Adoption of ISO 14001 Standards in Indian Manufacturing Firms

Rama Mohana R. Turaga, Vishal Gupta

    Research output: Working paperOther research output

    Abstract

    Voluntary environmental initiatives (VEIs) by firms are often viewed as important for environmental management in developing countries such as India with weak regulatory institutions and poor enforcement of environmental laws. Past research shows that while VEIs may not be able to fully substitute for strong regulation, they could be useful complements to reduce environmental degradation in developing countries. In India, new government initiatives such as “Make in India” are geared towards significantly increasing the manufacturing output in the next few years. In this context, our paper studies the adoption of a widely employed VEI - the ISO 14001 standards certification - among the Indian manufacturing industries. Using the theoretical framework of Earnhart, Khanna, and Lyon (2014) on the drivers of corporate environmental strategies in emerging economies, we hypothesize that the likelihood of adoption of ISO 14001 standards among Indian manufacturing industries is a function of internal firm characteristics, input and output market pressures, and regulatory pressure. We test our hypotheses using a survey of 1000 (large, medium, and small) manufacturing firms across the country, conducted under the aegis of the World Bank in 2016. Results show that internal firm characteristics such as large size and firm innovation have a positive association with the likelihood of adopting ISO 14001 standards. Output market pressures, such as exporting to foreign markets, also positively impact the likelihood of obtaining ISO 14001 certification. In particular, exporting to China, which is ranked first in the number of ISO 14001 adoptions, has a statistically significant impact on probability of adoption. There is no evidence, however, that predominantly consumer-facing firms, another potential indicator of output market pressure, are more likely to adopt ISO 14001 standards. We also find state-fixed effects, potentially capturing the variation in both formal and informal regulatory pressure across states. Thus, consistent with other research in developing countries, we find that pressure to meet the environmental standards of countries to which firms in developing countries export their products acts as a strong incentive to adopt VEIs such as ISO 14001 standards. The lack of evidence that consumer-facing firms are no more likely to adopt ISO 14001 standards potentially indicate that firms in India do not yet find the green consumer markets large enough to adopt VEIs.
    LanguageEnglish
    Place of PublicationTilburg
    PublisherTilburg University
    Number of pages29
    StatePublished - Feb 2018

    Publication series

    NameDFID Working Paper

    Fingerprint

    Manufacturing firms
    Developing countries
    India
    Manufacturing industries
    Firm characteristics
    Exporting
    Certification
    Environmental degradation
    Theoretical framework
    Environmental management
    Manufacturing
    China
    Substitute
    Green consumers
    Consumer markets
    World Bank
    Incentives
    Innovation
    Government
    Fixed effects

    Keywords

    • ISO 14001
    • manufacturing SMEs
    • sustainability
    • green innovations

    Cite this

    Turaga, R. M. R., & Gupta, V. (2018). Adoption of ISO 14001 Standards in Indian Manufacturing Firms. (DFID Working Paper). Tilburg: Tilburg University.
    Turaga, Rama Mohana R. ; Gupta, Vishal. / Adoption of ISO 14001 Standards in Indian Manufacturing Firms. Tilburg : Tilburg University, 2018. (DFID Working Paper).
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    Turaga, RMR & Gupta, V 2018 'Adoption of ISO 14001 Standards in Indian Manufacturing Firms' DFID Working Paper, Tilburg University, Tilburg.

    Adoption of ISO 14001 Standards in Indian Manufacturing Firms. / Turaga, Rama Mohana R.; Gupta, Vishal.

    Tilburg : Tilburg University, 2018. (DFID Working Paper).

    Research output: Working paperOther research output

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    T1 - Adoption of ISO 14001 Standards in Indian Manufacturing Firms

    AU - Turaga,Rama Mohana R.

    AU - Gupta,Vishal

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    AB - Voluntary environmental initiatives (VEIs) by firms are often viewed as important for environmental management in developing countries such as India with weak regulatory institutions and poor enforcement of environmental laws. Past research shows that while VEIs may not be able to fully substitute for strong regulation, they could be useful complements to reduce environmental degradation in developing countries. In India, new government initiatives such as “Make in India” are geared towards significantly increasing the manufacturing output in the next few years. In this context, our paper studies the adoption of a widely employed VEI - the ISO 14001 standards certification - among the Indian manufacturing industries. Using the theoretical framework of Earnhart, Khanna, and Lyon (2014) on the drivers of corporate environmental strategies in emerging economies, we hypothesize that the likelihood of adoption of ISO 14001 standards among Indian manufacturing industries is a function of internal firm characteristics, input and output market pressures, and regulatory pressure. We test our hypotheses using a survey of 1000 (large, medium, and small) manufacturing firms across the country, conducted under the aegis of the World Bank in 2016. Results show that internal firm characteristics such as large size and firm innovation have a positive association with the likelihood of adopting ISO 14001 standards. Output market pressures, such as exporting to foreign markets, also positively impact the likelihood of obtaining ISO 14001 certification. In particular, exporting to China, which is ranked first in the number of ISO 14001 adoptions, has a statistically significant impact on probability of adoption. There is no evidence, however, that predominantly consumer-facing firms, another potential indicator of output market pressure, are more likely to adopt ISO 14001 standards. We also find state-fixed effects, potentially capturing the variation in both formal and informal regulatory pressure across states. Thus, consistent with other research in developing countries, we find that pressure to meet the environmental standards of countries to which firms in developing countries export their products acts as a strong incentive to adopt VEIs such as ISO 14001 standards. The lack of evidence that consumer-facing firms are no more likely to adopt ISO 14001 standards potentially indicate that firms in India do not yet find the green consumer markets large enough to adopt VEIs.

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    Turaga RMR, Gupta V. Adoption of ISO 14001 Standards in Indian Manufacturing Firms. Tilburg: Tilburg University. 2018 Feb, (DFID Working Paper).