Greenovation and Sustainable Manufacturing in Africa

AbstractAddressing a paucity of research about industrial adoption of green innovation in Africa and, more generally, in tropical developing countries, we examined the Nigerian chemical and pharmaceutical industry as a case study. Qualitative interviews with one hundred and forty upper echelon executives representing thirty five Nigerian firms challenge conventional expectations that energy intensive industries in developing markets operate amid highly pollution-intensive conditions, within weak or non-existent formal environmental regulatory frameworks, and with limited institutional capacity. Our findings suggest a strong positive relationship between green innovation and financial performance and positive relationship between green innovation and sustainable manufacturing of African firms.

JEL classifications: Q0 - General - Q01 - Sustainable Development Q5 - Environmental Economics - Q55-Technological Innovation

Keywords: Green Innovation, Sustainable Manufacturing, Environmental Policy, Climate Change, Chemical and Pharmaceutical Industry

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1.0 Introduction

Manufacturing industries are in a position to help overcome global environmental challenges but their future contribution will depend on how well they adopt and integrate the green innovative approaches when modifying their production patterns (Charter and Clark, 2007). This requires a broad perspective on what is understood by the sustainability of manufacturing and a strong focus on identifying areas in which green innovative solutions can substantially reduce environmental impacts. Furthermore, industry must recognise that because the main features of any innovation are determined early in the innovation process (Reid and Miedzinski, 2008), important benefits of green innovation may be lost if broad environmental aspects do not have priority from the beginning of the process (OECD, 2009).

Manufacturing industries account for a significant part of the world’s consumption of resources and generation of waste. Worldwide, the energy consumption of manufacturing industries grew by 61% from 1971 to 2004 and accounts for nearly a third of today’s global energy usage. Likewise, they are responsible for 36% of global carbon dioxide (CO2) emissions (IEA, 2007).

Manufacturing industries nevertheless have the potential to become the driving force for the creation of sustainable future. They can design and implement integrated sustainable practices and develop products and services that contribute to better environmental performance. This requires a shift in the perception and understanding of industrial production and adoption of a more holistic approach to conducting business (Maxwell, et al, 2006).

The environmental impact of industrial production has historically been dealt with by dispersing pollution in less harmful or less apparent ways (UNEP and UNIDO, 2004). Driven in part by stricter environmental regulations, industry has used various control and treatment measures to reduce the amount of emissions and effluents. More recently, its efforts to improve environmental performance have moved towards thinking in terms of lifecycles and integrated environmental strategies and management systems, and companies have also begun to accept larger environmental responsibilities throughout their value chains.

Manufacturing remains one of the most powerful engines for economic growth. It acts as a catalyst to transform the economic structure of countries, from simple, slow-growing and low-value activities to more productive activities that enjoy greater margins, are driven by technology, and have higher growth prospects. But its potential is even greater today. With rapid technological change, sweeping liberalization and the increased defragmentation and internationalization of production, manufacturing has become the main means for developing countries to benefit from globalization and bridge the income gap with the industrialized world. These are some of the many arguments that justify the importance of promoting manufacturing in the developing world.

According to the directory of the Manufacturers Association of Nigeria (MAN, 1994; MAN, 2000), Standards Organisation of Nigeria, and Raw Materials Research Development Council classification of manufacturing sectors, the following products sectoral groups exist in Nigeria: Food, Beverages & Tobacco; Chemical and Pharmaceuticals; Domestic and Industrial Plastic and Rubber; Basic Metal, Iron and Steel and Fabricated Metal Products;

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Pulp, Paper & Paper Products, Printing & Publishing; Electrical & Electronics; Textile, Wearing Apparel, Carpet, Leather & Footwear; Wood and Wood Products Including Furniture; Non-Metallic Mineral Products; Motor Vehicle & Miscellaneous Assembly.

