CHAPTER 1: BACKGROUND OF THE STUDY

1.1 Introduction

In 2011, McKinsey conducted a survey with executives that showed the relation between

sustainability and business. It revealed that more and more businesses are actively engaging in

sustainability practices not only to improve or benefit the companys reputation but to also add

value and improve the processes of the business. The result of the survey revealed that

companies are pursuing sustainability through the reduction of energy and resource use,

improving employee retention and motivation, committing to research and development into

sustainability practices and trends, and developing green products.

The most common way of moving towards sustainability based on the survey was to

reduce the energy being consumed by the business in its operations, where 63% of respondents

claimed that they are currently taking that action. Next to that is the reduction of waste from

operations where 61% proclaimed that they are engaged with this initiative. Furthermore,

sustainability has slowly been integrated into the strategic planning of the firms particularly in

setting it in the mission, vision, and values of the company, external communications, and

company culture. Garnering 67%, 60%, and 59% respectively from survey respondents

(McKinsey, 2011).

In an another more recent survey conducted by Nielsen in October 2015 with 30,000

online consumers from 60 different countries, it showed that roughly 66% of global respondents

are willing to pay more for products and services that have other values added to them. Half of

the 66% are influenced by key sustainability factors such as being natural or organic, come from

an environmentally friendly company, and a company with a commitment to social value.

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Personal values are not becoming more important than the benefits that one will be awarded such

as decreased cost and convenience.

The survey also enumerates the different drivers of purchasing by consumers for global

respondents wherein brand trust is at the top with 62%, followed by perceivable health and

wellness benefits at 59%, and made from fresh, organic, and natural ingredients at 57% wrapping

up the top 3 among the drivers. Other drivers in the study include from brand known as

environmentally friendly 45%, from brand known for its social value 43%, with environmentally

friendly packaging 41%, from brand with community commitment 41%, and saw TV ad about

social/environmental good of brand 34% (Nielsen, 2015). But what does it mean to be

sustainable?

Sustainability, to the general population, is known as the ability to meet present needs

without hindering or compromising the ability of future generations to meet their needs, this is in

accordance with the Brundtland report of 1987 headed by Gro Harlem Brundtland (Brundtland

Commission, 1987). The revised definition that will apply to businesses is now the ability to

meet present corporate needs without compromising the ability to meet future needs of the

company as based on the definition provided in the Brundtland Report pioneered in 1987. Since

businesses have a strong influence on consumers, use up the most resources, and produce the

most waste collectively, it is just fitting that these businesses should be at the forefront of leading

the pack towards sustainability.

In the Philippines, sustainable development programs were established since the 1980s

through the drafting of the Philippine Strategy for Sustainable Development in 1987. The

strategy was to attain economic growth while protecting the resources and diversity in the

country and overall environmental quality (Tarradell, 2004). The trends of globalization and

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international standard compliance has helped sustainability awareness rise in the past few years.

In 1992, President Fidel V. Ramos established the Philippine Council for Sustainable

Development to ensure that the sustainable development goals and initiatives would be

incorporated in the countrys plans, programs, and policies. To this day, the council has been

actively participating in the development and implementation of the sustainable development

plans for the Philippines to stay abreast with trends (Philippine Council for Sustainable

Development, 2015).

The Philippines pledged to the United Nations that by 2030 the country will have

achieved the 17 sustainable development goals that the UN released in late 2015. As of 2015, the

Philippines had a poverty rate of 26.3% and ranks 115th out of 187 countries in the Human

Development Index (Human Development Report, 2015). Most of the sustainability actions

being made in the Philippines are geared towards the environmental dimension of sustainability

as the country is rich with natural resources. In the 1990s, the PA21 or A National Agenda for

Sustainable Development for the 21th Century. In this agenda, it lists down the various actions

taken by the government and its partners towards sustainability in various fields and aspects such

as agriculture, labor force, environment, infrastructure, etc. (PA21 National Report, 2012).

In 2015, the Philippines ranked 44th out of 60 countries in a Country Sustainability

Ranking study conducted by Schieler and Scholten (2015). The country has consistently been in

the lower half of such sustainability studies despite its steady and growth in terms of the

economy. For the country to keep up with all the other countries, it must commit to the

formulation and adoption of sustainability plans and actions and keep up with the global trends.

In the case of EMS Components Assembly, Inc. it must keep up with the trends occurring within

the Electronics Industry of which it belongs to.

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 The Global Electronics Industry is divided into two classifications in terms of

manufacturing services, namely, Semiconductor Manufacturing Services and Electronics

Manufacturing Services. (Marketline, 2012). The Semiconductor Manufacturing Services makes

up for 71.6 % of the industry, while the Electronics Manufacturing Services makes up the

remaining 28.4% as of the year 2011 (Marketline, 2012). These refer to the production of

semiconductors and electronic components that include resistors, capacitors, passive filters,

inductors, light-emitting diodes (LEDs), printed circuit boards (PCBs), batteries, and other

related products (Market line, 2012). Companies that focus on the testing, manufacturing,

distributing, and repairing of electronic components and concern themselves with the assembly

of electronic components fall under the Electronics Manufacturing Services industry, also known

as, Electronics Contract Manufacturing. From the year 2007 to 2011, the global electronics

industry had an annual compound growth rate of about 2.6% producing up to USD 531.5 Billion

(Marketline, 2012).

Many of the EMS firms are found in the Asia-Pacific which makes up 71.2% of the

geographic market segmentation followed closely by the Americas at 14.9% and then Europe

with 10.8% while the remaining 3.1% is composed of companies based in countries not

belonging to the regions (Market line, 2012). Companies under the services mentioned above are

usually subcontractors hired by other companies that are looking to outsource certain processes

to achieve a specific goal. A few examples of these goals are lowering costs, increasing quality,

decreasing the need for tangible resources such as plant, property, and equipment, and decreasing

the need for a workforce to produce such a product or render such a service by delegating these

tasks to an external entity (Wei & Arnell, 2006). The development of the Electronics

Manufacturing Industry came about as an answer to the numerous human resources issues and

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inflexibility of companies who were handling the large-scale product runs in their in-house

assemblies. This put a strain on smaller companies that only had limited product runs. Other

companies that operate in this industry are electronics companies that have their own

manufacturing capabilities and companies that offer electronics manufacturing services to other

companies.

The manufacturing of electronic products requires a wide array of inputs and raw

materials. Most of these inputs are metals, mineral oil, and plastics aside from the fabricated

components. Majority of the companies in the industry have supply chain management networks

around the world to enable them to acquire high quality inputs at the lowest possible cost

(Marketline, 2012). Hence, the reason for outsourcing.

The electronics industry is a capital-intensive playing field due to the plant,

property and equipment needed to manufacture these products. This helps mitigate the threat of

new entrants into the market. One of the reasons why this industry has an intense rivalry within it

is due to the number of firms that are already competing that have strong financial positions.

Another is that the industry is quite fast-paced due to the rate of innovation and technological

growth (Marketline, 2012). An idea today can be obsolete tomorrow or already done by a

competitor. Hence, most companies either diversify or to outcompete one another by lowering

the cost of the production of their products and, in relation, their prices. A few trends within the

industry are the involvement in solar power, printed electronics, and the Green Campaign or the

call to be a more environmentally-friendly industry as the resources used are quite extensive and

the waste produced by the industry is massive (Philexport, 2011).

In the Philippines, based on historical data from 2000 to 2010, the electronics

industry has consistently accounted for more than 50% of the total exports of the country (NSO

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& DTI, 2010). In 2010, 61.18% of the Philippines total exports consisted of electronic products

(NSO, 2010). This gives an average of about 64.58% for the period of 2000 to 2010. Investments

in the electronics industry of the Philippines were also on a steady increase through the years,

apart from the years 2008 and 2009 when the global monetary crisis hit. In 2010, it was recorded

that a total of USD 2.27 Billion was invested into the electronics industry of the Philippines (BOI

& PEZA, 2011). As of 2010, the electronics industry has created and provided over 500,000 jobs

keeping the Philippines at the top spot as supplier of knowledge-based jobs and workers globally

(SEIPI, 2011). One of these companies that provide jobs for the people is EMS Components

Assembly, Inc.

EMS Components Assembly, Inc. is a company that is clearly part of the electronics

industry in the Philippines as it offers electronics manufacturing services, in the form of Full

Turnkey Business Solutions that include sourcing, Enterprise Resource Planning system,

Facilities Management, Training, and Organizational Support, to customers that want and need

to outsource production and assembly processes to save money, improve quality, or for various

other reasons. It is privately-owned, meaning that it is not publicly traded in the stock market,

therefore, all capital is raised internally to carry on the business and for business investments.

Because it is a privately-owned company, it has a harder time raising the money it would need to

invest in property, plant, and equipment.

Because of the business model that EMSCAI has as a subcontracting firm, its ability to

source inputs from suppliers is hampered because its customers are the ones that provide all

inputs and raw materials for the project or alternatively, EMSCAI must source supplies and

inputs from a pre-set or pre-approved list from the customer. This affects the companys ability

to fully manipulate the profit margin due to the lack of options to decrease cost. One of the

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reasons why customers have a pre-approved list of suppliers is because in the electronics

industry, there are certain certifications and requirements that a supplier or company must have

to uphold the quality and reputation of the customers.

Another weakness is that the company tends to rely on a single brand customer. In its

founding in 2004, EMS Components Assembly, Inc. started manufacturing products for

Integrated Microelectronics, Inc. This contract was awarded to EMSCAI due to IMIs incapacity

to fill such a large order and meet the demand in time, the company had to outsource its

operations. For several years, EMSCAI only catered to one customer. When IMI finally caught

up with the demand with their in-house manufacturing capabilities, it pulled out off EMSCAI

forcing the company to look for a new customer. This brought in Toshiba and the production of

the Hard Disk Drives and several other projects.

It was only in 2012, after the last waves of the economic downturn of 2008 finally

subsided, that the business started to build up its customer base to include 9 companies in total.

This came about as the company was integrating sustainability further into its daily operations to

add to their existing systems and programs to begin compliance with other potential customers

and later to the Electronics Industry Code of Conduct as the industry standard. However, despite

the diversification and the customer base that it has at present, about 50% of the annual revenue

is still derived from operations and jobs for Toshiba. Should the company pull out its operations

from EMSCAI, the business would suffer and cannot immediately balance out and compensate

for the loss. This poses a large threat to the company as it will greatly affect its ability to generate

profit and continue with the business should it rely on the remaining 8 customers that make up

the other half of the revenue collectively. In line with this, the proponents endeavor to further

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study the connection between the involvement in sustainability efforts to the financial

performance of a company, in this case, the EMS Components Assembly, Inc.

1.2 Statement of the Research Problem

This research aims to identify the various systems, structure, and strategies in place at

EMSCAI geared towards sustainability that can influence the long-term corporate financial

performance of the company. Sustainability has become an integral part of a business in the

sense that it does not only pertain to the longevity of the organization, but rather, takes on a more

holistic view addressing the triple bottom line. The company chosen, EMSCAI, has been in

operation for over 11 years and has ever since geared itself towards sustainability and continues

to add more programs and actions to help improve the companys overall performance. These

actions allow the company to adhere to the requirements of their customers as an EICC

compliant firm.

In line with this the study will address the main problem of:

Does the involvement in sustainability, particularly strategy, structure, and systems,

influence and affect the long-term corporate financial performance of EMS Components

Assembly, Inc.?

Research Questions:

1. What sustainability systems are currently in place in EMSCAI?

2. What sustainability strategies are currently implemented in EMSCAI?

3. What sustainability structure is currently employed in EMSCAI?

4. What are the various stakeholder reactions to the sustainability performance of EMSCAI

for the period 2011-2015?

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 5. Is there a relationship between the sustainability performance of EMSCAI for the period

2011-2015 and its long-term corporate financial performance?

6. In what way does the sustainability performance of EMSCAI for the period 2011-2015

affect its long-term corporate financial performance?

7. What specific recommendations can be made to EMSCAI to further enhance the

sustainability systems, structure, and strategies that it currently has in place to attain greater

sustainability performance?

1.3 Objectives of the Study

In line with the problem statements stated above, the proponents developed a list of

general and specific objectives provided below.

General Objective

The general objective of the study is to identify the sustainability performance of EMS

Components Assembly, Inc. through the analysis of its strategies, structure, and systems, and to

determine whether this involvement in sustainability can aid in the improvement of long-term

corporate financial performance as a subcontractor to brand firms.

Specific Objectives

In accordance with the general objective, the study also aims to achieve the following

specific objectives:

To conduct an interview with representatives of the company to gather firm-level data to

be used in analyzing the sustainability strategies, structure, and systems of EMS

Components Assembly, Inc.

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 To determine the existence of sustainability systems in EMSCAI such as Quality

Management Systems, Environmental Management Systems, and Occupational Health

and Safety Systems.

To identify the how many functions and departments in the company are engaged or

charged with sustainability initiatives to determine the sustainability structure of

EMSCAI.

To determine what programs and actions have been developed and implemented as part

of the companys strategy to attain their sustainability goals.

To assess the relationship between processes such as sustainability strategy, structure,

and systems to the output of sustainability performance and stakeholder reactions.

To identify how the sustainability performance measures and stakeholder reactions can

produce long-term financial corporate performance.

To incorporate sustainability into key performance indicators for EMS Components

Assembly, Inc. and determine the association between this and its long-term corporate

financial performance.

To formulate recommendations to improve the existing sustainability programs and

actions that the company must further its long-term corporate financial performance.

1.4 Significance of the Study

Through the internal audit and external environment analysis results of EMS Components

Assembly, numerous opportunities, threats and internal weaknesses were revealed which

necessitate the assessment of sustainability performance and long-term corporate financial

performance. In line with this, the study will benefit primarily EMS Components Assembly, Inc.

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the electronics industry and the academe along with future researchers that would want to further

this line of study. The following will benefit from the study conducted by the proponents:

1. The managers of EMSCAI, as the study will allow them to analyze and assess their

sustainability efforts and idenfity its effects on their corporate financial performance. It will also

allow them to formulate new sustainability goals and strategies, systems, and structures to

achieve those goals to improve their financial performance through the involvement in

sustainability.

2. The customers and suppliers of EMSCAI will benefit from this study as they will be

assured of the EICC compliance and sustainability efforts of the company given that EICC

compliance is a requirement for most brand companies in the industry. It will also promote

transparency between EMSCAI and its suppliers and customers.

3. The employees of EMSCAI will also benefit from this study. It will familiarize them with

the strategies, systems, and structures in place in the organization that are geared towards

sustainability. It will also raise their awareness of what sustainability is.

4. For the electronics industry, the research, specifically the framework developed in this

study, could also be used to help other companies assess their strategies, structure, and systems

and determine any changes needed to be done to attain and improve their sustainability

performance.

5. Educational institutions and academe, such as De La Salle University, and future

researchers will benefit from this study. The university can benefit from this study, as it will

serve as a learning tool and source of new knowledge and information for the students regarding

sustainability and business. A copy of this thesis will be kept in the library of the De La Salle

University to allow students to use it as a guide and basis for future studies. The proponents will

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create a more holistic assessment by identifying and analyzing the systems, structure, and

strategies in place in a company. Future researchers can also take this approach in other

industries or with other companies to develop a more inclusive array of topics of sustainability.

1.5 Scope and Limitations

The limitations of the study are as follows, first, it is a case study on EMS Components

Assembly, Inc. located in 17-A Technology Ave. Laguna Technopark Bian, Laguna,

Philippines. The case research design will be used to establish a connection between the drivers

of sustainability and the corresponding performance variables used in the theoretical framework.

In the case research design, pattern matching, as recommended by Yin (2009) will be used. After

collecting all necessary information, the analysis process starts with examining primary data. The

case research design is preferred in examining contemporary events, when the relevant behaviors

cannot be manipulated.

To collect both the quantitative and qualitative data, a survey will be conducted among

top and middle managers to gather information on strategy, systems and structure implemented

for the period 2011-2015. The performance measures have been translated into a likert scale to

allow for the quantitative analysis of the data to be done, the paper will also be based on

interviews conducted with top, middle, and junior managers and supervisors, and secondary

sources of data such as journals, books, and the like. The proponents aim to identify the

relationship between the sustainability performance of EMSCAI and its long-term corporate

financial performance using a single embedded case study research wherein data will be

collected from several informants, in this case the managers and supervisors in the company,

company reports, and secondary data and an analysis will be conducted to determine how all the

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data collected relate to one another and to the framework (Yin, 2003). The single embedded case

study allows for multiple sub-units of analysis and the integration of qualitative and quantitative

methods of data collection and analysis into one case study (Yin, 2003). The proponents will

only utilize firm-level data gathered from with EMSCAI representatives to limit the data and to

be consistent with all the measures.

The questionnaire will be completed by managers that have been in the company for at

least 5 years acting as representatives assessing the company. The need for the managers to have

been in the company for at least 5 years as they are able to recall, assess and analyze the

sustainability strategies, systems, and structures that transpired in the last five years helped in

achieving their sustainability goals.

The survey data will also be triangulated with document reviews specifically for the

sustainability performance, which will be based on the archive of financial and sustainability

performance data for the year 2011 to 2015. The proponents will analyze the quantitative data to

allow them to determine the outlier responses of the survey and then follow-up with the

interviews to validate them to gather more insight on the quantitative data. This approach is in

line with Creswells method of qualitative study (2009). This study will utilize the mixed method

or both quantitative and qualitative methods of research to be further discussed in the

methodology section of this paper.

Certain measures of sustainability have been excluded from the original frameworks used

as a basis of the operational framework of this paper. The reason behind is that they either do not

apply to the company or are inconsistent individual level data that cannot be used as firm level

data is utilized in this study. The exclusion of these measures entails that a complete assessment

of the company cannot be made in terms of the original frameworks. The use of firm level data

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and the exclusion of individual level data means that instead of surveying or interviewing each

employee and member of the company, only managers will be surveyed and interviewed. This

will hinder the proponents from obtaining a more holistic and detailed view of the sustainability

efforts of the company and assessing whether all individuals in the organization are taking part in

these sustainability efforts.

