation in R&D projects.

Logistics integration and cooperative sustainable environmental R&D

Logistics has traditionally been defined as the process of planning, implementing, and
controlling the efficient flow and storage of goods, services, and related information as they
travel from point of origin to point of consumption (Council of Logistics Management, 1998).
Within this definition, the focus of logistics has been on the integration of practices across the
functional boundaries of a firm, i.e. on internal logistics integration (Stock et al., 2000). The
changes in scope and direction of companies logistics have then determined an extension of
the traditional approach of logistics integration from internal to external logistics integration,
i.e. to logistics across firms of supply chain (Chen and Paulray, 2004; Flynn et al., 2010;
Novack et al., 1992).
External logistics integration is the extent to which the logistics activities of a buyer are
integrated with the logistics activities of its suppliers (Stock et al., 2000). Logistics integration
is realized by specific investments that link buyers manufacturing functions with the
functions of a particular supplier (Stock et al., 2000). Specific investments can be structures

or devices that are specific to a particular buyer-supplier relationship. For instance, specific
investments made by a supplier can refer to tailoring the production system to the buyers'
requirements (Song and Di Benedetto, 2008; Vachon and Klassen, 2007). Thus, specific
investments result to be less valuable or non-valuable outside the relationship, creating
According to Transaction Cost theory, an increasing interdependency of one party to another
enhances the investing partys risk. This is because the return value of specific investments
made by one party depends on the good-faith behaviour of the other party (Buvik and
Grnhaug, 2000). Thereby, it is possible that the investing party wants to safeguard its
investments from possible opportunistic behaviours (Heide and John, 1990). For instance, in a
buyer-supplier relationship, a buyer can behave opportunistically when it exploits the
suppliers dependence or threats with the interruption of the relationship. In order to avoid the
ending of the relationship, suppliers can enhance the innovativeness of their products and
processes to satisfy buyers requirements (Corsten and Gruen, 2011), they can get involved in
the development of sustainable innovations to attend the buyers needs (2008) or, still, they
can adopt environmental standards to reduce the asymmetric information toward the buyer
(Delmas et al 2009). Specific investments would lead the supplier to be more engaged and
attentive to the needs of the buyer. Several studies support this idea by showing that specific
investments offer a tangible evidence that the partner is believable, it cares for the relationship
and it is willing to make sacrifices (Ganesan, 1994). Specific investments can also lead to
trust (Nyaga et al., 2010) and to high and credible commitment (Jap and Ganesan, 2000;
Nyaga et al., 2010). Therefore, specific investments favour the creation of mechanisms that
would reduce transaction costs between partners (Dyer, 1996; Williamson, 2000) and, thus, it
would encourage R&D cooperation.


Since logistics integration requires specific investments in the relationship, buyer-supplier

relationships characterized by high level of logistics integration should have some
mechanisms of self-enforcing governance, such as trust and commitment, which could favour
cooperative R&D projects with high technological uncertainty. Both, buyers and suppliers,
would have mutual advantages to cooperate in these types of projects. Buyers would have the
benefit of relying upon suppliers commitment, while suppliers would have the advantage to
safeguard their specific investments by proving its commitment. Therefore, buyers and
suppliers may benefit from the governance mechanisms created through logistics integration
when they cooperate for highly technological uncertain R&D..
In the green supply chain literature, some authors suggest that logistics integration would
favour high allocation of resources in environmental disruptive technologies (Vachon and
Klassen, 2007). Moreover, some authors have hypothesized that high level of logistics
integration increase cooperation for environmental technologies between buyers and suppliers
(Vachon and Klassen, 2006). Hence, the first hypothesis is:
Hypothesis 1: The more logistics integration between a buyer and a supplier, the more they
cooperate in sustainable environmental R&D projects.

Product integration and cooperative sustainable environmental R&D

Product integration is the level of activities in the part production that are performed by a
supplier respect to the level of activities in the part production that are carried out in-house by
a buyer (Petersen et al., 2005; Primo and Amundson, 2002; Ragatz et al., 2002; Stump et al.,
2002). When the supplier is highly integrated in the product development, the buyer has the
advantage to reduce its workload and focus on its core competence activities (Bustinza et al.,
2010; Takeishi, 2001). However, the buyers core competencies become dependent on
suppliers complimentary competencies. Thus, the transfer of responsibility to a supplier can
be often problematic for a buyer, not only from an ethical or legal perspective, but also from a

competency viewpoint (Koufteros et al., 2007). As buyer-supplier relationships become more