2.0 Justification for the Study

A number of studies have examined the drivers of green innovation adoption in developed countries and several emerging economies in South-East Asia (Hart and Ahuja, 1994; Cohen, et al, 1995; Russo and Fouts, 1997). We know little, however, about their association in tropical developing countries.

The present research was designed to illuminate green innovation adoption in one such economy – Nigeria – in one illustrative industrial sector – chemical and pharmaceutical industry. This sectoral group was selected because this is a sector that has demonstrated sustainable manufacturing practices in developed and emerging economies – from traditional pollution control through green chemistry, cleaner production initiatives to a lifecycle model, to the establishment of closed loop production systems (Geels, 2005, Charter and Clark, 2007, Reid and Miedzinski, 2008).

In developed countries the prevailing regime of environmental regulation drives green innovation (USEPA, 1992; UNEP, 1993). However, the case might be different in tropical developing economies where environmental policy usually takes the form of traditional command-and-control. Hence, decisions for green innovation adoption in this context might be motivated by factors other than those that characterize developed economies.

The “Porter hypothesis’’ has spurred substantial amount of research on the influence of environmental regulation on green innovation. While adherents of the Porter hypothesis have sought to demonstrate the empirical relevance of the win-win claim, neoclassical economists have argued that such win-win opportunities are exceptions. They have pointed to significant compliance costs of industry, competitive advantages of domestic firms in international markets, and opportunity costs of forced environmental activities (Jaffe, et al, 1995; Palmer, et al, 1995). Recent research has sought to bridge the boundaries between “traditional economists’’ and ‘’revisionist’’ by combining assumptions from neoclassical and evolutionary economists (Johnstone et al, 2005). But thus far, the results have remained inconclusive. Hence, this research is designed to contribute to this body of knowledge from tropical developing countries context.

In addition, only very few political scientist have thus far ventured into research on green innovation. They have focused on cross-sector and cross-country comparisons (Jaenicke et al, 2000; Jacob et al, 2005). Recent quantitative studies by management experts and economists have surveyed green innovations at the facility level (Adeoti, 2001; Johnstone et al, 2005), whereas the development of product innovations usually happens at the firm level. Furthermore, the simple empirical definitions of green innovation at the facility level cannot provide direct insights into the causal linkages between regulation and green innovation – notably, the design of these studies can usually not exclude the possibility that green innovation (if reported yes/no) is in another field than those targeted by existing environmental regulation (Bernauer, 2006). That is, firms may report green innovations and

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state that they experience strict regulation, but the two phenomena may be causally unrelated. Hence, this carefully designed qualitative study with comparative case studies will provide important insights into the processes that lead from firm-external stimuli (such as regulation or market forces) to green innovation.

3.0 Research Questions

What are the drivers for the adoption of green innovation technologies in the Nigerian chemical and pharmaceutical industry? What are the conditions under which a decision to adopt green innovation is reached, leading to sustainable manufacturing.

4.0 Research Hypotheses

The research hypotheses are stated in null form as follows:H1: The stringency of environmental regulation does not influence green innovation. The direction and extent of this influence does not depend on market and firm-internal factors.

H2: Sustainable manufacturing initiatives – from traditional pollution control through green chemistry, cleaner production initiatives, to a life cycle concept, to the establishment of closed-loop production is not facilitated by green innovation.

5.0 Literature Review and Theoretical Framework

Green innovations encompass all innovations that have a beneficial effect on the environment regardless of whether this effect was the main objective of the innovation. They include process, product and organisational innovations (OECD, 2005a; OECD, 2005b). Green innovations are different from other innovations; besides producing the spill over effect over typical of most research and development efforts, they also produce costs of production or products (Rennings, 2000).