Lastly, the survey and qualitative data collection will be done from September 2016 to

December 2016, while the final write up of the study will be made from January 2017 to March

2017. This will give the proponents approximately three trimesters to complete the study

including the proposal phase.

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 CHAPTER 2: REVIEW OF RELATED LITERATURE

Sustainability has become an integral part of a business in the sense that it does not only

pertain to the longevity of the organization, but rather, takes on a more holistic view addressing

the triple bottom line. Many companies are actively integrating sustainability principles into their

businesses, according to a McKinsey report in 2011 and they are doing so by pursuing goals that

go far beyond earlier concern for reputation managementfor example, saving energy,

developing green products, and retaining and motivating employees, all of which help companies

capture value through growth and return on capital. In the sixth survey of executives on how

their companies understand and manage issues related to sustainability, this result show that,

since 2011, larger shares of executives say sustainability programs make a positive contribution

to their company's short- and long-term value.

Integrating sustainability into strategic initiatives is especially important because these

issues play out over the long term. Its easier for companies where they are core concerns to

understand trends and make strategic bets in advance of consumer preferences, stakeholder

pressure, or regulation. Most companies creating value through sustainability look first to

improving returns on capital, which often means reducing operating costs through improved

natural-resource management (Dow Chemicals, 2011). The fact that some industries are

overrepresented in the leaders group highlights differences in emphasis on and effective

management of sustainability across industries. This carries over to value creation. Overall, the

relationship between sustainability and quantifiable value is still somewhat unclear, executives

indicate: about one-third of respondents say they dont know how much sustainability initiatives

add to shareholder value at their companies.

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 In this case, the research has a need to identify the importance of sustainability systems,

structure, and strategies in place at a company geared towards sustainability, and how the

sustainable performances can influence the long-term corporate financial performance of the

company.

2.1 Corporate Sustainability

The current levels of global production and consumption are expending 50% more

natural resources than ecosystems regenerate (OShea, Golden & Olander, 2013; Trucost, 2013;

Patala et. al., 2016). In addition to increased awareness of the resource constraints we face

(Rockstrm et al., 2009), uncertainty and reputational risks of potential supply chain disruptions

drive the sustainable business agenda (Patala et al., 2016). Despite numerous interventions by

regulatory authorities, focal brands and non-government organizations to improve labor

standards in factories, poor working conditions, low wages, excessive work hours, and

precarious job security persists (Locke & Samel, 2012).

Today, organizations across the world face incessant financial, regulatory, competitive,

and stakeholder pressure to incorporate sustainable practices in their supply chains to minimize

and limit the negative impact to environment and society (Mathiyazhagan et al., 2014; Diabat et

al., 2014; Jain et al., 2012; Jindal & Sangwan, 2013; Shaharudin et al., 2015; Tippayawong et al.,

2015).

As a result, firms need to operate in both socially and environmentally responsible ways

while maximizing stakeholder value (Evans & Sawyer, 2010). Recognizing this, organizations

are adjusting and improving operational performance on environmental and social management

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in correspondence to standard compliance. Organizations are trying to develop processes and

tools such as environmental management systems, eco-effectiveness and competency, code of

conduct, green supply chain management and lean production, to sustain their competitive

advantage (Cabral et al., 2012; Gunasekaran & Spalanzani, 2012; Haleem et al., 2012; Hsu et al.,

2013; Seuring, 2013; Govindan et al. 2015; Mangla et al., 2016).

Srivastava (2007) takes a more ecological view at sustainability, defining it as the

potential for reducing long-term risks associated with resource depletion, fluctuations in energy

costs, product liabilities, and pollution and waste management. On the other hand, Sikdar

(2003) defines it within the triple bottom line approach, defining it as a wise balance among

economic development, environmental stewardship, and social equity. The term sustainability

refers to the pursuit of economic, environmental, and social performance, also known as the

triple bottom line approach (Foerstl et al., 2010).

2.2 Sustainability in the Electronics Industry

The electronics industry is a setting where one might expect higher degrees of labor and

environmental standards. It is one of the largest and fastest growing manufacturing sectors,

characterized by disaggregated production networks across the globe (Locke & Samel, 2012).

Corporations producing brand hardware define the product, as well as its design and

development, outsourcing its production to contract manufacturers (Liu et al., 2015). Fluctuating

consumer demand and shortening product life cycles have produced a volatile manufacturing

environment for the electronics industry (Sodhi & Lee, 2007).

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 Global electronic brands have reorganized their supply chains to optimize efficiencies

and minimize financial and reputational risks. A multitude of legal environmental and labor

demands and regulations, growing public interest in environmental protection and the employers

obligation to treat their staff responsibly has forced companies to adopt sustainable supply chain

management concepts (Wittstruck & Tueteberg, 2011). Jayaram and Avittathur (2015) notes that

it is the increasing importance of ecological concerns that has forced regulatory bodies to

formulate stricter and stronger regulations to minimize environment damage. In Brazilian

(Govindan et al., 2013), Thai (Ninlawan et al., 2010) and Taiwanese (Shang et al., 2010)

electronics industries, changes have been driven by strengthening regulations. Indian markets on

the other hand, experience strong customer and competitive pressure (Luthra et al., 2016).

Workers in the electronics manufacturing and assembly factories can be exposed to toxic

metals, solvents, acids, and other hazardous chemicals (LaDou, 2006). Electronics manufacturers

are eliminating harmful elements of their products (Tseng et al., 2013) and aligning processes to

allow for product recycling (Shang et al., 2010) to meet standards passed by the European Union

in 2006. The European Union passed the Waste Electrical and Electronic Equipment (WEEE)

and Restrictions of Hazardous Substances (RoHS) regulations. The RoHS prohibits the sale of

electronic products that contain heavy metals such as lead, cadmium, mercury, chromium,

polybrominated biphenyls flame retardants and polybrominated diphenyl ethers (Marques et al.,

2013). On the other hand, the WEEE defines a framework of requirements for the treatment and

recycling of electrical and electronic equipment (Ravi, 2012).

2.3 Sustainable Supply Chain Management in the Electronics Industry

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 Because of the complexity of supplier networks, environmental (Liu et al., 2015) and

labor (Locke & Samel, 2012; Raj-Reichert, 2012) considerations in the supply chain have

become strategic from a focal firm perspective. In todays competitive environment, firms must

maintain competitiveness while at the same time conform with regulations (Luthra et al., 2016;

Tseng & Chiu, 2013), requiring organizations to lessen the negative impacts of their supply

chains (Mathiyazhagan et al., 2013, 2014).

Supply chain management is defined by Harland (1996) as the management of a

network of interconnected businesses involved in the ultimate provision of product and service

packages required by end customers. Carter and Rogers (2008) extends that definition to the

concept of sustainability. Wittstruck and Tueteberg (2011) uses the definition of Carter and

Rogers (2008) who describes sustainable supply chain as the strategic achievement and

integration of an organizations triple bottom line through a systemic coordination of inter-

organizational business processes to improve long-term economic performance of the individual

company and its value network. Risk and compliance management provide the foundation for

this definition. Sustainable supply chain management activities generally cover from sourcing

raw materials to consumer consumption, as well as reverse logistics to create a closed loop

supply chain (Foerstl et al., 2010; Chan et al., 2012)

Sustainable supply chain management may lead to improvement in business

performances towards achieving production, quality and economic goals (Iraldo et al., 2009).

Despite the necessity to balance the three aspects of the triple bottom line of

sustainability (Seuring & Muller, 2008) in developing a sustainable supply chain (Kumar &

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Rahman, 2016), most researchers focus on the environmental and economic aspect, creating the

offshoot green supply chain management.

Green supply chain management is used in various literature (Patala et al., 2016; Shang et

al., 2010; Tippayawong et al., 2015) is used to define a firms competence involving supply

chain management on environmental performance. According to Shang et al., (2010), there are

six green supply chain management dimensions in the electronics industry, particularly the

semiconductor segment: green manufacturing and packaging, environmental participation, green

marketing, green supplier, green stock, and green eco-design. These dimensions are echoed by

Tippayawong (2015) in his study of the green supply chain management in the Thai electronics

industry.

Govindan et al. (2013) identifies three practices in cooperation with consumers and

suppliers for green supply chain management: cooperation with consumers for eco-design,

cooperation with customers for cleaner production, and cooperation with suppliers for green

packaging. Luthra et al. (2016) segments green supply chain into six practices, namely green

design, green purchasing, green production, green management, green marketing and green

logistics practices. Green design practices are used to reduce ecological impact of products

during its consumption life cycle (Eltayeb et al., 2011; Luthra et al., 2016). Green product and

process design incorporates many processes such as green raw materials, use of cleaner

technology processes, as well as use of reverse logistics (Luthra et al., 2016). Growing

environmental concerns are encouraging are forcing organizations to reconsider recyclability,

reusability, and non-use of hazardous materials in their existing purchasing strategy (Hsu & Hu,

2010; Govindan et al., 2015). Green production is the application of environmentally and

socially responsible practices to diminish the negative impacts of manufacturing activities

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(Baines et al., 2012; Govindan et al., 2015). Green management supplements sources of

information, allowing managers to make sustainable decisions (Pane Haden et al., 2009). Green

marketing promotes products with environmental characteristics, involving human requirements

or desires with least negative impacts on the natural environment (Singh & Pandey, 2012). Green

logistics integrates the movement of products along the supply chain with environmental and

social considerations (Grant et al., 2013). Reverse logistics include recycling, reusing, and

remanufacturing (Gunasekaran & Spalanzani, 2012; Kannan et al., 2012; Mangla et al., 2013;

Govindan et al., 2015).

Green production practices improve global competitive position of suppliers

(Gunasekaran & Spalanzani, 2012; Tseng, 2013; Subramanian & Gunasekaran, 2015). Green

management practices lead to improved corporate image, environmental compliance

improvement, increased efficiency, achievement of social commitment, cost savings, and

reduced emissions (Kang et al., 2010; Luthra et al., 2014). Green marketing may improve the

organizations profitability and competitiveness (Lee & Huang, 2011; Chen et al., 2012), and

enhances corporate image, product image, and corporate reputation (Ko et al., 2013). Better

packaging and rearranged loading pattern can reduce materials usage, increase space utilization

in the warehouse and in the trailer, reducing the amount of handling required (Ninlawan et al.,

2010). An efficient transportation and distribution system saves overhead costs and improves

customer relationships (Bose & Pal, 2012).

The global volume of electronic waste is driving more companies to join multilateral

business-to-business recycling network contracts to ensure secure waste disposal (Wittstruck &

Tueteberg, 2011). Ninlawan et al. (2010) found that Thai green manufacturing activities such as

hazardous substance control, use of energy-efficient technology, 3R and waste minimization can

21
lead to lower raw material costs, production efficiency gains, reduced environmental and

occupational safety expenses, and improved corporate image.

2.4 Sustainable Supplier Management in the Electronics Industry

Due to cost-oriented outsourcing, external stakeholders expect the focal buying firm to

assure socially and ecologically sound production in their suppliers sites (Foerstl et al., 2010).

Irresponsible supplier behavior may be projected into the buying firm. Thus, suppliers are

required to adhere to social and ecological standards to mitigate supply chain risk.

Sustainable supply chain management can only be achieved with the active participation

of suppliers and customers (Awasthi & Kannan, 2016; Luthra et al., 2016; Jabbour et al., 2014).

Despite most literature focusing on green supply chain management, many authors note that

social factors are important for its implementation (Sarkis et al., 2011; Zhu et al., 2012;

Gunasekaran et al., 2014; Ketikidis et al., 2013; Wang and Sarkis, 2013; Yusuf et al., 2013).

With growing awareness and concern for environmental and social issues, organizations are

disclosing complete information about their operations impact on the environment and society

(Hughey & Sulkowski, 2012; Shen et al., 2015).

Sustainable supplier development must go beyond supplier declaration of regulatory

compliance, and include assessment and monitoring measures (Jiang, 2009; Foerstl et al., 2010).

Govindan et al., (2013) found that environmental audit for suppliers audit management

has more driving power than dependence power, indicating that this practice is essential to the

industry. Zhu and Sarkis (2006) argued that environmental auditing supplier evaluation is not as

22
important as other practices, but the findings of Govindan et al., (2013) show that auditing of

suppliers has more driving power than cross-functional cooperation, environmental compliance

and auditing programs, supplier cooperation, and ISO 14001 certification.

Buying firms therefore put intense pressure on their suppliers for improved

environmental performance; buyer-supplier relationships are now considered imperative in

improving the manufacturers or buying firms competitive advantage (Govindan et al., 2013;

Hsu et al., 2013; Meena & Sarmah, 2012; Bommel, 2010; Carter & Rogers, 2008; Liu et al.,

2015).

Tippayawang (2015) noted that sustainable performance in electronics manufacturing

was primarily driven by the fulfilment of consumer requirement and compliance to regulations.

Foerstl et al., (2010) identifies three key methods to lessen supplier sustainability risk exposure:

non-consideration, supplier development, and phase-out. Agan et al. (2014) notes that supplier

selection and development are crucial processes for successful sustainable supply chain

management. Kumar and Rahman (2016) identifies three tasks in developing a sustainable

buyer-supplier relationship: supplier selection, supplier development, and supplier performance

review.

Sustainability standards are an independent selection criterion, preventing non-compliant

suppliers from entering the supply base (Agan et al., 2014). Without structured supplier

assessment, management of supplier sustainability can only be achieved randomly (Foerstl et al.,

2010). New suppliers entering the selection process must comply with sustainability standards

(Tang, 2006; Foerstl et al., 2010, Liu et al., 2016). Shortlisted suppliers will then be audited on

site by either internal or external experts (Foerstl et al., 2010). For example, Thai computer parts

23
manufacturers purchase materials or parts only from green partners who satisfy environmental

quality standards and pass an audit certifying that it follows environmental regulations, and

considers suppliers who acquire ISO 14000 and OHSAS 18000, and finally, select suppliers who

control hazardous substances within the company standards and obtain certificates (Ninlawan et

al., 2010). Supplier selection positively affects the triple bottom line of the company (Meena &

Sarmah, 2012; Mitra & Datta, 2014)

For established suppliers, non-critical suppliers are required to sign a self-compliance

declaration (Foerstl et al., 2010). Critical suppliers will be required to do a self-assessment on

sustainability-related practices, particularly with issues of waste levels, handling of hazardous

materials, and labour standards (Foerstl et al., 2010).

Supplier development is the preferred option by companies for established suppliers, and

provides further competitive benefits to the buying firm (Foerstl et al., 2010; Reuter et al., 2010).

There are three levels in supplier development: cooperation, coordination, and integration

between buyers and suppliers (Jabbour & Jabbour, 2009; Buyukozkan & Cifci, 2010; Kumar &

Rahman, 2016). Unless violations are grave, existing suppliers are given the opportunity to

improve their conditions within determined time frame (Foerstl et al., 2010). Supplier

development positively affects the environmental and social sustainability of the supply chain

(Meena & Sarmah, 2012; Mitra & Datta, 2014), but Govindan et al., (2014) and Silvestre (2015)

found that it is not positively linked to the economic sustainability of the supply chain.

2.5 The Role of Leadership Commitment in Sustainability Implementation

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 The initiation of sustainability into the firms processes need emotional and economic

commitment of the top management (Govindan et al., 2015; Wittstruck & Tueteberg, 2012;

Luthra et al., 2016; Kumar & Rahman, 2016). Zhu and Sarkis (2006) pointed out that the

commitment of senior manager to environmental improvement advances implementation and

adoption. Internal management is a key success factor to implementing sustainable practices

(Luthra et al., 2016; Hu & Hsu, 2010; Yusuf et al., 2013; Bai et al., 2015).

Concurrent to previous literature (Bouzon & Govindan, 2014; Gunasekaran et al., 2014;

Mathiyazhagan et al., 2014; Zhu et al., 2016), external influence and expected benefits of

sustainability adoption emerged as antecedents to top management commitment in Luthra et al.

(2016). Additionally, top management commitment is directly related to buyer-supplier

development practices such as supplier selection, supplier development, and supplier

performance review (Gunsekaran et al., 2015; Hartmann & Germain, 2015; Hartmann et al.,

2015; Mohanty & Prakash, 2014).

2.6 Sustainability Strategy of Electronic Supplier Firm

David (2011) defined strategic management as the art and science of formulating,

implementing, and evaluating cross-functional decisions that enable an organization to achieve

its objectives. The definition further implies, strategic management focuses on integrating

management, marketing, finance/accounting, production/operations, research and development,

and information systems to achieve organizational success. The term strategic management in

this text is used synonymously with the term strategic planning. The latter term is more often

used in the business world, whereas the former is often used in academia. Sometimes the term

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strategic management is used to refer to strategy formulation, implementation, and evaluation,

with strategic planning referring only to strategy formulation. The purpose of strategic

management is to exploit and create new and different opportunities for tomorrow; long-range

planning, in contrast, tries to optimize for tomorrow the trends of today.

There are 5 possible strategic areas a company could pursue; these strategic areas are

further divided into 16 strategic actions. The 5 general strategic areas are Integration, Defensive,

Intensive, Diversification and Porters five force strategy.

Integration strategy includes forward integration, backward integration, and horizontal

integration develop for firms to gain control over distributors, suppliers, and/or competitors.

Forward integration involves gaining ownership or increased control over distributors or

retailers. Increasing numbers of manufacturers (suppliers) today are pursuing a forward

integration strategy by establishing Web sites to directly sell products to consumers; background

integration is a strategy of seeking ownership or increased control of a firms suppliers. This

strategy can be especially appropriate when a firms current suppliers are unreliable, too costly,

or cannot meet the firms needs; Horizontal integration refers to a strategy of seeking ownership

of or increased control over a firms competitors. One of the most significant trends in strategic

management today is the increased use of horizontal integration as a growth strategy. Mergers,

acquisitions, and takeovers among competitors allow for increased economies of scale and

enhanced transfer of resources and competencies. (Booker, 2014)

Intensive strategy is further divided into market penetration, market development, and

product development. Market penetration is seeking to increase market share for present

products or services in present markets through greater marketing efforts. This strategy is widely

26
used alone and in combination with other strategies. Market penetration includes increasing the

number of salespersons, increasing advertising expenditures, offering extensive sales promotion

items, or increasing publicity efforts; Market development involves introducing present products

or services into new geographic areas; Product development is a strategy that seeks increased

sales by improving or modifying present products or services. Product development usually

entails large research and development expenditures (David, 2011).