interdependent in terms of competences, it is possible that rational agents (Simon, 1947)
along the supply chain can behave opportunistically (Williamson, 1985). A way to solve
these opportunistic behaviours is to create information exchange, flexibility and solidarity
norms within the supply chain (Mesquita and Brush, 2008).
Some studies suggest that informal governance mechanisms actually take place through
product integration. These studies show that effective supply chains are the result of close and
trusting relationships with long-standing suppliers that are intimately involved in the
development of components (Takeishi, 2001; Wynstra et al., 2001). Moreover, the integration
of suppliers in the product development adds information and expertises regarding new ideas
and technology. Suppliers help to identify potential problems, improve the quality of the final
product and coordinate communication and information exchange (Das et al., 2006; Ragatz et
al., 2002). Therefore, the integration of suppliers in the product development would produce
an competence alignment between buyers and suppliers that reduce transaction costs (Oh and
Rhee, 2008).
Furthermore, under technological uncertainty, the buyer needs suppliers that possess the
determinant capabilities in the design, quality, dependability and cost of the innovation (Oh
and Rhee, 2008). If suppliers have these capabilities, buyers can reduce the transaction costs
in the cooperation since suppliers are committed with delivery- or quality-related problems or
they can apply their skills to benefit the relationship (Oh and Rhee, 2008). According to Song
and Di Benedetto (2008), when suppliers are integrated in the product development, they are
able to supply the components required in new innovations as well as the appropriated
investments in equipment, tools, and training. They can also minimize errors and to change
downstream in the innovation process whether it is necessary. For these reasons, supplier
involvement in product development should result in more cost-efficient production in


disruptive innovation (Song and Di Benedetto, 2008). On the other hand, through cooperation,
suppliers would have the possibility to assurance enough business to make the developed
competences worthwhile (Koufteros et al., 2007). Hence, buyers and suppliers highly product
integrated will have some advantages to cooperate in R&D projects with high technology
In the green supply chain literature, Geffen & Rothenberg (2000) show that an increasing
integration of suppliers in the buyers plants help buyers to develop sustainable environmental
innovations. In other words, the level of supplier integration would affect the ability of the
buyer to capitalize suppliers expertise.
Hence, the second hypothesis is:
Hypothesis 2: The more product integration between a buyer and its suppliers, the more they
cooperate in sustainable environmental R&D projects.

Data and sample
The context of analysis is the automobile industry. The automobile industry is an interesting
example to study cooperation between buyers and suppliers in sustainable environmental
innovations mainly for two reasons. First, automakers are facing intense challenges associated
with globalisation and sustainability (Editorial, 2007; Oliver et al., 2008; Seidel et al., 2005).
The decision of who cooperates with whom to manage natural environment could be a key
factor to achieve a competitive advantage. Second, the nature of supply chain relationships in
the automobile sector has evolved in the last years from highly adversarial to more
cooperative (Gonzlez-Benito and Dale, 2001; Lettice et al., 2010). This shift in the
relationships has been simultaneously adopted with Japanese-style just in time (JIT)


manufacturing techniques. JIT purchasing insists on restructuring the logistics processes but it
is also characterized by other practices which promote cooperation and development of
synergies (Gonzlez-Benito and Spring, 2000). Under JIT, thus, automakers have reduced
their supply bases and to set up longer-term more cooperative relationships with their
suppliers (Lettice et al., 2010; Storey et al., 2006; van-der-Vaart and van-Donk, 2008; Wasti
et al., 2006). Cooperation between buyers and suppliers can strengthen the effects of their
relationships (Martnez-Snchez and Prez-Prez, 2003). Given this context, it seems
important to examine whether automakers will cooperate with their suppliers or they will
establish new relationships.
We employ several data sources to test how logistics and product integration affects
cooperative sustainable environmental R&D. As a proxy of buyer-supplier cooperation
strategy, we use the Community Research and Development Information Service (CORDIS)
database. CORDIS is an official data source of the European Research and Development and
Innovation activities that collects information on projects that companies and other
organizations, carry out under EU Framework Programmes. In order to identify the
relationships between buyers and its suppliers, data from Automotive News and
SupplierBusiness are used. These databases provide information on components that suppliers
deliver to each automaker and the plants wherein they realize line production. We also use
financial data from OSIRIS and AMADEUS. By merging these sources, we obtain an
unbalanced panel data of 306 observations referring to 111 relationships of 10 automakers1
through 2003-2008.