Sustainable manufacturing involves changes that are facilitated by green innovation. Evolving sustainable manufacturing initiatives – from traditional pollution control through cleaner production initiatives, to a life cycle view, to the establishment of closed-loop production can be viewed as facilitated by green innovation (OECD, 2009). Figure 1 below provides a simple illustration of the general conceptual relations between sustainable manufacturing and green innovation. The steps in sustainable manufacturing are depicted in terms of their primary association with respect to green innovation, that is, with innovation targets on the left and mechanisms at the bottom. The waves spreading towards the upper right corner indicate the path dependencies of the different sustainable manufacturing

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concepts (OECD, 2005; UNEP and UNIDO, 2004). While more integrated sustainable manufacturing initiatives such as closed-loop production can potentially yield higher environmental improvements in the medium to long term, they can only be realised through a combination of a wider range of innovation targets and mechanisms. NNnnnnn

Institutions

Organization and

marketing methods

Processes and

products

Industrial ecology

Closed-loop production

Non-technological

Life-cycle thinking

Eco-efficiency

Cleaner production technological

Pollution control

Modification Re-design Alternatives Creation

Green innovation mechanisms

Green innovation

targets

Figure 1: Conceptual relationships between Green Innovation and Sustainable Manufacturing (OECD, 2009)

The literature on the drivers of innovation is vast. Yet, most of this literature focuses on particular drivers of innovation and only a small parts of this literature focus on green innovation. Contemporary research on the relationship between green innovation and regulation is based on the assumption that technology push and market pull factors, firm internal conditions, and regulatory conditions drive the extent and form of green innovations (Bernauer, 2006; Kemp et al, 2000; Rennings, 2000).

Environmental regulation is viewed in neoclassical economics as a means to force firms to internalise external costs they would otherwise impose on society. The neoclassical economic view has been that strict regulation has negative effects on productivity and competitiveness, as it leads to higher expenses by businesses and imposes constraints on industry behaviour. Regulation can also increase uncertainty associated with future investments, so that they are postponed. Given that investment budgets are limited, enforced research and development for cleaner technology can have the effect of reduced research and development expenditure in other, more profitable areas, such as a firm’s core business (Gray and Shadbegian, 1995).

Porter and van der Linde popularized the claim that properly structured environmental regulation may not only benefit the environment – and hence society as a whole – but also the regulated industries by making firms realize otherwise neglected investment opportunities

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(Porter and van der Linde, 1995a; Porter and van der Linde, 1995b). Specifically, Porter et al (1990). argued that (strict) environmental regulation and associated compliance costs could force industry to innovate and thus increase resource efficiency and enhance productivity. They suggested that environmental regulation could also increase turnovers and profits by creating markets for environmentally improved products and technologies, and that compliance costs may be offset by the gains from these innovations, so called innovation offsets.

However, neoclassical economists have heavily criticized the “win-win” hypothesis. They have argued that regulation might motivate firms to develop green innovations, but that these efforts would produce opportunity costs offset only in exceptional cases (Jaffe et al., 1995; Palmer et al., 1995). Some authors have refined Porter’s argument and have offered more nuanced theoretical explanations for the existence of previously overlooked win-win opportunities that could be stimulated by regulation (Roediger-Schluga, 2004). Applying principal-agent theory, bounded rationality, and spillover effects, Gabel and Sinclair Desgagné (1998), Bonato and Schmutzler (2000), Schmutzler (2001) and Mohr (2002) derive possible but rare conditions under which regulation can induce innovations that fully offset compliance costs. This theoretical controversy has motivated empirical research on a considerable scale on the relationship between regulation and green innovation.

While qualitative case studies (Bonifant et al., 1995; Porter and van der Linde, 1995b; 1995a; Shrivastava, 1995) provides some useful insights, more systematic econometric studies have failed to produce unequivocal results (Jaffe et al., 1995). Quantitative studies in particular often use (overly) simple indicators, for instance measuring innovation by the number of patents and research and development investment (including also non-environmental research and development). Jaffe and Palmer (1997) for instance obtain different results for the aforementioned two innovation indicators. Brunnermeier and Cohen (2003) find that increases in pollution abatement expenditure influence green innovation (measured by the number of successful environmental patent applications granted to industry), but only marginally. Using a theoretical model, Bonato and Schmutzler (2000) derive strategic (spillover effects) and organizational (principal agent problem) factors explaining why environmental regulation could stimulate cost-reducing innovations that would not have been undertaken without regulation.