There are two general types of diversification, related and unrelated. Businesses are said

to be related when their value chains possess competitively valuable cross-business strategic fits;

businesses are said to be unrelated when their value chains are so dissimilar that no

competitively valuable cross-business relationships exist (Thompson et al, 2005).

In additional to integrative, intensive, and diversification strategies, an organization can

also pursue defensive strategy: retrenchment, divestiture, liquidation. Retrenchment occurs when

an organization regroups through cost and asset reduction to reverse declining sales and profits.

Sometimes called a turnaround or organizational strategy, retrenchment is designed to fortify an

organizations basic distinctive competence; Selling a division or part of an organization is called

divestiture. Divestiture often is used to raise capital for further strategic acquisitions or

investments. Divestiture can be part of an overall retrenchment strategy to rid an organization of

businesses that are unprofitable, that require too much capital, or that do not fit well with the

firms other activities. Divestiture has also become a popular strategy for firms to focus on their

core businesses and become less diversified; Selling all a companys assets, in parts, for their

tangible worth is called liquidation. Liquidation is a recognition of defeat and consequently can

be an emotionally difficult strategy.

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 After a strategy is developed and executed, an evaluation could be carry out to assess the

strategy. And Sustainability systems, programs and actions are evaluated because strategy can

neither be formulated nor adjusted to changing circumstances without a process of strategy

evaluation. Whether performed by an individual or as part of an organizational review procedure,

strategy evaluation forms an essential step in the process of guiding an enterprise (Rumelt,

1980).

It is impossible to demonstrate conclusively that a strategy is optimal or even to

guarantee that it will work. One can, however, evaluate it for critical flaws. Richard Rumelt

offered four criteria that could be used to evaluate a strategy: consistency, consonance,

feasibility, and advantage.

Consistency means that a strategy should not present inconsistent goals and policies.

There are 3 key indicators to measure if a strategy is consistent or not. First, if problems in

coordination and planning continue despite changes in personnel and tend to be issue rather than

people based, they are probably due to inconsistencies in strategy. Second, if success for one

organizational department means, or is interpreted to mean, failure for another department, the

basic objective structure is inconsistent. Finally, if despite attempts to delegate authority,

operating problems continue to be brought to the top for the resolution of policy issues, the basic

strategy is probably inconsistent.

Consonance refers to the need for strategists to examine sets of trends, as well as

individual trends, in evaluating strategies. A strategy must represent an adaptive response to the

external environment and to the critical changes occurring within it. Measurements could be

28
based on the sale growth, provision of value added for the customer, adaption to changes and

latest trends.

Feasibility means a strategy must neither overtax available resources nor create

unsolvable sub problems. The financial resources of a business are the easiest to quantify and are

normally the first limitation against which strategy is evaluated. It is sometimes forgotten,

however, that innovative approaches to financing are often possible.

Advantage means that a strategy must provide for the creation and/or maintenance of a

competitive advantage in a selected area of activity. Competitive advantages normally are the

result of superiority in one of three areas: (1) resources, (2) skills, or (3) position.

In recent years, corporate strategies have taken shape in the form of various sustainability

strategies. According to Biekers and his co-authors wider interpretation, a special emphasis is

given to the statement that corporate strategies must meet the expectations of the companys

present and future stakeholders without making any crucial compromises in terms of skills and

capabilities (Bieker et al, 2002).

Kerekes and Kindler (1997) came up with a more accurate formulation, according to

which sustainability strategy puts an emphasis on such responsible corporate activities that

regard the issue of sustainability as development and growth opportunities for the company, and

as such, they are enforced in all fields of activity. The essential condition for the success of

sustainability strategies is how companies can resolve the contradiction between economic,

social and environmental interests as well as to create corporate interests in resolving them. To

meet the requirements imposed by this condition, a conscious strategy planning is needed that

expresses the companys default position about sustainable development.

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 In the pioneering empirical studies written by Dyllick et al (1997) and Bieker et al

(2002), competitive environmental strategies were classified based on the company's strategic

orientation and strategic behaviour. The orientation of a strategy can be classified by which one

of the two prominent actors of the companys external stakeholders, either the market or the

public, is in the centre of the companys strategy. While market-oriented strategies are designed

to satisfy market needs in a better way, the main purpose of public-oriented strategies is to

comply with societal expectations to the highest possible degree. In terms of behaviour, Szigeti

(2004) and Vgsi (2004) make a distinction between the possible strategies of organizational

behaviour based on two defining characteristics: strategies can be reactive and proactive.

Reactive strategies give response to legal and economic changes later in time, they are

characterized by follow-up reactions. On the contrary, proactive strategies take the opportunities

provided by sustainable development as a challenge and exploit them to strengthen their strategic

position.

The several types of sustainability strategies are:

Introverted or Risk Mitigation Strategy - focus on legal and other external standards

concerning environmental and social aspects to avoid risks for the company;

Extroverted or Legitimating Strategy - focus on external relationships, license to operate;

Conservative or Efficiency Strategy - focus on eco-efficiency and cleaner production;

Visionary or Holistic Sustainability Strategy - focus on sustainability issues within all

business activities, competitive advantages are derived from differentiation and

innovation, offering customers and stakeholders unique advantages (Dyllick, 2000;

Hardtke and Prehn, 2001; Schaltegger et al., 2002; Baumgartner, 2005).

30
 These strategy types describe generic possibilities to deal with the challenge of

sustainability, e.g. with different environmental and social aspects of business activities

according to the sustainability principles of Robrt et al. (2002).

The comparison of introverted strategy together with sustainability aspects clearly

indicates that this strategy focuses on a very low standard of sustainability. A company following

the introverted strategy concentrates on the essentials such as conformity and compliance which

is already a key factor with any strategy, although it includes sustainability-related rules and

guidelines; it does not go deeper into the sustainability issue. No specific sustainability aspect

can be determined to be proportionately important for this strategy, whereas the profile of the

sustainability strategy is mostly based on the poor maturity level of sustainability aspects.

On the other hand, extroverted strategy can be differentiated between the conventional

and the transformative approach. Due to their different focuses it seems meaningful to discuss

them separately. A company focusing on the conventional extroverted strategy aims at

communicating its sustainability commitment to society as well as differentiating itself from the

competitors and to increase its credibility. Therefore, it seems meaningful to engage more in

sustainability that it is obliged to do by law, making it level 2, as well as the appropriate level.

Nevertheless, in the extroverted strategy, the responsibility for corporate sustainability is often

located in the PR or communication department, which increases the risk of green-washing in the

case of limited cooperation between the communication department and other corporate

functions and processes. As this strategy is focused on external presentation of sustainability,

fulfillment of these aspects is especially important (level 3 of sustainability maturity), which

supports the increase of credibility in society such as corporate citizenship, no corruption or

31
cartel, health and safety and collaboration to improve the relationship and working together with

stakeholders on related sustainability issues. (Baumgartner & Ebner, 2010).

The other type of extroverted strategy according to Baumgartner and Ebner (2010) is the

transformative extroverted strategy. The general orientation of transformative extroverted

strategy is the same as that of conventional extroverted strategy. However, it aims at positively

influencing the basic conditions of corporate sustainability. A company following this strategy is

a driver for corporate sustainability in society and gains therefore much higher credibility. On the

other hand, it is also necessary to assure through the implementation of sustainability a high

maturity in internal sustainability aspects. The maturity level over all aspects is generally one

level higher than in the conventional extroverted strategy. Again, most important are society-

related aspects (those that have major impact (positive) on society and those for which society

reacts sensitively to whether they are fulfilled or not).

Conservative Strategy (Efficiency) Conservative strategy is oriented mostly towards

internal measures, focusing on cost efficiency and very well-defined processes. Therefore, the

sustainability aspect processes is the most important within this strategy and should represent

an outstanding maturity. Within this strategy, commitment is especially crucial in the investment

in appropriate technology, sophisticated health and safety for employees and above all ecological

sustainability. Also, the measures must be derived to analyses and to increase the processes and

to assess, based on appropriate measures, corporate sustainability. Other sustainability aspects

are not much focused on in conservative strategy; society-related issues are less important.

Visionary Strategy or Holistic Visionary strategies can be divided into conventional and

systemic strategies. Visionary strategies show a highly developed sustainability commitment to

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become a market leader in sustainability issues. The two strategies are similar; they differ from

each other in the question of motivation and orientation. The conventional visionary strategy is

very much oriented towards its impact on the market, whereas the systemic visionary strategy

combines outside-in and inside-out perspectives to achieve a unique competitive position, but

based on an internalization and continuous improvement of sustainability issues inside the

company.

As already mentioned by Baumgartner and Ebner, the level of sustainability maturity of

visionary strategies is very high, mostly on a high sophisticated level. Only for some aspects

does a lower level (3) seem to be sufficient, too, as in processes and purchase, in no controversial

activities or in corporate citizenship, as these have not enough directed impact to affect the

situation in the market as sustainability leader.

In contrast to the conventional strategy, for companies following the systemic visionary

strategy it is important to show in all sustainability aspects very good results, as the company

must show stakeholders and market its sustainability commitment, and moreover to be active in

changing positively basic conditions towards sustainability (effort). In conclusion, all

sustainability strategies and their occurrence in maturity. It becomes obvious that each maturity

level stands for a specific sustainability strategy. (Baumgartner & Ebner, 2010)

Sustainability strategy, specific aspects can also be identified that are crucial for the

implementation of the strategy. It is important to mention that the profiles show the minimum

standard to follow a specific strategy. It is nevertheless possible to increase the sustainability

commitment to higher levels where it is appropriate in the specific situation of a company. It

may occur that, depending on the industry, on the size of the company or on other basic

33
conditions, some sustainability aspects are more important than others so that the sustainability

profile changes towards these aspects, or that further sustainability issues are relevant, which

must be focused on (e.g. pharmaceuticals: ethics in production, the harm to animals).

In practice, many consider sustainability certification is a key strategy for a supplier firm

to pursue (Kumar & Rahman, 2016). Sustainability standards and certifications are voluntary,

usually third party assessed, norms and standards relating to environmental, social, ethical, safety

issues (Kumar & Rahman, 2016). It is a symbolic demonstration of sustainability (Patala et al.,

2016), communicating to the wider stakeholder network of its sustainability practices

(Ballantyne et al., 2011; Frow & Payne, 2011). Certifications and standards are a necessary part

of the core value of the electronics industry, and sustainability certifications demonstrates a

performance advantage over competition without the necessary certifications (Patala et al., 2016;

Giovannucci et al., 2014).

Standards should support the quantification, measurement, monitoring and management

of supply chain wide activities (Wittstruck & Teuteberg, 2012). Industry specific standards give

decision makers concrete sustainability items that the organization must redesign processes for

(Wittstruck & Teuteberg, 2012). To manage supply chains in developing countries, large global

corporations located in developing countries developed industry wide code of conducts (Liu et

al., 2015). Various industry associations have drawn up corporate code of conduct to provide

guidance to members. Corporate resources are, and capacities are usually insufficient to

investigate every supplier in person, and in turn, forcing them to rely on industry wide

assessments (Liu et al., 2015). Through intra-industrial collaboration, the resources for

sustainable required sustainable supply chain management are shared, and the burden of

suppliers to respond to multiple demands is reduced (Liu et al., 2015). In the electronics industry,

34
external pressure to improve its labour conditions gave rise to the Electronics Industry

Citizenship Coalition Code of Conduct (EICC, 2016).

Cooperation with suppliers for sustainability objectives includes the sharing of

information and learning orientation (Agan et al., 2014). Bai and Sarkis (2010) categorizes green

supplier development as knowledge transfer, resource transfer and organizational practices. In a

survey of Thai electro-electronic companies (Wagner, 2007), means for supplier development

include creation of a database of environmental products, requesting product reports, and support

from top management.

2.7 Sustainability Structure in the Electronics Industry

Currently, there is little academic literature on organizational structure that is specific to

sustainability programs and sustainability staff (Ruedig & Metzger, 2013). Kiron et al. (2012)

explores internal drivers to sustainability and notes the importance of having an organizational

structure that embeds sustainability into business processes. Companies should leverage

sustainability concerns throughout the organization (Epstein & Buhovac, 2010). For example, at

United Parcel Service of America, Inc. (UPS), a global shipping company, health and safety

managers are placed in each business unit to implement strategic safety initiatives.

Ideally, an organization should be structured to effectively allow for the attainment of

corporate objectives and strategic intents (Sellitto, 2011). The Business for Social Responsibility

(2002) developed alternatives to embed sustainability in an effective organizational structure.

Aldama et al. (2009) found that these alternatives were still found in practice, concluding that

structure is the driver for organizational change towards integrating corporate responsibility.

35
However, when there is misalignment, structure is likely to become a factor or resistance to

sustainability integration.

To identify the the current functions that support sustainability, the Business for Social

Responsibility (2002) designed the following questions to determine a companys current

sustainability staffing structure:

1. Which departments, functional areas, business units or groups (formal or informal) have

responsibility for the companys CSR efforts?

2. What are their CSR responsibilities?

3. What is the scope or role of each group? Roles might include one or more of the

following: 1. Develop CSR strategy, 2. Design CSR policy and programs, 3. Implement

CSR activities, 4. Coordinate CSR efforts, 5. Communicate about CSR internally and

externally, 6. Measure CSR performance.

4. What is each groups level of accountability?

5. What are each groups financial resources?

6. Do formal or informal collaboration or communications mechanisms exist among the

groups?

Aldama et al. (2009) created a questionnaire to describe what companies are doing to

integrate the corporate responsibility in their organizational structures. The questionnaire was

applied to a small sample using companies public information and company websites.

36
 There is a consensus that there should be sustainability focused persons who have

influence over the companys strategic planning (Park, 2008). The researchers Almeda et al.

(2009) noted the emergence of sustainability focused positions such as the Chief Executive

Officer. The Chief Sustainability Officer not only manages the integration of sustainability into

the organization, but also risk management responsibilities (Griffiths & Perera, 2007). However,

the role of the executive suite is to govern, not to manage, so they must delegate.

Sustainability staff work across divergent functions and departments, consolidating,

coordinating, and intensifying sustainability activity (Ruedig & Metzger, 2013). The best

practice for those with sustainability roles is the facilitation and coordination of sustainability

programs to improve the organizational performance (Smith, 2011; Tripoli, 2010; Epstein,

2010). Managing measurement, tracking, and reporting are also key responsibilities for

sustainability personnel (Ruedig & Metzger, 2013).

Haugh & Talwar (2010) notes that sustainability should not be restricted to the company

leaders and senior managers, and that there needs to be collaboration across the different

business functions. Concurrent to that, Ruedig and Metzger (2013) found that close collaboration

with related functions such as Environmental, Health & Safety (EHS) or Quality Management

(QM) blur the defining boundaries of sustainability staff. Sustainability staff implement

initiatives, relying on others to collect data and for technical implementation. EHS forms the

technical, data and compliance-driven side of sustainability. QM focuses on physical operations,

including but not limited to energy and water efficiency, and waste management.

Management system standards form a framework for the development and application of

good management practices in organizations around the world. In the manufacturing setting,

37
quality standards (QMS/ISO 9001) gave rise to the development of environmental and social

system standards (Majstrovic & Marinkovic, 2011; Mezinska et al., 2013). Managers must

consider possible sustainability practice implementation alternatives in coherence with the

existing organizational culture (Mezinska et al., 2013; Wittstruck & Tueteberg, 2011). The

electronics industry hinges on the implementation of quality standards, and was early adopters of

management system standards, considering the adoption of integrated management systems to be

strategic decisions for the competitiveness and longevity of the business (Rebelo et al., 2016).

Additionally, proper health and safety practices are of key importance to manufacturing sites

(Raj-Reichert, 2013). The three most often practiced standards are QMS, EMS (ISO 14001),

and OHSAS 18001 (Majstrovic & Marinkovic, 2011; Rebelo et al., 2016). Mezinska et al.,

(2013) considers clear understanding of the responsibility of businesses to the environment and

society to be the starting point of developing an integrated management system.

Environmental and social sustainability must and could be inherent to all business

process, from procurement to production to sale. Khanna et al. (2010) provides the following as

compelling reasons to implement an integrated management system: promotion of cross-function

synergies (Govindan et al., 2013), common objectives across management systems, improvement

of corporate image, and the reduction of third-party audits. External pressure, resulting from its

business context, is the main reason for implementing integrated management systems in small

and medium enterprises (Rebelo et al., 2016; Karapetrovic & Casadesus, 2009). Large and

multinational companies specify supplier requirements for quality that must be met. Hence, most

often, supplier firms are required to implement quality management systems (QMS),

environmental management systems (EMS), health and safety management systems (OHSAS),

social responsibility management systems (SRMS), and risk management (RM) (Rebelo et al.,

38
2016). These standard management systems help organizations achieve balanced sustainability,

considering the environmental, social, and economic needs of its internal and external

stakeholders.

2.8 Sustainability Systems, Programs, and Actions in the Electronics Industry

In 2004, the Catholic Agency for Overseas Development released a report entitled Clean

up your computer: Working conditions in the electronics sector. The report revealed unsafe and

hazardous working environments and worrying labour conditions in outsourced manufacturing

plants of IBM, HP and Dell in Mexico, Thailand, and China. In response to this, several brand

name firms and key contract manufacturers, led by HP, developed an industry wide code which

covers labor, health and safety, environmental management, management systems, and ethics

(Raj-Reichert, 2013).

The Electronic Industry Citizenship Coalition (EICC) was established in 2004 by eight

leading electronics firm to improve the working conditions within and environmental impact of

their suppliers through an industry wide code of conduct. EICC-affiliated firms require their

suppliers, as well as contract manufacturer plants, to comply with the EICC Code of Conduct.