These automakers are BMW, Fiat, Ford-Europe, Mercedes, Opel-Vauxhall, Peugeot-Citroen, Porsche, Renault,
Volkswagen and Volvo.


Dependent variable
The dependent variable is the ratio between the total funds of sustainable environmental (SE)
R&D projects wherein automakers and first-tier suppliers cooperate and the total funds of
automaker's sustainable environmental R&D projects.

Cooperation in SE R&D projects =

Tot. Fund of cooperative Sustainable Environmental R&D projects

Tot. Fund of Sustainable Environmental R&D projects

We follow two steps to select and codify projects in sustainable environmental innovations.
By using data from Automotive News and SuppliersBusiness, in a first step, we identify who
is the first-tier supplier for each automaker. Thus, we establish the link between an automaker
and its suppliers. Subsequently, we look for all projects in environmental innovations wherein
automakers participate in CORDIS and identify those projects wherein an automaker
cooperates with its first-tier suppliers.
In a second stage, we use content analysis as the primary tool to codify the selected projects
as oriented to sustainable or other environmental R&D. Content analysis is a way of codifying
text into groups or categories based on selected concepts, transforming qualitative information
into quantitative scales that allow further analysis (Weber, 1988). This methodology requires
the selection of concepts based on a strong theoretical foundation (Stemler, 2001). We select
concepts associated with sustainable environmental R&D in the automobile industry by
reading academic and practitioner oriented literature.
Then, we codify projects as oriented to sustainable environmental R&D by looking for
concepts such as hybrid, battery electric and hydrogen technologies and fuel cell technology
among others in the description of projects. In order to assure an objective codification
process, we follow Marshall and Browns (2003) methodology. Two coders examine and


classify each project independently. The final inter-coder reliability is of 92%. Even though
63% agreement is equivalent to substantial agreement (Landis and Koch, 1977), a third
coder resolves the 8% of discrepancies. After the classification, we develop a time series
using the duration of projects. Finally, we calculate for each year the funds associated with
cooperative sustainable environmental R&D projects over the total funds in sustainable
environmental R&D projects. We consider the fund of projects rather than the simple number
to stand out the importance that automakers and buyers give to sustainable environmental
R&D projects.

Independent variables
Logistics integration
The introduction of principles of modular production in the automobile industry raises
questions about the emergence of a new spatial configuration, such as supplier parks (Frigant
and Lung, 2002). These can be defined as a confined area or special agglomeration in
proximity to the automakers assembly plant (Larsson, 2002). We measure logistics
integration as the number of parks wherein the supplier is present over the total supplier's
parks belongs to the automaker. The data comes from Automotive News.
L o g is tic s In te g ra tio n =

N . o f p a rk s w h e re in s u p p lie rs a re lo c a te d
T o ta l p a rk s

Supplier parks are a relevant measure of specific investments in the relationship. They
represent a "financial hostage" (Dietl et al., 2009) since they require investments in a rigid
physical structure in the form of dedicated buildings, roads and, in some cases, even conveyor
(Larsson, 2002). One factor that distinguishes a supplier park from any supplieragglomeration is the suppliers high degree of dedication to one buyer (Larsson, 2002).


Suppliers parks are fully dedicated to the production and sub-assembly of subsystems to be
delivered to an automakers assembly plant. This creates a strong interdependence between
suppliers and automakers that makes the suppliers commitment towards automaker credible
(Frigant and Lung, 2002).

Product integration
Previous studies have used as a proxy of product integration the degree of supplier's
specialization. Monteverde & Teece (1982) calculate the degree to which the parts produced
by a supplier are also produced by other suppliers that work in the same plant. In particular,
they compute the ratio between the number of suppliers producing the same part in facility i
and the total number of parts produced in facility i. Delmas & Montiel (2009) also compute
the same index, meaning that the lower the value of the ratio, the higher the suppliers'
specialization. However, these studies consider only the supplier side.
Since we are interested in measuring the product integration from a buyer-supplier
perspective, we change the denominator. Product integration is computed as the ratio of the
number of component types that a supplier delivers to a specific automaker over the total
component types that all suppliers provide to this automaker. Thus, we measure as a proxy of
product integration the relative importance of a supplier in the vehicle development amongst
the total suppliers that contemporary deliver some components to the same automaker. The
data comes from BusinessSupplier.
P r o d u c t In t e g r a t io n =

N . o f c o m p o n e n t p a r t s d e li v e r e d b y a s u p p lie r
T o ta l c o m p o n e n t s

A high value of our index indicates a high level of product integration of the supplier in the
automakers product development.