In addition, research in innovation economics has long centered on whether technological development (technology push) or demand factors (market pull) are more important drivers of technological innovation. Empirical research has shown both to be relevant (Pavitt, 1984). Technology push seems to be more important at the beginning of the product cycle, market opportunities seem to be more important at later stages (Mowery and Rosenberg, 1979; Freeman, 1994; Jaenicke et al, 2000). A peculiarity of green innovation, however, may be that market pull and technology push are comparatively weak, calling for a “regulatory push/pull effect” (Rennings, 1998). Market pull includes aspects such as competitiveness (mostly considered by the industrial organization literature) and customer demand (be it the end consumer or corporate customers; mainly studied by strategic management research). The industrial organization literature focuses on market structure as a key determinant of innovation. Many of these studies are, in one way or another, derived from Schumpeter’s hypothesis (Schumpeter, 1942), postulating a positive influence of market concentration and firm size on innovation. Schumpeter argued that market concentration reduces market uncertainty and motivates firms to invest in research and development. Other authors argue

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the opposite, claiming that concentration leads to inertia and hinders innovation due to missing competitive pressure (Levin et al., 1985).

The strategic management literature provides insights into firm-internal conditions and firm strategies. Theoretically, the consideration of firm-internal factors is often based on evolutionary theory and most notably the resource-based view of the firm (Nelson and Winter, 1982; Wernerfelt, 1984; Barney, 1991). The resource-based view of the firm holds that firm-internal characteristics, such as strategy, structure, and core capabilities, are important determinants of innovation. There are, of course, also non-monetary, say ideational or ideological benefits for certain customers from buying a “green” product without material benefits. But such products tend to occupy very small niche markets (Fagerberg et al., 2005) and important to competitive advantage.

Building on the resource-based view, Hart (1995) links competitive advantage to a firm’s relationship with the natural environment. The strategic implications focus on pollution prevention, product stewardship, and sustainable development. Pollution prevention can provide win-win opportunities through process innovations (resource-efficiency). Product stewardship can foster competitive advantage through product differentiation and prevention of potential regulation. Russo and Fouts (1997) elaborate on this concept and postulate a positive link between firms' environmental and economic performance based on reputation benefits from environmental performance. Sharma and Vredenburg (1998) find empirical evidence that companies develop green organizational capabilities after having adopted a proactive environmental strategy. Building on the Porter hypothesis, a considerable body of literature classifies and analyze corporate environmental strategies and their potential for gaining competitive advantage. Figure 2 below highlights the framework for studying the determinants or divers of green innovation. Figure 2:

Regulatory Drivers

Green Innovation Market Drivers

Firm Internal Drivers

Stringency

Predictability

Competitiveness Customer benefit

Green capabilities Innovativeness

Firm size

Figure 2: Framework for studying the determinants of Green Innovation (Bernauer, 2006)

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6.0 Justification for the use of Qualitative Study for the Research

The drivers of green innovation require analysis of the effects of environmental regulation alongside market and firm-internal conditions (Klemmer, et al, 1999; Kemp, 1997). Presently, research on green innovation is scattered across different academic disciplines and are largely quantitative. Each piece of research tends to focus on narrow range of drivers and particular level of analysis. Industrial organisation specialists concentrate on market structure while strategic management specialists focus primarily on firm-internal variables. The economists and political scientists studying the impact of environmental regulation on green innovation tend to sideline non-regulatory drivers (Bernauer, 2006).

There is principal weakness in these existing quantitative research primarily in problem definition, operationalisation of the dependent variable (that is, green innovation), level of analysis problems (that is, sector/industry, firm and facility) and poor understanding of the causal effects of explanatory variables on each other and on green innovation). However, changing the focus of the research from sector/industry level to the firm and innovation field level – the level at which green innovation actually takes place can improve the understanding of the causal mechanisms.