Originally, the code was intended to raise awareness, clarify expectations, and enable better

assessment of supplier practices. In 2005, the EICC partnered with the Global e-Sustainability

Initiative (GeSI) to develop a self-assessment questionnaire for suppliers that would be used as a

basis for audits and performance improvements. An industry wide assessment tool, the EICC

SAQ offers an efficient tool to identify risks for both customers and suppliers (Liu et al., 2015).

The code was initially implemented individually by each EICC member, but they have since

39
made quick progress to coordinate efforts to reduce audit fatigue among suppliers and eliminate

conflicting standards (Locke & Samel, 2012).

As of 2016, the EICC is comprised of more than 100 electronics companies with a

combined annual revenue of more than $4.5 trillion, and directly employs over 6 million people.

In addition to EICC members, there are thousands of Tier 1 suppliers to those EICC members.

The most recent version (Version 5.1) became effective January 1, 2016.

The EICC is a key governance technique for the electronics industry, establishing

standards to ensure safe working conditions, that workers are treated with respect and dignity,

and that business operations are environmentally responsible and conducted ethically (EICC,

2016). The code should be regarded as a total supply chain initiative, requiring at the minimum

that the next tier suppliers must comply with the code (EICC, 2016).

The code is made up of five sections: Labor, Health and Safety, Environment, Business

Ethics, and Management Systems.

The EICC guidelines on labor applies to all workers, including temporary, migrant,

student, contract, direct employees, and any other type of worker. The section for labor lists that

employment must be freely chosen, prohibits child labor, sets maximum working hours per

week, details a guideline on how to determine wages and benefits, human treatment, non-

discrimination, and respect for the freedom of association (EICC, 2016). This is measured by the

employee retention rate, employee turnover, employee complaints, presence of labor unions,

number of women and minorities holding management positions, average salaries and wages

given, zero child labor, limited or maximum number of overtime rendered by employees, etc.

(ISO, 2016).

40
 The EICC section on health and safety lists standards for occupational safety, emergency

preparedness, occupational injury and illness, industrial hygiene, physically demanding work,

machine safeguarding, sanitation, food and housing, and health and safety communication

(EICC, 2016). The section used the OHSAS 18001 and International Labor Organization

Guidelines on Occupational Safety and Health as reference, and calls for the use of management

systems such as OHSAS 18001 to address health and safety risks. The section also recognizes

that a safe and healthy work environment enhances the quality of products and services,

consistency of production, and worker retention and morale. The section also highlights ongoing

worker input and education as essential to identifying and solving health and safety issues. A few

examples of metrics for occupational health and safety are the presence of safety protocols,

safety orientations and trainings, number of incidents or injuries given a specified period,

adherence to proper attire or prescription of safety attire and accessories, employee retention,

employee complaints, sanitation process, food preparation, clean restrooms or bathrooms, and

workplace cleanliness (ISO, 2016).

The EICC section on environmental lists standards for environmental permits and

reporting, pollution prevention and resource reduction, hazardous substances, wastewater and

solid waste, air emissions materials restrictions, storm water management, and energy

consumption and greenhouse gas emissions. The section used the ISO 14001 and the Eco

Management and Audit System as reference. The first statement of this section indicates that

environmental responsibility is integral to producing world-class products. The management

standard deals with the amount of pollution that the company contributes to the environment,

proper waste segregation and disposal, recyclable waste compared to common waste, the amount

41
of energy consumed by the company, investments in environment friendly or energy saving

appliances and equipment, and allocation of resources (ISO, 2016).

To meet social responsibilities, the EICC upholds the highest standards of ethics

including: business integrity, no improper advantage, disclosure of information, intellectual

property, fair business, advertising and competition, protection of identity and non-retaliation,

responsible sourcing of materials, as well as privacy (EICC, 2016). A few ways to ascertain that

a company is being ethical is through the assessment of the way that they do business, have there

been any fines or penalties imposed on the company, have there been any cases against the

company, and does the company disclose all pertinent information regarding the product to the

client (ISO, 2016).

Additionally, the code requires its participants to adopt to management systems, ensuring

compliance with applicable laws, regulations and customer requirements related to operations

and products, conformance to the code, and identification and mitigation of operational risks

(EICC, 2016). The management system should also facilitate continuous improvement (EICC,

2016). The management systems must contain the following elements: company commitment,

management accountability and responsibility, legal and customer requirements, risk assessment

and risk management, improvement objectives, training, communication, worker feedback and

participation, audits and assessments, corrective action process, documentation and records, as

well as supplier responsibility (EICC, 2016).

Liu et al, (2015) conducted the first empirical study that analyzes environmental

measures based on the EICC Code adoption. The researchers distributed questionnaires modeled

on the SAQ to 106 Tier 1 supplier-manufacturing facilities of a Taiwanese computer firm, with

42
response rate of 59%, and majority of the respondents from China and Taiwan. The researchers

found that product type and number of employees offer some indication of expected

environmental performance, while location alone does not. The researchers noted that purchase

managers who select suppliers in the electronic industries can benefit from identifying risks from

EICC SAQ, and it enables supply managers to understand the level of environmental practices.

2.9 Sustainable Performance

Based on the literature the following approaches were identified for assessing and

measuring corporate sustainability:

sets of individual indicators

Sustainability Balanced Scorecard

composite indicator (composite index)

An evaluation using a set of indicators is the oldest approach to measuring and evaluating

corporate sustainability.

Epstein & Buhovac (2010) stated that sustainability performance can be measured

through inputs, processes, and outputs. Performance measures based on inputs allows for a more

objective post evaluation of the actual achievements of a company in terms of social,

environmental, and financials. For processes and outputs, however, these are typically used to

measure efforts in sustainability actions. These measures should ideally be convertible to

monetary terms to allow for the analysis of costs and benefits. Furthermore, to have a thorough

43
view and evaluation of a companys sustainability, the performance measures regarding strategy,

structure, management systems, programs, and actions should also be considered and noted.

The inputs considered in performance measures are the external context, internal context,

business context, and human and financial resources. External context encompasses all macro-

environmental factors that affect the company for example, pollution standards, non-

discrimination standards (Epstein & Buhovac, 2010), accounting standards, law compliance,

customer requirements compliance, etc. For the internal context, this refers to those relative to

the micro-environment or the happenings within the company, therefore the existence of a

corporate code of conduct and management system, as well as environmental and/or social

competitor benchmarking is considered (Epstein & Buhovac, 2010). The business context

involves the daily activities of the company to carry on its business, usually involving

competition within the industry it is part of and geographic diversity of production (Epstein &

Buhovac, 2010).

Lastly, human and financial resources concerns human capital and monetary resources

such as money available for employee training, money committed to Research and Development

on more effective energy conservation efforts (Epstein & Buhovac, 2010), average overtime per

worker, average days off per worker per week, percentage of migrant direct labor, average

number of overtime hours per month, average wage, average tenure, attrition per month or year,

number of labor audit non-conformances (Hammohan, 2008), return on investment, and

liquidity ratios (Sriyogi, 2012).

The processes concerned are leadership, strategy, structure, and systems, programs and

actions. Leadership is measured through a well-written and communication vision regarding

44
sustainability issues and number of hours that management dedicates for volunteer work.

Strategy, on the other hand, concerns itself with the percentage of suppliers that have

sustainability standards and percentage of overall budget that is dedicated to sustainability

initiatives (Epstein & Buhovac, 2010).

Many authors emphasize that corporate performance should not be viewed only because

of economic results arguing that the assessment should include non-financial indicators (Kaplan

and Norton, 1996, 2001; Carroll, 2000; Waddock and Smith, 2000) that focus on intangible

assets and consider relationships with employees, customers and other stakeholders. Numerous

indicators have been developed in the past twenty years which measure the corporate

performance in the context of its sustainability and accountability. Measuring corporate

sustainability means measuring the extent in which companies incorporate economic,

environmental, social and governance factors into their activities and, ultimately, measuring the

impact of their activities on their environment (Artiach et al., 2010; Labuschagne et al., 2005).

The Balanced Scorecard Institute has developed a Strategic Management Maturity Model

that describes the evolution of performance management and measurement. At one extreme,

measurement-based balanced scorecards are simple dashboards of performance measures

grouped into categories that are of interest primarily to an organizations managers and

executives. Measurement-based scorecards almost always report on operational performance

measures, and offer little strategic insight into the way an organization creates value for its

customers and other stakeholders. Most sustainability metrics, including GRI reports, fall into

this category. At the other extreme, a strategic performance scorecard system is an organization-

wide integrated strategic planning, management, and measurement system. These strategy-based

scorecard systems align the work people do with corporate vision and strategy, and communicate

45
strategic intent throughout the organization, and externally to interested stakeholders (Rohm &

Montgomery, 2010).

In the article by Docekalov and Kocmanov, the process of designing the Complex

Performance Indicator (CPI) was broken down to five steps. In the first step the basic set of

environmental, social, economic and CG key performance indicators (KPIs) was created. The

second step aimed at reducing the number of KPIs which was achieved by removing duplicate

information by way of correlation analysis and, further, by way of factor analysis to minimize

the information loss of original KPIs. Weights were assigned to the KPIs in the third step

because various indicators have varying importance in companies, they have different impacts on

the complex performance and assigning weights to the KPIs will bring them closer to reality. It

was also necessary to establish benchmarks for the reduced set of KPIs to quantify the gaps in

the corporate sustainability performance. In the last step, aggregation methods were used to

synthesise KPIs into a single composite indicator measuring the complex corporate performance.

The CPI model was designed and tested on real data. The data were obtained by way of a

questionnaire survey. To collect data in an efficient way the questionnaire was designed to verify

the proposed basic KPIs while assigning weights to individual KPIs.

2.10 Stakeholder Reactions to Sustainability

2.10.1 Product Market Benefits

Researchers have investigated the effects of CSR not only on the financial market, but

also on the product market. Those studies that have focused on the effects of CSR on product

market or consumer behavior (Murray & Vogel, 1997; Brown & Dacin, 1997; Ogden & Watson,

46
1999; Manaktola & Jauhari, 2007; Singh et al., 2008). Some research has demonstrated that CSR

reasonably enables a firm to expand its product market, differentiate a product from its

competitors, and build unique brand reputation (Menon & Kahn, 2003; Bloom et al., 2006).

Brand equity and improved customer satisfaction driven by CSR initiatives give competitive

advantages to the firms, which results in increased sales as well as in increased profitability

(Brown and Dacin, 1997; Lev et al., 2010).

2.10.2 Capital Market Benefits

There is little argument that corporations have a responsibility to society. However, there

is considerable debate as to whether firms socially responsible behavior is consistent with the

wealth- or value maximizing interests of investors. Prior research has extensively investigated

the CSR activities and CSR disclosure behavior of firms and their effect on investor behavior

and firm value. Specifically, researchers have investigated whether superior CSR quality could

result in various capital market benefits for firms, such as increased market return, decreased cost

of capital, reduced information asymmetry, and improved risk management. These capital

market benefits help directly to improve the value of the firm, both in the short term as well as

the long run. The extant literature claims that strong positive associations exist between CSR and

stock market performance, measured in terms of stock returns, market capitalization, and market

to book (Caroline, 2013). The benefits of CSR, such as increased employee productivity,

enhanced brand value and corporate reputation, and increased regulatory support, carry over into

future periods. So, superior quality CSR performance positively affects the value of the firm, not

only in the short term, but also in the long run (Eccles et al., 2013).

2.10.3 Employee Benefits

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 In addition to capital market and product market benefits, the literature has also revealed

that strong CSR performance can result in employee benefits. Different CSR provisions, such as

meeting labor union demands, providing better healthcare and retirement benefits, and paying

wages above the market level, help to increase employee productivity. Improved employee

productivity, job satisfaction, and employee motivation lead to better operating performance

(Banker and Mashruwala, 2007). Better operating performance results in higher profitability as

well as higher market value of the firms.

2.10.4 Regulatory Benefits

CSR also enables firms to avoid costly government imposed fines. Especially in highly

regulated industries, CSR has been found to promote better relations with regulators (Freedman

& Stagliano, 1991; Shane & Spicer, 1983). Brown et al. (2006) have documented that firms with

good CSR performance are also more likely to receive positive media coverage and favorable

treatment from policymakers. The authors have used an original database that includes firm-level

data on dollar giving, giving priorities, governance, and managerial involvement in giving

programs. Their results also have provided support for the theory that philanthropic giving

enhances shareholder value. Overall, the literature shows the evidence that firms with superior

quality CSR performance receive favorable treatment from the regulators and favorable coverage

from the media, that help to build corporate branding and improve firm reputation (Malik, 2015).

Stakeholders reactions to sustainability performance constitute an integral part of the

Corporate Sustainability Model. Among the important stakeholder groups are employees who

choose whether to work for the company, customers who choose whether to buy the products,

investors who choose whether to invest in the company, or government officials who choose

48
whether to increase or decrease regulation and enforcement. Corporate financial performance can

therefore be an outcome of sustainability performance directly or a result of stakeholder

reactions to sustainability performance. In either case, costs and benefits associated with

sustainability strategy must be measured and incorporated into management decisions. Benefits

of sustainability actions often come from cost reductions related to new manufacturing

technologies, green products, reduced material storage and handling costs, reduced waste

disposal, decreased employee turnover, etc. In addition, benefits can be related to positive and

improved relations with stakeholders. For example, favorable press mentions, or cause-related

marketing may contribute positively to a companys reputation for excellent sustainability

performance and send a positive message to customers, financial analysts and investors.

Examples of costs are the cost of compliance with legislation, investment costs, and various

operating costs related to sustainability actions.

Baseline information forms the basis for all subsequent measurements, so that the system

can measure improvement from the starting point on various elements of the framework.

Collecting initial baseline information may be challenging work, especially for those elements

that have not been previously measured (such as measuring the impact of a company on society).

But such initial efforts are critical to the success of sustainability initiatives. Fortunately, various

tools and techniques are available to measure the various aspects of sustainability performance.

2.11 Corporate Costs/Benefits of Actions

As more and more companies are gearing themselves towards green initiatives and

sustainable action plans, it is becoming more apparent that there are changes that occur once

49
these actions are taken. Businesses are being pressured by its stakeholders to become more

sustainable and engage in acts and programs that would help improve the reputation of the

company through the likes of corporate social responsibility (Mathiyazhagan et al., 2014), but to

see what these entail for the company and how they will benefit from all these efforts and the

extra money that they will have to put in, a cost-benefit analysis is usually done. In most cases

there is an investment to be made and as with investing, money is involved. Financial managers

are then tasked to weigh the financial consequences of these investment decisions in line with

their respective environmental and social impacts. (Epstein & Yuthas, 2012) For a business to

determine what the costs and benefits of investing in sustainability will be, we must first

understand what we are measuring or considering in this analysis.

Some businesses are hesitant to adopt sustainability initiatives and practices due to the

cost of investment. (Aragon-Correa & Rubio-Lopez, 2007; Paraschiv et al., 2012; Peters &

Zelewski, 2013) These added costs for investments usually occur at the beginning of the

implementation of the sustainability programs. This is used to purchase new equipment or

technology, certifications (Environmental Management Systems and Quality Management

Systems), marketing (advertising), communications (reporting), and human resources

(recruitment).

However, there are some researchers that state that there is cost reduction involved in

corporate sustainability, but it is promoted in the long run. (Schaltegger, 2011; Ganescu, 2012;

Baumgartner, 2014) Investments are always a trade-off as you give up one thing to acquire

another which will hopefully give more than what you put in. In the case of sustainability, you

are investing in positive impacts on society, the environment, and the economy. (Patala et al.,

2016) Several articles have argued that corporate sustainability is a way to add value to a

50
company and create a competitive advantage. (Ganescu, 2012; Peters & Zelewski, 2013; Stead &

Stead, 2013). Other ways to reduce costs are through waste management and resource allocation.

Epstein and Yuthas (2012) developed an enhanced model of the traditional cost-benefit

analysis. Instead of just considering the programs and activities, operational performance, and

monetary benefits and cost, they add sustainability performance and stakeholder reactions to the

mix to make it a model for sustainability. Sustainability programs pertain to the actions taken

towards sustainability initiatives, while operational performance deals with the outcomes

resulting from the sustainability programs. Sustainability performance, on the other hand, deals

with the results that relate to the impact on society and the environment. Monetary costs and

benefits, as is commonly known, refers to the financial results of the initiatives, and lastly,

Stakeholder Reactions which quite literally deals with the reactions of the stakeholders to the

performance outcomes of the sustainability initiatives and programs.

An example of a sustainability action is financing renewable energy projects are

complex, and the cost over life of the facility is usually much greater than the conventional

facilities (Cooperman, 2013). These projects need policy supports such as tax credits, debt

financing, equity and structured equity to subsidy part of the development costs to attract private

investors (Cooperman, 2013). Cooperman (2013) provides examples of banks such as Barclays

and Wells Fargo that have financed clean energy projects. And there is a rise in community

focused banks that provide environmental focused loans (Cooperman, 2013). Alternatively,

social impact bonds have been introduced in some countries to finance infrastructure projects

(Lu et al., 2015). Social impact bonds are funding provided by private investors, on the condition

that the government will pay the principal and interest only if the project achieves the expected

impact (Lu et al., 2015).

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 Kumar and Rahman (2016) states that the management plays a huge role in the selection

of the initiatives and programs based on the benefit that these would give the company combined

with the pressures from stakeholders. The chosen programs are then measured through an impact

analysis on the economy, society, and the environment. It is imperative that the top management

remain engaged in the endeavor for them to motivate the stakeholders to move towards

sustainability and keep up the initiatives that were chosen and put in play. It is also necessary to

create good ties with the suppliers as a sustainable business starts with its supply chain, which in

a smaller scale starts with the supplier itself. One way of attracting suppliers and customers is

through the advertisement or the publication of the green practices of sustainability efforts that a

company employs such as a sustainable supply chain (Wittstruck & Teuteberg, 2012).