Control variables
We control for several variables that could affect cooperative sustainable environmental
R&D. These are ownership, the suppliers buyer base, automakers supplier base, automaker
size and the automaker's environmental preferences.
Using OSIRIS database, we measure the nature of ownership between a buyer and its supplier
through the percent of a suppliers stock owned by an automaker. We predict a positive effect
between this variable and cooperative sustainable environmental R&D. When an automaker
has some financial control on suppliers, it can control their behaviour, affecting positively
supplier management (Takeishi, 2001). Moreover, the ownership structure can works as an
alignment mechanism among parties (Jensen and H., 1976) and encourage investments in
innovations (Hoskisson et al., 2002) with the benefits to control the rent-generating processes
(Dyer and Singh, 1998). Thus, an increasing degree of automakers ownership over the
supplier, it might lead an increasing cooperative sustainable environmental R&D, not only
because the automaker has high influence on suppliers, but also because it can appropriate of
the innovation' rents.
The suppliers buyer base is the number of automakers client of the supplier. The data to
calculate this variable come from BusinessSuppliers. High levels of this variable indicate that
a supplier is largely shared among several automakers. We predict a negative relationship
between this variable and cooperative sustainable environmental R&D. According to Takeishi
(2001), there are some suppliers that intentionally transfer technological and managerial
information from one automaker to another, and some automakers tend to learn new
technology and effective practices from other automakers through common suppliers. Hence,
we believe that when automakers have procurement relationships with suppliers who are


highly shared with other automakers, it is likely that they do not cooperate in sustainable
environmental R&D projects with them to avoid indirect spillovers from competitors.
By using the same database, we also compute the automakers supplier base, being the total
number of suppliers that procure component to the automaker. Automakers can use multiple
sourcing strategies or exclusive sourcing strategies. Multiple sourcing strategies allow to
increase the automakers negotiation power and to reach maximum premium price in the
product. Instead, single sourcing strategies provide fewer possibilities automaker to change
suppliers and to use their negotiation power. However, exclusive supplier relationships often
go along with a long duration of supplier contracts (Dietl et al., 2009). Long duration
measures the amount of experience that the supplier and the buyer have in dealing with each
others (Kotabe et al., 2003). Firms with longer established relationships are better able to
share their technology and harness their partners (Kotabe et al., 2003). For this reason, we
predict that automakers with reduced suppliers base will cooperate more with their suppliers
in sustainable environmental R&D to exploit the benefits of their jointly experience.
The automaker size is the logarithm of the total asset. Data come from OSIRIS and
AMADEUS. We posit a positive relationship between automaker size and cooperative
sustainable environmental R&D projects. Larger firms may hold more leverage in supplier
relationships. A small firm may be unable to convince suppliers to cooperate and it may lack
the skills and resources to develop profitable exchanges (Koufteros et al., 2007). Hence, we
suggest that larger firms could largely encourage cooperation with their suppliers in
sustainable environmental R&D. Moreover, since larger firms have usually more flexibility to
devote resources to strategic supply chain activities, while smaller firms may not share the
same level of flexibility (Koufteros et al., 2007), it is possible that a large part of these
resources are addressed to cooperative sustainable environmental R&D (Robertson and
Gatignon, 1998).


Finally, we control for the level of automakers environmental preferences. We compute the
ratio between the funds that automakers invest in environmental R&D projects and the total
fund invested in all types of R&D projects. Data comes from CORDIS database. We
hypothesise a positive relationship between automakers environmental preferences and
cooperative sustainable environmental R&D. Further, we control for time effects through
dummy variables.

A panel regression model is used to test hypotheses, wherein independent and control
variables are one year lagged to avoid reverse causality. We observe logistics and product
integration in the buyer-supplier relationships until t-1 and then, we examine whether buyers
and suppliers cooperate in sustainable environmental R&D projects at the time t.
Table 1 displays the descriptive statistics and the correlations matrix for the variables used in
the analysis. We test for multicollinearity by examining the bivariate correlation coefficients
and the variance inflation factors (VIF) of the variables (Hair et al., 1998), finding that it is
not an issue.