Few political scientists have thus far ventured into research on green innovation. They have focussed on cross-sector and cross country comparisons Jaenicke et al, 2000; Jacob et al, 2005). Recent quantitative studies by management experts and economists have surveyed innovation at facility level (Johnstone et al, 2005; Adeoti, 2001). This research has offered very useful insights into macro-level trends in this field but needs to be combined with stronger insights into the underlying micro-level processes, principally green innovation related decisions and behaviour at the level which qualitative research is most appropriate.

In addition, most quantitative studies on green innovation use questionable indicators for the dependent variable. Green innovation is usually measured in a binary fashion (yes/no), often at the facility level, or in terms of patents or research and development expenditure (Adeoti, 2001; Bonifant, et al, 1995). However, research and development does not necessarily lead to innovation and many patents do not lead to innovations, and some of the innovations are not patented. Also many industry sectors cannot and/or do not patent their innovations at all. Hence, green innovation should be measured in more comprehensive ways involving qualitative case studies. Green innovation should be explained in terms of the extent and type of green innovation as well as environmental performance improvement for individual innovations. The number of green innovations within each field of innovation provides a better understanding of firms’ innovation activities than the simple yes/no measurement of innovation in quantitative studies.

Another justification for the use of qualitative research is the level of analysis. At the sector/industry level of analysis, the effects of changes in regulation on sector-wide green innovation can be studied over time (that is, with panel-data). Regulation is usually designed for and applied to entire industries. It is not tailor-made for individual firms. Yet, generating comparable macro-level green innovation data for industries or sectors without surveying individual firms is difficult. One option is to measure green innovation in terms of relative

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improvement in environmental outcomes (e.g. the emissions, concentration of pollutants, energy and water and raw materials consumption, extent of recycling, EMS certification, etc). Unfortunately, reliable environmental and innovation data is usually not available for many sectors and certainly not for long periods of time. Moreover, drawing inferences in respect to firm-level decision-making and behaviour from sectoral or industry-level data is vulnerable to ecological fallacies.

Hence, the solution is to collect data on decision-making and behaviour at the firm level – the level at which environmental innovation actually occurs which is justified with the use of qualitative case studies. Qualitative case studies also allow for the study of certain innovation fields, that is, the various aspects of a product or process that can be improved. Regulations are usually targeted at such particular aspects or environmental media (e.g. water or air pollution). Such data for such research will have to be generated at the firm level. Examples include energy use, concentration of pollutants, and prohibition or limitation of certain toxic substances in products.

The main disadvantage of using large sample size surveys based on questionnaires with pure or stratified random samples of several hundred to several thousand firms as evidenced from surveys in the field of green innovation carried out to date, stems from response rates that are usually less than 30% (sometimes no more than 10%). (Adeoti, 2001; Bernauer, 2006). Since, it is virtually impossible to control for selection bias with such low response rates; the results are quite vulnerable because the coefficients may be strongly biased despite the inherent advantage of sophisticated statistical procedures for drawing broadly generalizable inferences. Moreover, large sample size surveys are usually based on closed end questions but do not generate very detailed data on the characteristics of green innovations, how they emerged in firms, and what their drivers were.

In addition, medium sample size surveys of less than one hundred can obtain much higher response rates. The downside is the smaller number of observations and the measurement of green innovation in a binary fashion (yes/no) at the sector level whereas green innovation should be measured in more comprehensive ways. Hence, the need to rely on simpler statistical tools - usually descriptive statistics, contingency tables, simple OLS, logit or probit regression with few explanatory variables (Bernauer, 2006). Notwithstanding the potential for contributing important insights into green innovation processes, research based on medium sample size surveys is very rare, probably because it is time consuming.