2.12 Long Term Financial Performance Through Sustainability Performance

Sustainability in general is defined as the ability to meet the present needs without

compromising the ability to meet future needs. Applying this to a business will turn it into

Corporate Sustainability meaning that it is the ability to meet present needs of the businesses

without compromising the ability to meet future needs of both the direct and indirect

stakeholders (Lozano, 2012). Organizations that integrate the environmental and social policies

into their business models represent a modern corporation that considers its financial

performance, environmental and social impact, long-term approach to maximize profits, active

stakeholder management, and more developed measurement and reporting systems (Eccles et al.,

2011). However, it is not enough to have a few initiatives here and there, for a business to

progress towards sustainability, the business must have a holistic approach which considers all

52
three dimensions of economic, social, and environmental (Baumgartner & Ebner, 2010;

Baumgartner, 2014; Lozano, 2015). There have been numerous papers that analyze the

relationship between the social, environmental, economic performance of a business (Ganescu,

2012; Figge and Hahn, 2012; Zhang et al, 2013).

In the examined studies, financial performance uses either accounting-based or market-

based measures. Accounting-based measures include financial ratios such as return on

assets(ROA), return on equity (ROE), return on sales (ROS), or earnings per share (EPS).

Market-based measures include market value, market return, and Tobins Q. (Lu & Taylor,

2016).

Lu and Taylor (2016) points out that on the one hand, one stream of sustainability studies

have examined the association between corporate social performance and corporate financial

performance. The empirical results are generally mixed. On the other hand, another stream of

sustainability studies has focused on the relationship between environmental performance and

financial performance. One group of researchers has documented that the high environmental

performance of firms increases firms financial performance. Another group of researchers has

documented that financial performance is negatively associated with environmental performance

such as pollution index.

According to an article published by Bckstrmand and Karlsson in 2015, a positive

relationship between corporate sustainability performance and financial performance exist. Meta-

analytic procedures can help find factors that moderate the relationship between corporate

sustainability performance and corporate financial performance. The whole dataset is split into

several pairs of subsets. Then the generalized least squares (GLS) analysis for the moderator

53
effects was performed. Before running GLS, outliers were examined by calculating Huffcutt and

Arthurs (1995) sample-adjusted meta-analytic deviancy (SAMD) statistic. The final dataset for

moderator analysis includes 198 effect sizes. The results showed that in addition to the positive

correlation observed in prior research between sustainability performance and financial

performance, other moderators also contribute to the CSP-CFP relationship. Traditional literature

reviews of the CSP-CFP relationship have relied mostly on narrative reviews.

2.13 The Philippine Electronics Industry

The electronics industry mainly refers to consumer electronic goods and is fairly a young

industry, having only been in existence since the 20th century due to technological advancements

and expansion of capabilities and resources. The electronics industry is a collective of companies

that produce and manufacture electronic goods. Under this industry is the electronic

manufacturing services. These are the companies that design, assemble, produce, and test

electronic components for original equipment manufacturers. The companies under these

services are usually contracted by other companies. According to the Philippine Economic Zone

Authority (PEZA), as of the year 2013 there were approximately 420 firms in the electronics

industry in the Philippines where majority were Japanese, American, and Korean firms. It has

been the top export earner in the country for the past decade and a primary player in the foreign

currency pool.

It is an industry that is currently worth billions of dollars as more and more people are

adapting more technology into their lives. Consumer electronics are made for everyday use

mostly for productivity, entertainment and communication mediums. They help make life easier

54
as they eliminate certain actions and wastes. They also help make processes more efficient and

effective, making them faster and more reliable than the old ways of doing things. The industry

is classified into 2: Semiconductor Manufacturing Services and Electronics Manufacturing

Services. Below is the list of the services for each and the percentage that it takes in the

electronics industry according to the National Statistics Office for the year 2012:

1. SMS 77%

Components/Devices (Semiconductor)

2. EMS 23%

Computer Related Products

Office Equipment

Consumer Electronics

Telecommunication

Communication/Radar

Control & Instrumentation

Medical/Industrial Instrumentation

Automotive Electronics

Solar

2.13.1 Porters Five Forces Analysis

Factors Affecting Strength of Rivalry

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 The strength of rivalry in the electronics industry is strong as there are many electronics

manufacturing and assembly service providers out there, not necessarily just in the Philippines,

but also outside the country. The biggest competitor for EMSCAI is China in general because it

is common knowledge that labor is cheapest there, therefore, most manufacturing and assembly

jobs are being outsourced to China. Other countries also have more advanced technology that

help speed up the manufacturing processes. Having more advanced technology also allows

companies to produce various products and allows them to expand their capabilities and capacity

to meet the needs of more companies and customers.

In an industry such as electronics, one that is growing so fast with innovative technology

being developed every day, companies participating in this industry struggle to stay ahead of one

another. Take Apple and Samsung for example, they are both manufacturers of smartphones,

which is under the electronics industry. They try to outdo one another on features, design, and so

many other aspects of their smartphones just to gain market share and increase their revenues. In

EMSCAIs situation, their competitors are brands who manufacture their own products or

outsource them to other countries to cut costs. Another reason why rivalry is strong is because

there are many players in the industry, there are many firms that offer almost the same

capabilities as EMSCAI to the same market. The most convenient way to entice customers to

pick you as a supplier is to offer them attractive prices for your services and competing with the

likes of China with their lowest labor rates is a great challenge for smaller countries and

companies. Microchips and electronic circuit boards are hardly differentiated, making products

homogenized, the only way to differentiate is through cost.

The electronics industry is very volatile. If there is an economic downturn like that of

which occurred in the year 2009, the industry will falter, and market values and orders will

56
decrease. Electronics are not a basic need for people, therefore, it will be one of the first things

people will cut down on. Big companies, specifically, customers and suppliers, tend to lay off

people and discontinue certain production processes, which will in turn result in less volume and

demand for orders.

Factors Affecting Threat of Entry

The threat of new entrants into the industry is weak because of the need for a high

amount of capital to enter the market successfully and even more money to continue operations.

The use of massive equipment and need for an enormous number of human resources results in

the need to have a large working space or manufacturing site. Customer loyalty also plays a part

because companies who already have a supplier for electronics manufacturing cannot easily

switch suppliers because of their large volume orders that need to be filled to make the products

that they offer to the market. It is also difficult to foster relationships with suppliers if you do not

have a sizeable enough company that will place orders that meet the minimum requirement for

the supplier.

Factors Affecting Competition from Substitutes

The competition from substitutes is weak because it is a service that is being provided

even though it is product that is being produced. The electronic parts that are being made by the

company are done using the specifications of the customer, this means that the items are not

ready-made. Also, with the large volumes of orders that a customer usually places, it is difficult

for them to just get up and switch to another service provider. For the buyers or customers to

determine whether the substitute products have better quality, performance, or other attributes,

they will have to ask for a sample to be made for them according to their specifications.

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 Making a sample is difficult to do because most electronics manufacturing companies

employ mass production and do not find it economical to spend as much time negotiating and

designing a product to just make one of it to show as a sample. Furthermore, it is also a risk on

the customers part for giving their designs for their specific electronic part because the company

can leak or use their design for other customers with only making a few minor alterations.

Switching suppliers also increases the costs that the company will incur, again due to the large

volume of orders.

Factors Affecting Bargaining Power of Suppliers

Bargaining power of suppliers is strong because the suppliers of the components and

materials to be used in production are the buyers themselves. They can negotiate prices knowing

that EMSCAI does not source its own materials and components yet. The buyer also has certain

specifications and design needs that are already fulfilled by the components that they already

have on-hand and will pass on to the company for the electronics manufacturing and assembly

service.

Factors Affecting Power of Buyers

The bargaining power exhibited by the buyers is strong because the customers of

EMSCAI provide the materials to be used in the manufacturing and assembly. EMSCAI has yet

to start sourcing materials on its own but will do so in the future. The buyers can negotiate the

price for the service that EMSCAI will provide them based on the materials to be used, length of

time it will take to make the product, and budget restraints of the buyer. Initially, the company

gives a quotation to be approved by the customer, if the customer is not satisfied with the

quotation then renegotiation of the contracts will be done, and a new quotation will be provided.

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 The company gives importance to strategic customers/partners when making quotations

but if they are still unsatisfied with the best offer then the company will not push down costs to

the desired amount at the expense of the quality of the product, which is what differentiates them

from other electronics manufacturers. The identity of the customers also brings prestige to the

list of customers of EMSCAI because it can bring in more business for them if others see that big

name brands in the industry are associated with EMSCAI.

2.13.2 Electronics Industry Opportunities and Threats

Table 2.1 Electronics Industry Opportunities and Threats

OPPORTUNITIES THREATS

Global expansion Entrance of companies with similar

Product diversification into the other goals and objectives

market segments High utilities costs

Creation of unique products or Graft and corruption in some

technologies which may be patented government agencies

Advancements in technological Laws and regulations for international

innovation that speed up the business relations

manufacturing process Uncertain and volatile financial markets

Growing demand for surface mount New administration is against

technology and other digital products contractualization as some employees

The Philippines is starting to become are on contract-basis

an appealing supplier country to

foreign customers

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 Increased demand for industry standard

compliant suppliers

2.14 EMS Components Assembly, Inc. Internal Environment Analysis

2.14.1 Company Profile

EMS Components Assembly, Inc. is a 100% Filipino and family-owned company that

was incorporated in 2004 by Francis Ferrer, known in the industry as the Father of Philippine

Electronics. It is a privately-owned company located in 17-A Technology Avenue, Laguna

Technopark, Laguna, Philippines. EMSCAI was a result of a challenge, while Francis Ferrer was

in retirement, several hundred employees were destined for displacement as electronics

companies were downsizing to cut expenses and to save money. Mr. Ferrer took it upon himself

to open his own establishment to save the jobs of those people, to show that the Filipino people

are worth investing in, and to make a company competitive to China. EMSCAI started out with

about 90 employees in 2004 and presently, according to the the President of EMSCAI, Mr. Perry

Ferrer, as of January 2016, EMS Components Assembly, Inc. has approximately 2,500

employees, most of which are female. It is a subcontracting firm for some of the major players in

the industry by providing the human labor along with training, facilities, utilities, and

management expertise to its customers. EMSCAI also extends assistance to their customers to

acquire all the necessary paperwork and registrations, as well as certifications needed to carry

out the business.

The company has received certifications from PEZA (Philippine Economic Zone

Authority), DOLE (Department of Labor and Employment), ISO 9001:2008, and is SEC

60
registered CS200400731. As of 2014, the companys revenue was derived from 60% electronic

parts, 15% from consumer electronics, 5% from semiconductors, 2% for automotive, and 19%

from others.

An experienced and capable workforce is vital to EMSCAI as they are a service provider

and are very labor intensive, that is why all the production operators that are being hired by the

company go through extensive training to ensure the performance and quality they will provide

the company and its customers. Training exemplifies an eye for detail, productivity, motivation,

preciseness, knowledge of due process, and safety. It is also vital to have a visionary

management that can lead the company towards a profitable future allowing the company to

grow and expand. Mancomm and Strategic Planning sessions take place every month and per

quarter respectively, to adjust or create new plans for the rest of the year and to forecast for the

succeeding years. Mr. Francis Ferrer has been in the electronics industry for more than 20 years

and is a prominent name in the industry. It also helps that he is on the PEZA (Philippine

Economic Zone Authority) board. He also used to be the president of Integrated Microelectronics

Incorporated, making him a vital source of information and direction as he understands the

industry and its members very well.

EMSCAIs customers include brand names such as Toshiba, Nikkoshi, Manila AMC,

Integrated Microelectronics, Inc., Tescom, and several others. These customers have been with

the company for years and are a great asset to EMSCAI as the association with them shows that

the company provides high quality manufacturing as the customers themselves strive for the best.

EMSCAI offers electronic manufacturing services, components assembly, and inspection to

several well-known brands in the industry. To be able to do this, EMS has the latest high-end

Surface Mount Technology Machines. This enables the company to produce better quality, faster

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delivery lead-time, and competitive cost. Surface mount technology (SMT) is a method for

producing electronic circuit where the components are attached directly to the printed circuit

boards. With this, the company can become more efficient, effective and competitive.

This endeavor helps attract more customers as they want to follow in the footsteps of

some of the biggest names in the industry and a step towards garnering market share is to have

the same service provider to ensure that the quality of their products matches up to the quality of

the products of leading brands. The company also prides itself in superior customer service as it

provides production and workforce stability, allows extensive use of engineering tools to

improve yield, it has a shorter ramp to production, there is a technology transfer or replication of

manufacturing of the customer to the workers of EMSCAI, protects intellectual property through

confidentiality agreements and memorandum of agreements, and facilitates government

regulatory requirements for the customer. Inside the company, people treat each other as family,

management believes that everyone should be included and there should be no factions to be one

team and to move as one team towards one goal, which is to become a globally competitive

company in the electronic industry.

One of the reasons why EMSCAI has grown to the size that it is today and is still

growing is due to the its commitment to continuous improvement, particularly process

improvement through innovation. Each year, the company holds an Innovation Challenge where

employees propose of ways to improve an activity or situation or status in the company. A few

examples of these are elevated soldering equipment to make it easier on the posture of the

employee using the equipment, switching to LED lights and inverter air conditioners to save on

utilities expenses, and positioning of equipment or innovative ways of executing a project to

shave of a few seconds of time for each assembly which eventually will add up and save money

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as well as increase the possible volume of production. Another reason for the growth and the

high retention rate of the company is because top management keeps their employees in mind

and makes it a point to give back to them through profit-sharing and incentives. The Human

Resources department also prepares a few periodic Corporate Social Responsibility programs

that employees join on a voluntary basis aside from those of which that assist in the ethical and

legal compliance of the business.

The company has several corporate social responsibility practices that are overseen and

implemented by the human resources department. For ensuring ethical strategy, honorable and

ethical operations, they are Bureau of Internal Revenue (BIR) and Securities Exchange

Commission (SEC) registered and their financial statements are audited by SyCip, Gorres,

Velayo, & Co., which conducts audits according to the Philippine Standards on Auditing. They

have an internal Total Quality Management team that analyzes and evaluates the processes being

done in the company and determines how to lessen or eliminate defects. The companys ISO

certifications along with local government and customer awards and recognitions, allow it to

comply and exceed quality standards and expectations. There is also an internal corporate affairs

department that ensures that all actions of the company and the people in the company are legal

and ethical.

Supporting charitable causes is another way that EMSCAI gives back to the community.

Visiting homes for the aged like Bahay ni Maria, conducting outreaches in public schools and

orphanages such as Elsie Gaches, pioneering blood drives to donate to the Philippine Red Cross,

house construction in partnership with Habitat for Humanity, medical missions in provinces, and

donations to disaster stricken areas are some of the charitable causes that EMSCAI has focused

on in the past few years. Uniquely, the company has a scholarship program called the Bridge

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Project or the FIF Scholarship Program. It aims to bridge the gap between education and

employment. The program is offered to the relatives of the employees of any of the companies

under the EMS Group of Companies that have worked there for at least a year and the applicants

are in their 3rd or 4th year in high school or are taking vocational courses. After they complete

their studies, they will be employed by the company if they pass and the requirements that

EMSCAI imposes.

EMSCAI also cares for the environment. Within the company they follow the reduce,

reuse, recycle program and they also have the paper initiative wherein they have strategically

placed boxes where scratch paper with only one side used is placed for it to be used again to

utilize both sides of the paper. Employees undergo environment protection orientations when

they are first hired and later throughout their stay in the company to teach them how to be

responsible and to start at home by doing simple and minor alterations in their lifestyle and

practices. There are also tree planting activities and mangrove planting activities through

partnerships with schools and local government units. River clean-ups such as the Pasig River

are also being done by the employees of the company. Proper waste segregation is also observed

and a monthly target of 60% recyclable waste compared to common waste produced is set.

To enhance employee well-being, EMSCAI has implemented the 5S program, which

stands for Standardize, Systematize, Sweep, Self-discipline, and Safety in the workplace. This

teaches the employees to be neat and responsible for their actions and for their time in the

company. There is also a cadetship training program where employees are trained to become

supervisors and managers as top management believes that they should invest in their people. A

performance monitoring sheet keeps people on their toes and makes sure that they are motivated

and productive throughout the year and to help address problems and concerns that their

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employees might have. Orientations for health and safety are also being given as well as full

annual physical exams that are mandated and paid for by the company. Leadership and

motivational seminars help employees become more passionate about their work as there will

always be the opportunities for promotions and recognitions for their efforts. Profit sharing

works as a good recruitment tool. If an employee successfully refers another employee into the

company, they will get a small commission as a form of gratitude. Parties and other events are

also held for the employees as EMSCAI is not all about work. In Christmas parties, for, example,

as it is the end of the year, employees are rewarded for attendance, loyalty, and exemplary

performance to serve as examples and role models for their fellow employees.

Since its establishment, EMSCAI has always hired female production workers from age

18 to 27 years old, however, certain exceptions have been made. For example, if an applicant has

been a production worker for multiple companies, but over the age limit it is under the discretion

of the interviewer to accept the applicant based on past performance and employer endorsements.

In management and administration, both males and females are accepted even those who have

disabilities such as deafness or partial blindness are not discriminated upon. The company has

given jobs to over 2,500 people and collectively as a group (EMS Group of Companies) has over

15,000 employees as of July 2016. The company also does not only hire Filipinos, although it

gives great emphasis to Filipino workers as it was built on fostering the skills of the Filipino

people, Japanese businessmen also work in the company as consultants, engineers, and trainers

this is due to the close ties between the Ferrers to the Japanese executives as Japan is one of the

leading countries when it comes to technology, innovation, and electronics.

2.14.2 Vision Statement

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To be an excellent solutions provider among globally competitive electronic manufacturing

services.

2.14.3 Mission Statement

To achieve globally competitive status through partnership and constant innovation in: quality,

productivity, value chain, and human resources.

2.14.4 Company Values

There are certain values, philosophies, and ideologies that their employees should embody to be

productive and to uphold the image of the company. Those values, philosophies, and ideologies

are mainly:

Efficiency and excellence, which means that they strive to be excellent in all aspects of

what they do through continuous improvement, innovation, and upgrading their technical

abilities and capabilities.

Meeting and exceeding customers expectations is achieved through offering quality

products and services at competitive costs.