----------------------------------------------------------------------------------------------Insert Table 1 about here


Table 2 shows the results of pooled effects regressions using the variable cooperation in SE
R&D projects. We use Tobit regression model because the distribution of the dependence
variable is censored at zero. Conventional regression methods fail to account for the


qualitative difference between limit (zero) observations and nonlimit (continuous)

observations (Greene, 2005). Tobit regression model allows estimations correcting for
censored data. In Table 2, Model 1a presents the results of the regression with the control
variables, and serves as a baseline model. In Model 1b and Model 1c, we include the variables
that measure logistic and product integration respectively. The full model is reported in model
1d. The variable logistics integration is positive and significant at 5% level (Model 1b and
model 1d). This result supports the hypothesis 1, indicating that the more buyers and suppliers
have relationships characterized by high logistics integration, the more they cooperate in
sustainable environmental R&D projects. In Model 1c and Model 1d, we test product
integration, being positive and significant at 5% and 10% level respectively. This confirms
hypothesis 2, which states that high levels of product integration between buyers and
suppliers increase their cooperation in sustainable environmental R&D projects.
Turning to the control variables, we find that the variable supplier automaker base is negative
and significant at 5% level. This result confirms our predictions that the more suppliers are
shared by makers, the lower will the cooperation in sustainable environmental R&D projects.
The automakers size is significant and positive at 1% level, suggesting that the dimension of
an automaker can be particularly significant to encourage suppliers to cooperate in sustainable
environmental R&D projects. Finally, the automakers environmental preference is positive
and significant at 5%. Thus, the more automaker tends to invest in environmental innovation,
the more it will cooperate with their suppliers in sustainable environmental R&D projects.

----------------------------------------------------------------------------------------------Insert Table 2 about here



For robustness, we also run random effects tobit regressions (see Table 3), finding similar
results. The coefficient of logistics integration and product integration are positive and
significant at 1% and 5% level respectively. However, some control variables lose
significance due to the lack of variation. In particular, supplier's buyer base and automaker's
environmental preference become not significant.
----------------------------------------------------------------------------------------------Insert Table 3 about here


The cooperation between partners in the supply chain has received considerable attention in
the literature. Despite the motivations and benefits of cooperation, little is known about how
different characteristics of the supply chain relationships encourage cooperative R&D
projects. This paper analyses whether different types of integration favour buyers and
suppliers to cooperate in sustainable environmental projects which are characterized by high
technological uncertainty. By applying insights from Natural Resource Based View (Hart,
1995) and Transaction Cost Theory (Williamson, 1985) under a relational view (Dyer and
Singh, 1998), we posited that buyers and suppliers with high integrated relationships can be
also encouraged to cooperate in sustainable environmental innovations since they could
benefit of the governance mechanisms already established to manage their interdependences.
Our findings support that the more buyers and suppliers are logistics integrated, the more they
cooperate in sustainable environmental R&D projects. We state that logistics integration will
favour cooperation in sustainable environmental R&D projects via credible commitment.
According to Dutta and Weiss (1997), cooperation can favour different levels of knowledge
transfer between partners. In particular, they suggest that the highest level of knowledge


transfer occurs cooperating in projects with high level of innovativeness. In these terms, it is
possible that logistics integration promotes cooperation in sustainable environmental R&D
projects to encourage knowledge transfer between buyers and supplier. Moreover, recent
studies show that geographic proximity, as logistics integration, is an important mechanism
for knowledge transfer or knowledge spillovers (Alccer and Chung, 2007; Lahiri, 2010). An
important implication of our result can be that logistics integration works as a mechanism for
knowledge transfer in cooperative sustainable environmental R&D projects. It is possible that
when buyers and suppliers cooperate in highly technological uncertain R&D projects, they
may benefit of knowledge transfer that they are not able to obtain without logistics
integration. Thus, buyers and suppliers highly logistics integrated can be willing to cooperate
to share or transfer mutually new knowledge.
We also meet support to the hypothesis that product integration favour cooperation in
sustainable environmental R&D projects via competence alignment between buyer and
suppliers. We consider product integration as a proxy of level of competences that buyers and
suppliers share, suggesting that the more suppliers competences are complementary to
buyers competences, the easier will be the communication among them and, thus, the
cooperation. If communication problems are low due to mechanisms established by product
integration, then buyers and suppliers are able to manage easily the cooperation under high
technological uncertain R&D projects. Projects with high technological uncertainty can
present high communication costs because the information is likely to be uncodified and
difficult to transfer between individual and groups (Hoetker, 2005). An alignment of
competence through product integration would allow companies to reduce communication
problems in R&D projects by reducing the difficulties related to the process of innovation.
This result is consistent with Lu and Yangs (2011) findings. They show that the more the
parties of a community share common languages and values, the more they develop trusting