Hence, the adoption of comparative small sample size qualitative study based on case designs using semi-structured questionnaires (Mitchell and Bernauer, 2004) eliminates the disadvantages in both the large and medium sample size surveys. Although this method is still very rare in research on the drivers of green innovation, however, carefully designed qualitative, comparative case studies will provide important insights into the processes that lead from firm-external stimuli (such as regulation or market forces) to green innovation. There is also acute dearth of literature on the drivers of green innovation in tropical developing countries. Hence, this study is novel both in the research method and contribution to knowledge.

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7.0 Description of Theoretical Sampling Technique in Qualitative Research

Theoretical sampling is a method of data collection in qualitative research based on concepts/themes derived from the data. The purpose of theoretical sampling is to collect data that will maximize opportunities to develop concepts in terms of their properties and dimensions, uncover variations, and identify relationships between categories.

Theoretical samplings begin with general target population and continue to sample from the group. Theoretical sampling is especially important when studying new or uncharted areas because it allows for discovery. What makes theoretical sampling different from conventional methods of sampling is that it is responsive to the data rather than established before the research begins. This responsive approach makes sampling open and flexible. Concepts are derived from data during analysis and questions about those concepts drive the next round of data collection. Rather than being used to verify or test hypotheses about concepts, theoretical sampling is about discovering relevant concepts and their properties and dimensions.

As against conventional research methods of sampling where the researcher sample people and controlling variables, the researcher is purposely looking for indicators of those concepts so as to examine the data to discover how concepts vary under under different conditions. Unlike conventional researcher methods of sampling, the researcher does not go out and collect the entire data set before beginning the analysis. Analysis begins after the first day of data gathering. Data collection leads to analysis. Analysis leads to concepts. Concepts generate questions. Question leads to more data collection so that the researcher might learn more about those concepts. This circular process continues until the researcher reaches the point of saturation. Saturation is usually explained in terms of “when no new data are emerging”. But saturation is more than a matter of no new data. It also denotes the development of categories in terms of their properties and dimensions, including variation, and if theory building, the delineating of relationships between concepts.

8.0 Methods

8.1 Methodological ApproachThis research utilized a comparative qualitative case designs. Much social science research has been directed toward the task of testing formal theories. Our objective, however, was to generate a grounded theory, that is, one “grounded” in the data (Spradley, 1979; Glaser and Strauss, 1967). Qualitative research is an appropriate methodology when the objective is to generate grounded theory (Glaser and Strauss, 1967), a methodological approach employed in a variety of disciplines to describe and interpret the “lived worlds” of subjects (Glaser, 1978; Schatzman and Strauss, 1973).

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A major function of theory is to provide a model (Strauss, 1995; Maxwell, 2005). Grounded theory does not refer to any particular level of theory, but to theory that is inductively developed during a study (or series of studies) in constant interaction with the data from the study (Glaser and Strauss, 1967). This theory is grounded in the actual data collected, in contrast to theory that is developed conceptually and then simply tested against empirical data. In qualitative research, both existing theory and grounded theory are legitimate and valuable (Clarke, 2005).

8.2 SampleThe directory of the Manufacturers Association of Nigeria (MAN) listed 409 chemical and pharmaceutical companies (MAN, 1994; MAN, 2000). The Federal Office of Statistics (FOS) country wide industrial survey listed 382. Since the MAN directory was published in 1994 and the FOS (1998) statistics refer to the 1992 country wide industrial survey, we did not expect much discrepancy in the figures from the two sources. However, the 2005 Standards Organisation of Nigeria, and Raw Materials Research Development Council classification listed 364 Chemical and Pharmaceutical companies. However, the rate of firms’ exit from manufacturing activities in the sector might have had a negative sum due global downturn economic situation.

The research adopted a theoretical sampling technique. Theoretical samplings begin with general target population and continue to sample from the group. Our general target population includes 75 upper echelon executives in the Nigerian chemical and pharmaceutical industry. The general target population consist of a mix of 30 medium and 40 large scale enterprises in the Nigerian chemical and pharmaceutical industry. Our ultimate selected target population includes 35 upper echelon executives which consist of a mix of 17 medium and 18 large scale enterprises.