Having a sense of responsibility promotes commitment and awareness of accountability

for consequences of certain actions.

Continuous communication is upheld through the open-door and transparency policies

within the company so that no key information is withheld from the necessary

departments.

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 Adaptability to changing needs is almost a requirement in the technology and electronics

industries because they are greatly affected by technological advancements that lead to

certain processes to become obsolete. Other factors that affect the industry are

globalization and market demands. Competition is so intense that companies fight to be at

the forefront of the latest developments.

Integrity is also emphasized to promote respect, diligence, fairness, and punctuality.

2.14.5 Strengths and Weaknesses Analysis

Table 2.2 EMSCAI Strength and Weakness Analysis

STRENGTHS WEAKNESSES

Focus on continuous improvement, Brand recognition and global presence

quality, and good customer relations Business is highly dependent on one

Filipino, family, and privately-owned customer (TOSHIBA)

Flat organization makes Focused product line mainly on Hard

communication and decision-making Disk Drives

faster Business model can easily be

Competitive pricing scheme duplicated

Manual assembly capabilities with Limited technical abilities and too

high technology like Surface Mount comfortable with defined processes

Technology Machines Buyer demand is relative to fluctuations

Ugnayan Sessions and streamlined in the electronics industry

governance system for improved No bargaining power against customers

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 employee - management Customers supply raw materials and

communication inputs

Full performance monitoring

No major safety and health issues since

2004

ISO 9001:2008 certified, OHSAS and

ISO 14001, EICC, and PQA compliant

TESDA accredited training

Strong commitment to CSR

EMS Components Assembly, Inc. (EMSCAI) is one of the few fully Filipino, family, and

privately-owned companies left in the Philippines. It also emphasizes the need to have quality

products and services at competitive prices to attract and retain its customers through continuous

improvement in all processes and and providing facilities, labor, and organizational management.

The company also provides Technical Education and Skills Development Authority (TESDA)

accredited training to its production operators to achieve quality manual assembly capabilities

using high technology machines and processes such as the Surface Mount Technology machines

that allow higher volumes of production in massively less time than manual soldering. Due to its

certifications and compliance to several International Standard Organization (ISO) management

standards, EMSCAI is able to address the health and safety of its workers as there have been no

major accidents and injuries since its founding in 2004, they also have a zero defects initiative

that has been achieved for numerous months but is not consistent as there are multiple factors

affecting production, compliance to environmental management systems, quality management

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systems, and occupational health systems also aids in addressing any related concerns

particularly with employees and the community where the company operates in. Certain Best

Practices in place such as the open-door policy, flat organizational structure, streamlined

governance system, and Ugnayan Sessions where employees can bring forth any concern they

may have about the company, its people, or the community and environment helps EMSCAI

focus on pressing matters to improve the workplace environment and positively impact its

surroundings.

However, due to its being a privately-owned company with over 2,500 employees, it is

difficult for EMSCAI to raise the funds needed in case there are new projects to be executed or if

there are new equipment or technologies to be purchased therefore, they must turn to bank loans.

It also hampers the companys ability to reach more customers and to expand globally as this

would need a stronger global presence and brand recognition along with the capital required to

fulfill those orders should they arise in the future. The company also does not have any

bargaining power regarding the price of the raw materials and inputs as these are being provided

by the customers or regulated by the customers through a set list of acceptable suppliers, which

in turn partially sets the profit margin quite low due to the costs incurred. In line with this, more

companies are requiring their suppliers to be EICC compliant or compliant to any requirements

and standards that they so choose. This pressures companies to realign their goals and to come

up with new strategies and actions that would best fit the requirements and standard fulfillment

needed or asked for by the customer. Through the acquisition of new customers and retention of

old customers, the business will thrive and generate more profits to be used in other activities or

for expansion and increase brand reputation and recognition. To obtain funds for investment in

SMT machines which are increasing in demand and to purchase more advanced equipment to

69
improve productivity and efficiency or to aid in the global expansion of the company, EMSCAI

can opt to have an Initial Public Offering and become a publicly traded company. The downside

to this is that the company will then have to answer to outside investors instead of those directly

involved in the management.

As it is, it is hard to penetrate the electronics industry due to to the high capital

investment needed for plant, property, and equipment, as well as the highly skilled labor force

necessary. High utilities costs are also typical in this industry as numerous machines are used in

production. The electronics industry is one that is heavy on international relations as most

companies are multinational or publicly traded which presence all over the world. Inputs are also

imported while the outputs are exported to other countries, therefore making EMSCAI reliant on

global trends and international trade relations aside from the laws and regulations governing this

industry. It is also no secret that in some government agencies, there is apparent graft and

corruption that may hinder the ethical manner of which people would carry out their business.

Hopefully, this will be mitigated by the current president. However, as President Duterte is

against corruption, he is also moving towards ridding the country of contractualization which is a

part of the culture in the electronics industry especially where production operators are

concerned due to their project-based hiring. This poses a threat to the hiring process as well as

leading to increased costs to regularize employees and provide the necessary compensation and

benefits.

2.14.6 Business Model

EMS Components Assembly, Inc. operates with a subcontracting type of business model

wherein they are the suppliers of training, facilities, management, and human labor to their

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clients to manufacture the electronic components being outsourced to them. The company can

provide these services in-house or if the client prefers it, all operations can be done in the

principal place of business of the client or in a specified location stipulated in the contract

between the parties. The clients of EMSCAI are large businesses that have their own

manufacturing capabilities but choose to outsource to mainly cut costs. These businesses provide

all the necessary inputs and raw materials for EMSCAI to use in the manufacturing of their

electronic components and products. This is due to the highly specified and differentiated

products that they intend to create therefore, the supplies to be used cannot come from just any

supplier.

In addition, there are also set standards and certifications that the suppliers must be

compliant to be awarded with the business from these clients, this shortens the list of possible

candidates for suppliers considerably to ensure that the product will have the highest level of

quality achievable. Because of this, the managers at EMSCAI make it a point to ensure that the

company maintains its ISO 9001:2008 certification for quality and its compliance to the

Electronics Industry Citizenship Coalition (EICC) code of Conduct which is the standard to be

upheld by companies within the industry in the fields of Labor, Health and Safety, Environment,

Ethics, and Management Systems.

This type of business model is not uncommon in the electronics industry. To illustrate, a

simple supply chain is provided below to show how the operation is outsourced and how the

suppliers supply both the EMS Providers and the Original Equipment Manufacturer.

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 Original
Component EMS
Equipment
Suppliers Providers
Manufacturer

Figure 2.1 EMS Business Model

As seen above, the component suppliers provide inputs to the EMS providers and the OEMs. In

the case of EMSCAI the component suppliers can be either the customers themselves or

suppliers that were pre-approved by the customer. This fact means that EMSCAI has no choice

but to pay whatever cost is associated with the inputs as the parts are highly specialized and

differentiated to give the customer company a competitive advantage from other players in the

market. This caps off the profit margin of EMSCAI as they cannot significantly lower costs of

inputs.

2.14.7 Value Chain

Supply Chain Operations Distribution Sales and Service Profit

Management Marketing Margin
Subcontracting Warehousing Customer
Inputs given Competitive support Dependent
by customer Facilities On-time pricing based on customer
management delivery direct on customer Certification wants and
Other to customer requirements and needs
suppliers are Human labor accreditation
audited management Word of mouth assistance
Compliance to Use of high
ISO standards technology and
manual labor

Technology, and Systems Development

In-house developed software for human resources, SMT machines, soldering equipment,

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TESDA accredited training, innovation driven, high technology and manual labor combination

Human Resources Management

Recruiting, Hiring, Training, Deployment, Compensation and Benefits, Contract, Dismissing,
and Performance evaluation

General Administration
Francis and Perry Ferrer, father and son duo
Family and Filipino-owned private company

Figure 2.2 EMSCAI Value Chain

2.15 Research Gap

Past researches exploring the relationship between sustainability performance and

corporate financial performance use secondary sources in the form of different sustainability

indices, such as the Dow Jones Sustainability Index, NASDAQ OMX Stockholm, Kinder

Lyndenberg, and Domini, and ASSET4 ESG index as proxy. Another method used by prior

research is the construct of new indices and scales to collect own primary data by using surveys

or by analysing public corporate reporting. Semi-structured interviews are done on the firm level,

most often with a company representative. Data gathered from the interviews are then

triangulated with document reviews, and/or facility visits.

Correlation analysis is used to determine the main relationship between sustainability

performance and financial performance. The relationship between sustainability and financial

performance is then subsequently tested using multivariate regression analysis.

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 Measurement and evaluation of corporate sustainability is traditionally done using an

evaluation using a set of individual indicators that are designed and arranged to form a tie

between strategy and operational activities.

There remains to be a distinct separation between quantitative and qualitative data

analysis. In quantitative researches that explore the relationship using multiple indicators, further

exploration using qualitative methods are not done. Researches that use qualitative methods as

the primary method are more often used to identify best case practices, and to describe the

current state of sustainability the organization, and does not use quantitative data analyses such

as correlation to establish the relationship.

Hassin et al., (2012) recommends that more attention should be given to industry specific

research on sustainability. There are several researches on the sustainability practices of the

electronics industry, with the bulk of the literature focusing on green practices. Sustainable

supply chains and compliance with sustainability standards are done from the perspective of the

buying firm, and no in-depth qualitative analysis has been done from the perspective of the

supplier firm. Most of the companies used for empirical analysis and case studies were in

Taiwan, China, Brazil, Thailand, and Malaysia. The Philippine electronics industry is still vastly

under researched. Additionally, the lack of indices and the lack of formal sustainability focus in

the Philippines mean that data is only available within the firm.

The proponents aim to establish the sustainability performance and long term corporate

financial performance using correlation analysis, and conduct a qualitative evaluation of the

sustainability strategy, structure and systems. Sustainability strategy and systems will evaluate

using an interval scale, specifically a likert scale. The proponents would also use collect data

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from all members of the top and middle management as opposed to a single representative to get

more objective data, and to identify gaps in perception. This information will be treated to a

correlation analysis to sustainability performance establish the relationship. Pattern matching

will then be used to triangulate the data.

Currently, EMSCAI does not have supplier bargaining power, half its revenue is

generated from a single brand customer that may pull out at any time, and it faces some

difficulties in raising capital. As the practice in the industry is for that customers source the

supplier, the firm cannot change or negotiate with the suppliers to offer lower prices. While

direct material costs may not be lowered, and direct labor costs are set by law, EMSCAI can seek

to improve its profit margin by lowering overhead costs by improving operating performance

(Malik, 2015). The company may mitigate the impact of the major customer pulling out by

ensuring high customer satisfaction, increasing the sales from its other clients, and parallely, by

seeking new customers (Malik, 2015). One of the most crucial elements to raising capital is its

attraction value to potential investors or creditors. The company applies for credit within the

Philippines where sustainability is not criteria. However, if the company does decide to apply for

credit from big international firms, sustainability performance is decision criteria (Malik, 2015).

Furthermore, cost of capital is also lower in sustainable companies as financial firms perceive

them to have lower risks (Malik, 2015). Investors are also more likely to invest in a sustainable

company over a non-sustainable company (Malik, 2015).

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 CHAPTER 3: THEORETICAL FRAMEWORK

3.1 Theoretical Framework

Figure 3.1 Corporate Sustainability Model (Epstein, 2008)

The Corporate Sustainability Model was developed by Epstein (2008) to help managers

measure and manage their success in implementing sustainability strategies to determine an

organizations sustainability performance. It builds on a previous work, Epstein & Roy (2001),

providing clearer and more definite elements of the input function. More specifically, the model

enhances the understanding of the role of various drivers in sustainability, the causal relationship

among the various actions, the impact of sustainability actions on sustainability performance, the

reactions of various stakeholders, as well as the impact on financial performance (Epstein &

Buhovac, 2010). Input considerations significantly affect the choices a corporation makes

regarding formulation and implementation of sustainability actions (Epstein & Buhovac, 2010).

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 Inputs may sometimes act as constraints to improved corporate sustainability, but

managers have significant ability through leadership and the formulation and implementation of

various processes including sustainability strategy, structure, actions, and systems to effect

corporate sustainability performance. The output of these processes is the sustainability

performance that is the effect of the corporate activity on social, environmental, and economic

fabric of society. Positive and negative stakeholder reactions affect corporate financial

performance.

Epstein and Buhovac (2010) notes that manufacturing companies focus more on

environmental and health issues, while service-oriented companies emphasize more on the social

aspects of sustainability.

Epstein and Widener (2010) uses the model, using a case wherein stakeholders believe

that there is a trade-off between energy development and protection of wildlife to understand

how non-traditional sustainability performance information can be measured and utilized to

inform decision making. Epstein and Buhovac (2010) further elaborates on the model,

highlighting the need for leadership, culture, and people to support sustainability

implementation. Epstein et al., (2015) explores how large, complex and for-profit organizations

are simultaneously managing social, environmental, and financial performance. The research

notes that managers recognize the financial value of stakeholder reactions to social and

environmental performance.

Roy et al., (2013) uses a variation of the model on SMEs that are simultaneously

pursuing quality and environmental objectives. The study sample comprised of two groups: those

with ISO 9000 only, and those with both ISO 14000 and ISO 9000. The study identifies the

77
significant differences between the two group in terms of specific motivations and resources,

types of initiatives implemented, and elements of operational performance. Henri et al., (2013)

explores the impact of tracking environmental costs on economic performance through

environmental performance. Henri et al., (2016) found that environmental costs reflect an

executional aspect aimed at managing, controlling and optimizing costs for a given

environmental strategy, but also a structural aspect based on their influence on the firms cost

structure in terms of product design, raw materials used, and operational process design. Ruedig

and Metzger (2013) uses the model as a foundation to analyze how sustainability staff provide

organizational impacts. Lozano (2015) provides a holistic perspective on the different corporate

sustainability drivers, using the Epstein and Roy (2001) model to identify how companies

improve sustainability performance, and how managers can identify, manage, and measure the

drivers to sustainability. Ameer and Othman (2011) uses the Epstein and Roy (2001) model in

approaching their study, which tests the hypothesis that superior sustainability practices result in

higher financial performance.

3.2 Operational Framework

Figure 3.2 depicts the operational framework for the research study The Relationship

Between Sustainability Performance and Long Term Corporate Financial Performance: A Case

Study on EMS Components Assembly, Inc. The current and past performance in terms of

sustainability strategy evaluation, sustainability structure evaluation, and sustainability systems

evaluation drives sustainability performance. Stakeholders react to sustainability performance,

which result in long term corporate financial performance.

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 This research aims to determine if EMSCAIs involvement in sustainability practices,

particularly in its strategies, structure, and systems, affected the long term corporate financial

performance of the company. The theoretical framework has been condensed to highlight the

variables indicated in the main research problem. Stakeholder reactions has been retained as a

moderating variable between sustainability performance and long term corporate financial

performance.

To establish a relationship between the sustainability performance and long term

corporate financial performance of the company, the theoretical framework has been condensed

to highlight the variables indicated in the main research problem. Stakeholder reactions has been

retained as a moderating

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Figure 3.2 Operational Framework
variable between sustainability performance and long term corporate financial performance. To

establish a relationship between the sustainability performance and long term corporate financial

performance, the proponents will determine the companys environmental performance, social

performance, economic performance, performance on corporate governance, profitability, and

liquidity. Environmental performance will be determined based on the companys annual

consumption of recycled materials and raw materials, fuel consumption, waste production,

environmental costs. Social performance will be determined based on the percentage of

employees covered by collective agreeement, incidence of occupational diseases, percentage of

products and services for which the health and safety of customers is evaluated during their life

cycle, expenditures on identifying and ensuring customer satisfaction, wage discrimination,

violations of the Code of Ethics. Economic performance will be determined based on the

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companys cash fllow and return on assets, while performance on corporate governance will be

determined based on the companys contributions to political parties, politicians, and related

institutions, the number of complaints received from stakeholders, percentage of women in

corporate governance, percentage of achieved strategic goals, and the total number of sanctions

for noncompliance with laws and regulations. Long term corporate financial performance is

based on the three profitability ratios return on assets, return on investment and return on equity,

and the four liquidty ratios rapid liquidity, current liquidity, quick liquidity, and general liquidity.

Data for these variables will be collected from the companys archive of documents. All

sustainability performance and long term corporate financial performance indicators, based on

Docekalov and Kocmanov (2016) and Santis et al. (2016), were retained since these are

available in the companys archive of documents.

The research does not only aim to establish a relationship between sustainability

performance and long-term corporate financially performance, but to also identify what actions

and their corresponding maturity level are being done by the company that results in the

sustainability performance. To comprehensively identify the sustainability strategy, structure and

systems in place, all necessary aspects of each component are indicated in the operational

framework. The proponents will be profiling the sustainability stategy of the company based on

the respondents assessment of the maturity level of the companys actions on innovation

technology, collaboration, knowledge management, processes, purchase, sustainability reporting,

resources including recycling, emissions into the air, water or ground, waste and hazardous

waste, biodiversity, environmental issues of the product, corporate governance, motivation and

incentives, health and safety, human capital development, ethical behavior and human rights, no

controversial activities, no corruption and cartel, and corporate citizenship, how the company

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distributes roles, responsibilities and accountabilities of sustainability issues in the company, the

maturity level of the companys commitment to sustainability, management accountaility and

responsibility, legal and customer requirements, risk assessment and risk management,

improvement objectives, training, communication, worker feedback and participation, audits and

assessments, corrective action process, and documentation and records. Data for these variables

will be collected through surveys and interviews. All aspects of sustainability strategy, structure,

and systems, as per Baumgartner and Ebner (2010), Aldama et al. (2009), and EICC (2016),

were retained as all these may be asked to respondents.

EMSCAI does not have supplier bargaining power, half its revenue is generated from a

single brand customer that may pull out at any time, and it faces some difficulties in raising

capital. To improve on its weaknesses and eliminate its threats, the company needs to improve its

operating performance, and gain brand value. Operating performance may be determined by

measuring the employees productivity and operational efficiency. Customer satisfaction, sales,

and customer retention are indicators of brand value. Sustainability performance improves the

operating performance and is a value proposition for companies (Patala et al., 2016). Strategy,

structure and systems guide the actions a company undertakes to improve its sustainability

performance (Epstein, 2008).