and reciprocity relationships with positive effects on information quality. In other words,
meaningful information exchange requires some degree of shared understanding among
parties, such as shared language and vision. According to our results, product integration
works as a mechanism for information exchange in cooperative sustainable environmental
R&D projects, because it produces an alignment of competence of parties that allows them to
well understanding each other.
To the literature on green supply chain management, this study contributes to extend the
knowledge of the relational factors that encourage cooperation in environmental innovations.
We improve the understanding by examining whether buyers and suppliers with high
integrated relationships tend to exploit the advantages associated to their integration
cooperating in projects related to sustainability issues. We also contribute to the literature by
applying argumentations from organizational theories, following the trend in recent green
supply chain studies (Gavronski et al., 2011; Sarkis et al., 2011). Moreover, we offer an interfirm level of analysis, being one of few empirical studies that attempt to assess the relational
characteristics of buyers and suppliers in the supply chain using this unit. As recent studies
are highlighting, the inter-firm level of analysis gives the opportunity to assess certain
dynamics, such as cooperation between buyers and suppliers or co-opetition between
suppliers and suppliers that, otherwise, would remain not well understood (Wu et al., 2010).
Finally, we measure cooperation in environmental R&D projects using a novel database.
Some studies suggest that in the absence of detailed R&D data, the much more plentiful
patent data can be used instead of an indicator of alliance (Griliches, 1990; Vasudeva and
Anand, 2011). Using CORDIS data, we highlight that other R&D data actually can be used to
analyse cooperation among companies. Besides, the advantage to use CORDIS is to capture
sufficiently R&D activities and not only those that are qualified to be a patent.


Our results are not without limitations. First, our research does not differ between different
forms of cooperative R&D projects. Dutta and Weiss (1997), for example, distinguish among
joint venture, market agreements and licensing agreements underlining that these partnerships
vary for the level of knowledge transfer that they promote. Future researches will be analyzed
whether the integration in buyer-supplier relationships is a critical factor in the different forms
of cooperative R&D. Second, we do not distinguish between two different forms of supplier
parks that can be associated to the modular production. These can be modular consortium and
industrial condominiums (Collins et al., 1997; Frigant and Lung, 2002; Morris et al., 2004).
Modular consortium represents the highest form of logistics integration between automakers
and suppliers that work together under the same roof, i.e. in integrated plants. An example of
this integration is Smart car. Most of the production of this car is outsourced and suppliers are
totally integrated in the Smart plant (Frigant and Lung, 2002). Thus, it is innovative in both
aspects, as a product and also in terms of how they design the production process. In contrast,
in the industrial condominiums, the automaker continues to control key manufacturing
activates, including the manufacture and assembly of certain modules (i.e. engines and
transmissions). Under this form, buyers and suppliers continue to be separately physically and
institutionally even though they are co-located. Fords Valencia facilities, in Spain, is an
example of this form of logistics integration (Frigant and Lung, 2002). Hence, further
researches could analyse how different forms of logistics integration affects different forms of
cooperation between buyers and suppliers.
Finally, we also do not distinguish among different forms of supplier role in product
development. For instance, Lettice et al. (2010) suggest that there are four types of supplier
integration in the product in which : 1) buyers and supplier have equal position; 2) buyers
have superior position; 3) buyer calls the shots and supplier responds to meet demands and


finally 4) supplier is used as an extension of customers manufacturing capability. Further

researches could explore how different forms of product integration facilitate cooperation.

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Table 1 Descriptive statistics and correlations matrix




Cooperation in SE R&D projects




Logistics Integration





Product Integration






Suppliers buyer base







Automakers supplier base

















Automake size










Automaker's environmental preference










5= 306 observations. Correlations with values equal or greater than 0.17 are significant at 5%.


Table 2 Pooled effects Tobit regression results using as dependent variable collaboration in SE R&D projects


in SE R&D projects

Logistics Integration

in SE R&D projects

in SE R&D projects

in SE R&D projects


Product Integration
Ownership structure
Suppliers buyer base
Automakers supplier base
Automaker size
Automaker's environmental preference

Pseudo R-squared







Standard errors are in parentheses. Year dummy variables are included, but they are not reported. ** p<0.01, * p<0.05, + p<0.1


Table 3 Random effects Tobit regression results using as dependent variable collaboration in SE R&D projects


in SE R&D projects

Logistics Integration

in SE R&D projects

in SE R&D projects

in SE R&D projects


Product Integration
Suppliers buyer base
Automakers supplier base
Automaker size
Automaker's environmental preference

Number of relationships







Standard errors are in parentheses. Year dummy variables are included, but they are not reported. ** p<0.01, * p<0.05, + p<0.1