In literature, there has been diverse classification of firms into small, medium and large-scale enterprises, either based on sales turnover, capital outlay or persons employed. In Africa, according to Lall et al (1994) and Oyelaran-Oyeyinka (1997a), firms employing 10 to 49 persons are usually considered small scale, 50 to 199 medium-scale, and firms employing 200 or more persons are regarded as large scale (Winston, 1981; Liedholm, 1992; Oyelaran-Oyeyinka, 1997b). Table 1 below shows the distribution of the selected target population.

The research was conducted in two cities of Nigeria - Lagos and Ibadan, as over 90 percent of the chemical and pharmaceutical industry is located in Lagos State. Lagos is former capital of Nigeria and Ibadan is the largest indigenous city in Tropical Africa. The research was carried out with the support of the Manufacturers Association of Nigeria (MAN). Letters were sent by the Director of the Pharmaceutical and Allied Products Group of MAN to all the 364 companies in the distribution below to facilitate recruitment of interview candidates. Follow up phone calls were made to the companies by MAN two weeks after dispatching the letters. Follow up visits were also made to the companies to confirm acceptance. Four upper echelon executives from each of the companies will be interviewed for diversified opinion on corporate strategy and operations. Respondents include the Chief Executive Officers (CEOs), the Operation Directors (ODs), Procurement Directors (PDs) and Human Resources Directors (HRDs)

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Table 1: Distribution of companies in the Nigerian chemical and pharmaceutical industry

Theoretical sampling technique characteristic of grounded theory was utilized. Grounded theory has no predetermined guidelines for sample size selection (Locke, 2000). Hence, sample size cannot be predicted. While general target population or initial sample selection was based on general inclusion criteria, theoretical sampling is directed by theme emerging from concurrent data collection and analysis (Strauss and Cobin, 1998; Glaser and Strauss, 1967). Sampling continues until data provided a thick rich description of the study phenomenon and no new themes emerges (Glaser and Strauss, 1967).

Hence, in seeking to reach theoretical saturation, the data collection evolved from general sampling to relational sampling (that is, seeking to understand relationships) and ending with discriminate sampling (that is, seeking to differentiate relationship) (Strauss and Cobin, 1998).

8.3 Data CollectionData was collected over a six months period from October 2012 to March, 2013 in Nigeria. Semi-structured interviews with open ended questions of approximately 50 minutes duration were conducted on the premises of the companies who participate in the study. Some interviews were conducted in the office of the Manufacturers Association of Nigeria during the monthly review meetings of the Pharmaceutical and Allied Products Group of MAN in January, February and March 2013. Four interviews were conducted for each company Chief Executive Officers (CEOs), the Operation Directors (ODs), Procurement Directors (PDs) and Human Resources Directors (HRDs)

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Distribution Total number Selected target population

Paints, vanishes and allied products

52 5

Soap & Detergents 24 3

Agro chemicals (Fertilizers &

Pesticides)

12 2

Pharmaceutical 80 8 Foam manufacturers 46

Total 364 35

4

Safety matches

16

3

Candle manufacturer

12

2 Printing ink manufacturer

s

12

2

Toiletries & Cosmetics

74

4

Basic Industrial Chemical

s

36

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The interviews were set at time and venue convenient to the participant. A face-to-face interview was conducted in an enclosed, private, comfortable office in order to mitigate interruption or ambient noise. A digital audio recording was made of each interview for ease of obtaining information and for accuracy in reflecting the comments. A follow up visit were made for some companies to clarify some points discussed during the original interview, which were not udio-taped for clarification purposes only.

The semi-structured questionnaires include open ended questions on closed –loop production systems and sustainable manufacturing concepts and practices adopted by the industries. Specific focus include: pollution control, cleaner production, eco-efficiency, lifecycle thinking, closed loop production and industrial ecology. Issues on process optimization, lower resources input and output, substitution of materials, environmental strategies and monitoring, environmental management systems, green supply chain management, corporate social responsibility and integrated systems of production were also addressed.