The research question requires the evaluation of past and current performance, and thus,

the operational framework was developed by identifying the information that is already available

in the company.

The input block of the corporate sustainability model (which includes the external

context, internal context, business context, and human and financial resources), along with the

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leadership function, is not included in the operational framework for this research since they are

considered antecedents for sustainability strategy. Sustainability programs and actions are

derived from the sustainability strategy, and are already evaluated during sustainability strategy

assessment. Thus, the sustainability programs and actions function has been compacted into the

sustainability strategy function. Feedback loops form a critical element of the sustainability

systems, and have therefore been collapsed within the function of sustainability systems.

Sustainability strategy, structure and systems are grouped together, as it forms part of the

processes block of the Corporate Sustainability Model.

Sustainability strategy is evaluated through the maturity levels of different sustainability

aspects as defined by Baumgartner and Ebner (2010). The results from the initial evaluation

allows one to identify the sustainability strategy profile being used by the company: Introverted,

Extroverted, Conservative, and Visionary. The standard of sustainability across the four

strategies ranges from low to high, with the introverted as the lowest, and visionary as the

highest. Sustainability structure is evaluated on levels of management, and number of business

functions with sustainability roles, responsibilities, and accountabilities (Aldama et al., 2009).

Sustainability systems are evaluated on the utilization of a management systems approach

(including policies, goals, procedures, and review processes) to assure proper management of

sustainability. Management systems form a crucial part of the Electronics Industry Citizenship

Coalition Code of Conduct, and evaluates the existence of an adequate and effective

sustainability system across items such as: company commitment, management accountability

and responsibility, legal and customer requirements, risk assessment and risk management,

improvement objectives, training, communication, worker feedback and participation, audits and

assessments, corrective action process, documentation and records, and supplier management.

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From the point of view of the selected company for our case study, supplier management is

irrelevant. In its business model, the companys customers source the supplier themselves.

Supplier management therefore lies with the customer rather than EMSCAI and have thus been

removed from our operational framework.

Docekalov and Kocmanov (2016) presented the Complex Performance Indicator as a

measure of sustainability performance. The complex performance indicator sums up the

seventeen key performance indicators into a single value, which integrates the environmental,

social, economic, and corporate governance performance of the company.

As organized by Malik (2015), benefits realized from various stakeholders can be

categorised into capital market benefits, product market benefits, employee benefits, and

regulatory benefits. Capital market benefits are measured using stock market performance, stock

returns, cost of capital, market returns, and market to book value. The selected company for the

proponents case study is a private corporation, and is unlisted on the stock market. Therefore, it

does not realize capital market benefits, and the category has been removed from the operational

framework.

Product market benefits are composed of favorable customer feedback, increased sales,

improved customer retention, and increased brand equity. As a business to business firm, the

selected company for the proponents case study does not measure brand equity, and the item has

therefore been removed from our operational framework.

Indicators for employee benefits include employee morale, health care and retirement

benefits, paying wages above the market level, employee productivity, job satisfaction, employee

retention, and employer reputation. Healthcare and retirement benefits, as well as paying wages

84
above the market level are not stakeholder reactions and have been removed from the operational

framework. Rather, they are sustainability actions, and are already considered in the evaluation

of sustainability strategy. Employee morale, job satisfaction, employee motivation, and employer

reputation are individual level indicators. To maintain consistency of using firm level indicators

across the operational framework, the proponents did not include them in the operational

framework.

Regulatory benefits include less government fines, certificates and awards, as well as tax

exemption. As there is no clear and formal government regulation lessening government fines

and exemption of taxes due to sustainability performance in the Philippines, the items have been

removed from our operational framework.

Long term corporate financial performance can be evaluated using profitability and

liquidity ratios (Santis et al., 2016). A firms performance may be explained by a firm's behavior

could be explained using market indicators, but accounting data is considered less noisy, since it

indicates what is happening in the firm (Lopz et al., 2007). A business can be considered in a

good economic situation when it has an appropriate balance between its profitability and

liquidity goals. Favorable long term corporate financial performance means better profitability

and liquidity. Thus, the researchers should see an increase in the profitability ratios such as

Return on Assets, Return on Investment, Return on Equity, and liquidity ratios such as Rapid

Liquidity, Current Liquidity, Quick Liquidity, and General Liquidity.

3.3 Propositions of the Study

The proposition of the study are as follows:

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Proposition 1: Sophisticated sustainability strategy, structure, and systems performance leads to

increasing sustainability performance for the period 2011-2015.

Proposition 2: Sophisticated sustainability strategy, structure, and systems performance leads to

increasing environmental performance for the period 2011-2015.

Proposition 3: Sophisticated strategy, structure, and systems performance leads to increasing

social performance for the period 2011-2015.

Proposition 4: Sophisticated sustainability strategy, structure, and systems performance leads to

increasing economic performance for the period 2011-2015.

Proposition 5: Sophisticated sustainability strategy, structure, and systems performance leads to

increasing performance on corporate governance.

Proposition 6: Increasing sustainability performance leads to increasing stakeholder reactions.

Proposition 7: Increasing stakeholder reactions leads to increasing long term corporate financial

performance.

Proposition 8: Increasing sustainability performance leads to increasing long term corporate

financial performance.

3.4 Assumptions of the Study

The assumptions of the study are as follows:

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Assumption 1: External influences and expected benefits are drivers of leadership commitment

in adopting sustainability practices in an organization (Luthra et al., 2016).

Assumption 2: Leadership commitment to sustainability adoption is a key success factor of

sustainability implementation and performance in an organization (Bai et al., 2015).

Assumption 3: Organizations that can achieve positive performance across all four factors

(economic, social, environmental and corporate governance) are more sustainable. (Docekalov

& Kocmanov, 2016).

Assumption 4: Integrating sustainability considerations into existing corporate systems and

processes is more effective way to embed sustainability into the organization rather than creating

new systems and processes (Yilmaz & Flouris, 2010).

Assumption 5: Compliance to mandatory laws and regulations is a basic requirement to

sustainable performance (Baumgartner & Ebner, 2010).

Assumption 6: Improving operating performance, increasing sales and profit, and reducing risks

can increase a firms financial performance (Malik, 2015).

Assumption 7: The electronics industry has more environmental and labor standards (Locke &

Samel, 2012).

Assumption 8: Compliance to the Electronics Industry Citizenship Coalition Code of Conduct is

the electronic industrys sustainability standard (EICC, 2016).

Assumption 9: Sustainability standards are an independent selection criterion of new suppliers,

and noncompliant suppliers do not enter the supply base (Agan et al., 2014).

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3.5 Operational Definition of Terms

Accountability - The reporting and accountability relationships for sustainability related issues.

Audits and assessments - Periodic self-evaluations to ensure conformity to legal and regulatory

requirements, the industry standard and customer contractual requirements related to social and

environmental responsibility.

Cash Flow - The ecoKPI1 variable, whose formula is [net increase/decrease in cash/annual value

added] 100.

Certificates & awards - Number of certificates and awards given by a regulatory body.

Communication - Process for communicating clear and accurate information about firms

policies, practices, expectations and performance to workers, suppliers and customers.

Company commitment - Corporate social and environmental responsibility policy statements

affirming firms commitment to compliance and continual improvement, endorsed by executive

management.

Conservative or Efficiency Strategy - The firm puts focus on eco-efficiency and cleaner

production to achieve sustainable operations.

Consumption of recycled materials and raw materials - The enviKPI1 variable, whose

formula is [total annual consumption of recycled materials and raw materials/total annual

consumption of materials and raw materials] 100.

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Contributions to political parties, politicians and related institutions - The cgKPI1 variable,

whose formula is [(total annual contributions + value of in-kind contributions)/annual value

added] 100.

Corrective action process - Process for timely correction of deficiencies identified by internal

or external assessments, inspections, investigations and reviews.

Current Liquidity - How much the company has in assets for every monetary unit of liability,

calculated by dividing current assets by the current liabilities.

Documentation and records - Creation and maintenance of documents and records to ensure

regulatory compliance and conformity to company requirements along with appropriate

confidentiality to protect privacy.

Economic Performance - Measured through the Economic Performance Indicator (EcoI = 0.708

ecoKPI1 + 0.292 ecoKPI2 [%]), composed of cash flow and return on asset.

Employee Benefits - The effects of sustainability performance on employee behavior, measured

in terms of: employee productivity, operational efficiency, employee retention

Environmental costs - The enviKPI4 variable, whose formula is [total annual environmental

non-investment costs/annual value added] 100.

Environmental Performance - Measured through the Environmental Performance Indicator

(EnviI = 0.186 enviKPI1 0.265 enviKPI2 0.279 enviKPI3 0.270 enviKPI4 [%]),

composed of consumption of recycled materials and raw materials, fuel consumption, waste

production, and environmental costs.

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Expenditures on identifying and ensuring customer satisfaction - The socKPI4 variable,

whose formula is [expenditures on identifying and ensuring customer satisfaction/annual value

added] 100.

Extroverted or Legitimizing Strategy - The firm puts focus on external relationships and

license to operate to achieve sustainable operations.

Fuel consumption - The enviKPI2 variable, whose formula is [total annual fuel

consumption/annual physical production] 100.

General Liquidity - How much the company has in assets for every monetary unit of liability,

calculated by dividing total assets by the total liabilities.

Improvement objectives - Written performance objectives, targets and implementation plan to

improve the firms social performance, including a periodic assessment of firms performance in

achieving those objectives.

Introverted or Risk Mitigation Strategy - The firm puts focus on legal and other external

standards concerning environmental and social aspects to avoid risks for the company to achieve

sustainable operations.

Legal and customer requirements - A process to identify, monitor and understand applicable

laws, regulations and customer requirements.

Liquidity Ratios - The degree to which assets can quickly and reliably be converted to cash,

primarily using Rapid Liquidity, Current Liquidity, Quick Liquidity, and General Liquidity as

metrics.

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Long Term Corporate Financial Performance - This refers to financial performance in terms

of profitability and liquidity of a company over time.

Management accountability and responsibility - The firm clearly identifies company

representative[s] responsible for ensuring implementation of the management systems and

associated programs. Senior management reviews the status of the management system on a

regular basis.

Number of complaints received from stakeholders - The cgKP2 variable, whose formula is

[total number of complaints received from stakeholders per year/total number of CG members]

100.

Occupational diseases - The socKPI2 variable, whose formula is [number of reported

occupational diseases in each year/average annual number of employees] 100.

Percentage of achieved strategic goals - The cgKPI4 variable, whose formula is [number of

achieved strategic objectives for the period/total number of strategic objectives for the period]

100.

Percentage of employees covered by collective agreement - The socKPI1 variable, whose

formula is [number of employees covered by a collective agreement in the year/average annual

number of employees] 100.

Percentage of products and services for which the impact on the health and safety of

customers is evaluated during their life cycle - The socKPI3 variable, whose formula is

[number of products and services for which the impact on the health and safety of customers is

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evaluated during their life cycle with the aim to improve them/total number of products they

produce] 100.

Percentage of women in CG - The cgKPI3 variable, whose formula is [number of women in

CG/total number of CG members] 100.

Performance on Corporate Governance (CG) - Measured through the CG Performance

Indicator (CGI = 0.066 cgKPI1 0.267 cgKPI2 0.085 |benchmark cgKPI3 | + 0.322

cgKPI4 0.260 cgKPI5 [%]), composed of contribution to political parties, politicians and

related institutions, number of compaints received from stakeholders, percentage of women in

CG, percentage of achieved strategic goals and total number of sanctions for noncompliance with

laws and regulations.

Product Market Benefits - The effects of sustainability performance on the product market or

customer behavior, measured in terms of: customer satisfaction, sales and cstomer retention.

Profitability Ratios - A set of metrics, primarily Return on Assets, Return on Investment, and

Return on Equity, which illustrates how well a firm is using its resources to earn income.

Quick Liquidity - The part of the short-term activities that can be redeemed using the most

liquid assets, calculated by dividing the sum of current assets, inventory, and current receivables

by the current liabilities.

Rapid Liquidity - The part of the current liabilities that can be immediately paid by the

company's cash flow, calculated by dividing cash flow from operations by current liabilities.

Regulatory Benefits - The favorable treatment of regulatory bodies due to sustainability

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performance.

Responsibility - The various sustainability issues and activities that each department or unit

covers.

Return on Assets - The return generated by every monetary unit applied in a company,

measured by dividing net income by the total assets. Alternatively, when used to calculate

sustainability performance it is the ecoKPI2 variable, whose formula is [EBIT/assets] 100.

Return on Equity - Evaluates the income generated with the total investment made, calculated

by dividing net income by the shareholders equity.

Return on Investment - Measures the returns generated on the Shareholder's investments,

calculated by the investment gain over investment cost.

Risk assessment and risk management - Process to identify the labor practice and ethics risks

associated with firms operations. Determination of the relative significance for each risk and

implementation of appropriate procedural and physical controls to control the identified risks and

ensure regulatory compliance

Role - Roles might include one or more of the following: (a) develop sustainability strategy, (b)

design sustainability policy and programs, (c) implement sustainability activities, (d) coordinate

sustainability efforts, (e) communicate about sustainability internally and externally, and (e)

measure sustainability performance.

Social Performance - Measured through the Social Performance indicator (SocI = 0.095

socKPI1 0.245 socKPI2 + 0.109 socKPI3 0.169 |benchmark socKPI4 | 0.157

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|benchmark socKPI5 | 0.225 socKPI6 [%] ), composed of percentage of employees covered

by collective agreement, occupational diseases, percentage of products and services for which

the impact on the health and safety of customers is evaluated during their life cycle, expenditures

on identifying and ensuring customer satisfaction, waste discrimination and violation of the code

of ethics.

Stakeholder Reactions - This refers to the reaction of a stakeholder to sustainability

performance, either positive or negative, that result in a short term or long-term benefit for the

firm.

Sustainability Performance - Measured through an aggregate indicator, Complex Performance

Indicator (CPI = 0.045 enviKPI1 0.065 enviKPI2 0.068 enviKPI3 0.066 enviKPI4

+ 0.035 socKPI1 0.089 socKPI2 + 0.040 socKPI3 0.061 |benchmark socKPI4 |

0.057 |benchmark socKPI5 | 0.082 socKPI6 + 0.081 ekoKPI1 + 0.034 ekoKPI2

0.018 cgKPI1 0.074 cgKPI2 0.024 |benchmark cgKPI3 | + 0.089 cgKPI4 0.072

cgKPI5 [%] ), which considers all four elements of corporate performance: environmental

performance, social performance, economic performance, and performance on corporate

governance.

Sustainability Strategy - This refers to the selected strategy wherein a company can gain

sustainable operation.

Sustainability Structure This defines the functional areas, departments, business units, and

other formal or informal groups with sustainability responsibilities, roles, and accountabilities.

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Sustainability Systems - The utilization of management systems approach (including policies,

goals, procedures, and review processes) to assure proper management of sustainability.

Total number of sanctions for noncompliance with laws and regulations - The cgKPI5

variable, whose formula is [total number of sanctions for noncompliance with laws and

regulations per year/total number of CG members] 100.

Training - Programs for training managers and workers to implement firms policies, procedures

and improvement objectives and to meet applicable legal and regulatory requirements.

Violations of the Code of Ethics - The socKPI6 variable, whose formula is [number of cases of

Code of Ethics violations/average annual number of employees] 100.

Visionary or Holistic Sustainability Strategy - The firm puts focus on sustainability issues

within all business activities. Competitive advantages are derived from differentiation and

innovation, offering customers and stakeholders unique advantages.

Wage discrimination - The socKPI5 variable, whose formula is [average wage of men/average

wage of women] 100.

Waste production - The enviKPI3 variable, whose formula is [total annual waste

production/annual physical production] 100.

Worker feedback and participation - Ongoing processes to assess employees understanding

of and obtain feedback on sustainable practices and conditions and to foster continuous

improvement.

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96
 CHAPTER 4: METHODOLOGY 3

4.1 Research Locale

The proponents of this research will conduct a survey and interview with the top

managers, middle managers, junior managers, and supervisors of EMS Components Assembly,

Inc., a company under the EMS Group of Companies. The company is in 17-A Technology

Avenue Laguna Technopark Bian, Laguna. The data collected from the survey will be used for

the quantitative analysis while the data from the interviews will be used for the qualitative

analysis.

4.2 Research Design

It is a qualitative research, which is normally concerned with words rather than numbers.

Qualitative researches allow the proponents to understand the social reality in its own terms and

provide insightful descriptions of the individual and interactions with the environment (Gubrium

& Holstein, 1997). The proponents chose qualitative research to have a deeper understanding of

why, what and how a company undertakes corporate sustainability and will provide the

proponents more flexibility and opportunities to get a clear and broad knowledge. To determine

the relationship of sustainability performance and long term corporate financial performance

requires operational links to be traced over time, rather than mere frequencies or incidence. Due

to the exploratory nature of our research problem, the proponents will be conducting a single-

case embedded case study.

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 A case study tries to understand why a decision, or a set of decisions were made, how

they were implemented, and its results (Schramm, 1974). The case study method is preferred in

examining contemporary events, but when the relevant behaviors cannot be manipulated. A case

study design, analogous to a single experiment design, meeting all the conditions, can extend the

theory and identify the relevant set of explanations (Yin, 2013).

According to Yin (2013), case study strategy has five components: the studys questions,

its propositions which reflect on a theoretical issue, its unit(s) of analysis (the event, entity, or

individuals noted in the research questions), the logic linking the data to the propositions, and the

criteria for interpreting the findings.

The first step is to identify a study question. The question should have substance and

form, and focus on substantively critical issues (Yin, 2013). The form of the question provides an

integral clue regarding the appropriate research method to be used. A case studys questions are

more probing in nature, and are how or why questions asked about a contemporary set of

events over which the researcher has little or no control (Yin, 2013). The second component, the

study proposition is a statement of something that would be examined within the scope of the

study. These propositions should reflect an important theoretical issue, and it provides a starting

search point for relevant evidence (Yin, 2013). The proponents study question is Does the

involvement in sustainability, particularly strategy, structure, and systems, influence and affect

the long-term corporate financial performance of EMS Components Assembly, Inc.? The

proponents have also identified eight study propositions:

Proposition 1: Sophisticated sustainability strategy, structure, and systems performance

leads to increasing sustainability performance for the period 2011-2015.

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 Proposition 2: Sophisticated sustainability strategy, structure, and systems performance

leads to increasing environmental performance for the period 2011-2015.

Proposition 3: Sophisticated strategy, structure, and systems performance leads to

increasing social performance for the period 2011-2015.

Proposition 4: Sophisticated sustainability strategy, structure, and systems performance

leads to increasing economic performance for the period 2011-2015.

Proposition 5: Sophisticated sustainability strategy, structure, and systems performance

leads to increasing performance on corporate governance for the period 2011-2015.

Proposition 6: Increasing sustainability performance leads to increasing stakeholder

reactions for the period 2011-2015.

Proposition 7: Increasing stakeholder reactions leads to increasing long term corporate

financial performance for the period 2011-2015.

Proposition 8: Increasing sustainability performance leads to increasing long term

corporate financial performance for the period 2011-2015.

The third component, a studys unit of analysis, defines what the case is. A case may

be an individual, an event, or entity. Selection of an appropriate unit of analysis is done after an

accurate specification of primary research objectives. Information about the unit of analysis

would be collected, and should be specific time boundaries to define the beginning and end of

the case (Yin, 2013). The case should be a real-life phenomenon, and not an abstraction such as a

topic, argument, or hypothesis (Yin, 2013). Subsequently, the proponents need identify the key

resource persons, prepare letters of introduction and requests for assistance, establish rules of

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confidentiality, and actively seek opportunities to revisit or revise the initial research design. A

case study may involve more than one unit of analysis when attention is given to a subunit or

subunits (Yin, 2013). A case study with multiple sub-units of analysis is called embedded case

study design. Embedded case study design integrates quantitative and qualitative methods into a

single research study. The proponents have selected EMS Components Assembly, Inc.s during

the period of 2011 to 2015 as our unit of analysis, and the endorsement letter may be found in

Appendix C. Top and middle management form one sub-unit of analysis, while junior managers

and supervisors form the other.

Analytic techniques such as pattern matching, explanation building, logic model, time-

series analyses, and logic models are used to link data to propositions or purpose (Yin, 2013). In

a within case study analysis, case study data is digested as a direct reflection of the initial case

study proposition or purpose. The proponents will be using pattern matching to link data from

the two sub-units of analysis, top and middle management, junior managers and supervisors, and

secondary data.

Certain principles are must be observed in any data collection effort in doing case studies:

multiple sources of evidence or evidence from two or more sources that converge on the same

facts or findings, a case study database or a formal assembly of evidence distinct from the final

case study report, and a chain of evidence or explicit link among the questions asked, the data

collected, and the conclusions drawn (Yin, 2013). To comply with the first principle, the

proponents will triangulate facts and findings from top and middle managers, company reports,

and secondary data.

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 Descriptive research involves data that describe events and then organizes, tabulates,

depicts, and describes the data collected (Glass & Hopkins, 1984). Descriptive studies aim to

find out what is, so observational and survey methods are frequently used to collect descriptive

data (Borg & Gall, 1989). It reduces a large mass of raw data to manageable form. It reports

summary data such as measures of central tendency including the mean, median, mode, deviance

from the mean, variation, percentage and correlation between variables. This research method

uses in-depth narrative descriptions in organizing data into patterns that emerge during analysis.

The proponents will be using narrative descriptions that have been placed on an interval scale to

evaluate the case companys past and current sustainability strategy, structure, and systems.

These responses, along with hard data collected from the company, will be subjected to measures

of central tendency to develop an informed inference of the firms performance on a variable.

Correlational research is a method of research in which there are 2 or more quantitative

variables from the same group of subjects. It provides empirical evidence suggesting whether

two or more variables are related (Yin, 2013). While it does not establish causal relationships, it

contributes to a deeper understanding of the variables being studied and their relationship. The

design has two forms, relational and prediction (Cooper, Schindler & Sun, 2003). As the research

problem only aims to determine whether relationships between the variables sustainability

strategy, structure, and system, sustainability performance, stakeholder reaction and long term

corporate financial performance exists, relational correlation (Pearson Product-Moment

Correlation Coefficient) will be used by the proponents.

4.3 Sampling Design

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Respondents

This study targets the top management and middle management of EMS Components

Assembly, Inc. They were chosen as the target population as the data that will be used for the

analysis need to be firm-level and not individual level. Respondents will evaluate sustainability

strategy, structure and systems based on their own assessment of the companys implementation

of such. The use of firm-level data in this study is for consistency with the framework and the

data analysis to be applied. Firm level data will also be collected for sustainability performance,

stakeholder reaction, and long term corporate financial performance. Additionally, one of the

qualifications is that the respondents must have been with the company since 2011, as the data

needed from the respondents require them to recall information from the past five years. The

breakdown of the respondents is as follows:

Table 4.1 Breakdown of Respondents

Department Top Managers Middle Managers Junior Managers/ Total

Supervisors

Executive 2 0 0 2

Finance 1 1 3 5

Operations 1 5 0 6

Information Technology 1 1 4 6

Business Development 1 2 0 3

Total Quality Management 1 1 3 5

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Purchasing and Logistics 1 2 1 4

Human Resources 1 0 5 6

Corporate Affairs 1 1 0 2

Total 11 13 16 39

4.4 Sampling Technique

The proponents of the research will not be utilizing any sampling technique as a census

will be used instead. All the top and middle managers, as well as all junior managers and

supervisors of EMS Components Assembly, Inc. will be interviewed and will answer a survey by

the proponents. This is done to allow the proponents to collect firm-level data to be consistent

with the framework and the data to be collected. The proponents aim to receive at least an 80%

response rate from the 39 possible respondents.

4.5 Research Instrument

The research instrument, an interview guide, is in Appendix B. The first part of the

interview guide includes the demographic information of the person being interviewed. It also

serves as a screening section, as the instrument will only be served to middle and upper

management. The first set of independent variables of the operational framework calls for the

assessment of past and current performance in terms of sustainability strategy evaluation,

sustainability structure evaluation, and sustainability system evaluation.

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 Part 1 of the interview guide, sustainability strategy evaluation, was adopted from

Baumgartner and Ebner (2010). The 19 aspects of sustainability that can occur in a firm is rated

on a four-level maturity grid: beginning, elementary, satisfying, and sophisticated.

Part 2 of the interview guide, sustainability structure evaluation, was adapted from

Aldama et al., (2009). The interview guide adopts the third section of the questionnaire

developed by Aldama et al., (2009). The questions are open ended, and asks about the

organization of sustainability roles, responsibilities, and accountabilities within an organization.

The source questionnaire intended to formulate a complete characterization of current

sustainability practices of an organization. The four-section questionnaire allows the proponents

to understand the key features of the company, how deep the strategic discussion and

implementation of sustainability related issues has been so far, how this discussion has been

converted into structural and functional practices, and finally, how this has been incorporated

into systems, as well as evaluation and remuneration practices through scorecards. Some

questions that were repetitive were removed, and some questions have been edited to prevent

ambiguity and inconsistency.

Part 3 of the interview guide, sustainability systems evaluation, was adapted from the

EICC Gap Analysis (2016). To be consistent with the first part of the interview guide, questions

were rephrased and the four-level maturity rating scale of beginning, elementary, satisfying, and

sophisticated was used. The source questionnaire included 6 sections: general, labor, health and

safety, environment, ethics, and management system. Various questions under each section was

evaluated on conformance with the EICC Code of Conduct, using labels such as conformance,

risk of nonconformance, major (violation), minor (violation), out of scope and not applicable.

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 Parts 4 to 6 of the research instrument requires hard data from 2011-2015, and will be

collected by the proponents from company reports. Part 4 asks for the values of the individual

sustainability indicators indicated by Docekalov and Kocmanov (2016) to calculate the

complex performance indicator, or sustainability performance. Part 5 asks for the input of values

of stakeholder reaction indicators, as operationalized in the framework from Malik (2015). Part 6

asks for the input of values recommended by Santis et al., (2016) that indicate long term

corporate financial performance.

4.5.1 Pre-test of Research Instrument

Two parts of the research instrument, Part 1 and 3, are in likert form. Likert-type scales

are used when individuals attempt to quantify constructs which are not directly measurable

(Gliem & Gliem, 2003). These two parts were placed in an editable portable document format,

and delployed via e-mail to various persons who hold positions in either top and middle

management, junior management positions or hold supervisory roles. The proponents received

answered pre-test instruments from 20 respondents, across different companies and industries.

Validity and reliability are two fundamental elements in the evaluation of the research

instrument (Nunally & Bernstein, 1994). Validity is the extent to which an instrument measures

what it is intended to measure. Reliability is concerned with the ability of the instrument to

measure consistently. An instrument cannot be valid unless it is reliable. Therefore, internal

consistency must be determined before an instrument can be administered to ensure validity.

Calculating alpha is the frequent practice in research when multiple item measures of a

concept or construct are employed. Cronbachs alpha measures the strength of internal

consistency of a set of scale or test items (Cronbach, 1951). It is computed by correlating the

105
score for each item with the total score for each observation, and then comparing that to the

variance for all individual item scores; where refers to the number of scale items, refers to the

variance associated with item, and refers to the variance associated with the observed total score.

It is thus a function of the total number of items in a test, the average covariance between pairs of

items, and the variance of the total score. If items in a test are correlated with each other, the

value of alpha is increased. The length of the test may also affect the value of alpha.

Cronbachs alpha is expressed as a number between 0 and 1. The closer the alpha

coefficient is to 1.0, the greater the internal consistency of the items in the scale. George and

Mallery (2003) provides that an alpha value of more than 0.9 is excellent, a value more than 0.8

is good, more than 0.7 is acceptable, more than 0.6 is questionable, more than 0.5 is poor, and an

alpha coefficient of less than 0.5 is unacceptable.

The following table shows the proponents computed Cronbachs Alpha:

Table 4.2 Computed Cronbachs Alpha

Reliability Statistics

Cronbach's Alpha N of Items

.957 32

The computed Cronbachs Alpha is more than 0.9. Following the rule of thumb, Part 1

and 3 of the research instrument has excellent internal consistency.

The following table displays the correlations between each item and the total score from

the questionnaire:

Table 4.3 Item-Total Correlation

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Item-Total Statistics

Scale Mean if Item Scale Variance if Corrected Item - Cronbach's Alpha

Deleted Item Deleted Total Correlation if Item Deleted

Q1 76.90 415.779 .258 .959

Q2 76.35 408.871 .625 .956

Q3 76.85 394.661 .755 .955

Q4 76.65 412.871 .539 .957

Q5 76.70 403.168 .732 .955

Q6 76.95 395.734 .821 .954

Q7 76.85 401.924 .649 .956

Q8 77.10 418.200 .210 .960

Q9 76.65 396.134 .828 .954

Q10 77.40 404.463 .465 .958

Q11 76.95 402.050 .660 .956

Q12 77.05 405.734 .555 .956

Q13 76.85 390.661 .887 .954

Q14 76.40 400.989 .789 .955

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Q15 76.90 388.095 .877 .954

Q16 76.90 413.042 .503 .957

Q17 76.65 403.713 .717 .955

Q18 76.50 417.632 .360 .958

Q19 76.65 400.134 .768 .955

Q20 76.30 410.116 .753 .956

Q21 76.40 413.411 .471 .957

Q22 76.45 409.208 .702 .956

Q23 76.35 412.976 .497 .957

Q24 76.70 409.379 .726 .956

Q25 76.45 393.313 .839 .954

Q26 76.55 395.208 .684 .955

Q27 76.65 400.766 .671 .956

Q28 76.85 393.292 .824 .954

Q29 76.85 402.134 .644 .956

Q30 76.95 405.313 .499 .957

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Q31 76.65 404.239 .656 .956

Q32 76.80 409.958 .541 .956

The values in the column labelled Alpha If Item Deleted are the values of the overall

alpha if that item was not included in the calculation. The overall alpha is 0.957, so all values in

this column is around the same value. Removing an item with an alpha value that is greater than

the total value increases Cronbachs alpha. Removing Q10 or Q18 will raise the Cronbachs

alpha value to 0.958, while removing Q1 will the Cronbachs alpha value to 0.959. Removing

Q1 will raise the Cronbachs alpha value to 0.960. Since the increase in the Cronbachs alpha

value if any item is removed is only 0.01 to 0.03, the proponents will be retaining all question

items and retain excellent internal consistency.

4.6 Statistical Treatment of Data

4.6.1 Descriptive Analysis

Descriptive statistics are used to describe the basic features of the data in a study. They

provide simple summaries about the sample and the measures. Together with simple graphics

analysis, they form the basis of virtually every quantitative analysis of data and are used to

present quantitative descriptions in a manageable form. The study will utilize central tendencies

which include mean, median, mode of the five-year financial performance data as well as the

mean, median, mode of the five-year data on the sustainable performance of the company. The

study will also utilize frequency distribution to summarize the evaluations of top and middle

level managers regarding their perception of the sustainable strategy, system and structure of the

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company. The frequency distribution table will help the proponents determine what the actual

maturity levels of companys sustainability strategy aspects and sustainability sytem aspects are

by identifying what the most rated level is.

4.6.2 Correlational Analysis

The group will use Pearson correlation method to correlate the variables of the study,

correlation is a technique for investigating the relationship between quantitative, continuous

variables. The Pearson product-moment correlation coefficient (r) is a measure of the strength of

the linear relationship between two variables. Pearsons r can range from -1 to 1, and an r of -1

indicates a perfect negative relationship between variables, and r of 0 indicates no linear

relationship between variables, and an r of 1 indicates a perfect positive relationship between

variables (Cooper, Schindler & Sun, 2003). In this study, the correlation will be done to relate

different variables of the study such as the sustainability strategy, structure and systems and link

them to sustainability performance and long term financial performance.

4.6.3 Pattern Matching

Pattern Matching is a tool used in qualitative data analysis, it is concerned with the

comparison or the matching of a measure and a hypothesis or assessing two patterns and

determining whether they are the same or different (Yin, 1984). Robert Yin (1984) believes that

pattern matching is an ideal tool for case studies. There are two types of patterns, non-equivalent

dependent variables design and non-equivalent independent variables design. For the

independent variable design, pattern matching is limited to the testing of the propositions for the

characteristics of a case. Every proposition will be treated as an expected pattern that specifies

values of variables that can be either independent or dependent to be observed in a case through

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a sample to determine whether the proposition is true (Hak & Dul, 2009). In this paper, a census

will be used and not a sample as there are only a handful of managers to be surveyed and

obtaining a sample size of this will yield too small a number to survey. The pattern matching in

our case will be aided by the method of triangulation.

Triangulation is the use of quantitative and qualitative data methodologies as using a

single method is deemed insufficient to solve rival causal factor problems (Denzin 1978; Patton

1990; De Vos 1998). Triangulation in research is a process where the researcher seeks to verify

the data or finding through determining whether the independent measures agree with it or

contradict it (Miles & Huberman, 1994). According to Miles and Huberman (1994), there are 5

kinds of triangulation, mainly, data source, method, researcher, theory, and data type. For this

specific study, the proponents will be utilizing triangulation for data source, method, and data

type in collecting and analyzing the data. For data source, the proponents will be acquiring hard

data from the company regarding the various sustainability performance measures and the

financial performance of EMSCAI, a survey will then be conducted followed by an interview to

verify answers. For method, surveys and interviews will be conducted, and the use of secondary

data from documents, articles, and other studies will be used. Lastly, for data type, there will be a

combination of quantitative and qualitative data to be used in the study.

In this research, the proponents will be utilizing a mixed method of data analysis which

involves both quantitative and qualitative, the reason for this is that the study will be incomplete

or insufficient if only the hard data was analyzed. The proponents collected hard data from the

company regarding the sustainability performance measures and a survey will be conducted

among the managers of the company that have been working there for at least 5 years to be

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consistent with the data gathered. Given this, the proponents will use pattern matching and

triangulation to fill in Table 4.4.

Table 4.4 illustrates the various propositions of the study along with the various levels of

management in EMS Components Assembly, Inc. To fill up the table, the data gathered from the

top managers, middle managers, junior managers, and supervisors to identify whether the

quantitative and qualitative data match with one another. After which, data gathered from the

research conducted by the proponents and the findings from the review of related literature will

be placed under the secondary data column. For the analysis column, the proponents will

compare all findings and identify the gaps and the overlaps in the data to see whether there are

consistencies or commonalities between the data gathered from the company, through the survey

and interviews with management, with the data findings from all secondary sources. Essentially

an analysis within each column per proposition will be made if an analysis across the various

management and data per proposition will be made.

Table 4.4 Sample Pattern Matching Table for Data Analysis

Proposition Top and Junior Secondary Analysis

Middle Managers and Data
Management Supervisors

Proposition 1:
Sophisticated sustainability
strategy, structure, and
systems performance leads
to increasing sustainability
performance for the period
2011-2015.

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Proposition 2:
Sophisticated sustainability
strategy, structure, and
systems performance leads
to increasing environmental
performance for the period
2011-2015.

Sophisticated strategy,
structure, and systems
performance leads to
increasing social
performance for the period
2011-2015.

Proposition 3:
Sophisticated strategy,
structure, and systems
performance leads to
increasing social
performance for the period
2011-2015.

Proposition 4:
Sophisticated sustainability
strategy, structure, and
systems performance leads
to increasing economic
performance for the period
2011-2015.

Proposition 5:
Sophisticated sustainability
strategy, structure, and
systems performance leads
to increasing performance
on corporate governance.

Proposition 6: Increasing
sustainability performance
leads to increasing
stakeholder reactions.

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Proposition 7: Increasing
stakeholder reactions leads
to increasing long term
corporate financial
performance.

Proposition 8: Increasing
sustainability performance
leads to increasing long
term corporate financial
performance.

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