Maxwell’s (2005) situation specific interview process was adopted to develop the interview protocol used for all the respondents. The guide allowed interviewee’s personal experience and stories to emerge as recommended by Spradley (1980). A convergent interview technique was also adopted for the interview. A convergent approach was considered appropriate because the research is exploratory and designed to build rather than test theory. In addition, the interview process was cyclic in nature creating room for continuous streamlining of the research issues and allowing a gradual convergence of the interpretation of the research data (Boyatzis, 1998).

At the conclusion of the interviews, each participant was given the opportunity to provide additional information. This opportunity to expand on earlier commentary opens up new discoveries. In addition to the digital audio recording of the interview sessions, important comments and references were noted and used as journal and referenced during the data analysis phase. The researcher also observed some selected factories production processes and green innovation technologies. Digital audio recordings of answers to questions asked during the factory inspection were made as hand notes.

The records of the research were kept private. Following the interview, the recorded information was transferred to a password protected computer and the interview erased from the recorder immediately. All identifiers were removed from all records, including but not limited to, the master list at the completion of the follow-up interviews. Further, no identifying information were included in the research findings. A transcription of the recording was made by a reputable commercial transcription service that understands and follows the precautions required for human subjects’ research. A transcribed word processing file was stored with the associated audio file using the same security approach described above. All transcriptions were loaded into coding software, QUALRUS.

8.4 Data AnalysisData collection was carried out concurrently with data analysis and data collection continued until saturation was reached (Glaser, 1978; Glaser and Strauss, 1967). The interview transcripts and observational notes to be analyzed was read multiple times (Emerson, et al, 1995). The interview tapes was also listened to several times. During the period of reading

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and listening, notes and memos were written on what was seen and heard in the data. Tentative ideas were developed about categories and relationships.

An iterative process of data examination was adopted before formal data analysis was carried out (Maxwell, 2005; Boyatzis, 1998) cycling through the interview data to capture emerging ideas and link them to existing literature. This was followed by multiple iterations of coding of the raw data.

The data was initially subjected to open (inductive) coding to identify “codable moments” (Boyatzis, 1998) using intelligent qualitative analysis coding software, Qualrus. The codable moments were captured. The codable moments were then grouped into sub-themes. Using a simple affinity mapping technique, the sub-themes were grouped into logically connected themes. Finally, the themes were grouped as described by Boyatzis (1998). Descriptive labels were given to words, phrases and sentences at this stage. The next analytical step include the development of major themes, a rigorous process involving re-examining the data relative to the preliminary conceptual model as well as new insights (Maxwell, 2005).

Using grounded theory approach, the categorization reduced the number of substantive codes generated from the initial data analysis. The codes were constantly compared against each other until they are mutually exclusive (Strauss and Cobin, 1998). The third phase of the data analysis was the theoretical coding. At this stage, second level categories were linked together and theoretical codes emerge. The emerged theoretical codes were compared with existing knowledge in the study domain. Observations made during the interview process were also reviewed, revised and organized as data collection and analysis continued (Maxwell, 2005). The codable moments were then be grouped generate the findings.

In total, 96 percent (4,045) of the 4,389 codable moments grouped into three key findings discussed in the next section. Table 2 below shows the allocation of the codable moments across the findings.

9.0 Findings

Our analysis generated the following three key findings:

1. Investment in green innovation in developing markets is driven by six factors:

a. Raw material scarcityb. Economic considerationsc. Regulatory pushd. Technology pushe Ownershipf. Management characteristics

2. There is a strong positive relationship between environment-benign and cleaner technologies and corporate financial performance

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3. There is a positive relationship between adoption of green innovation and sustainable manufacturing practices

The table below summarizes the allocation of the codable moments across the findings and between the executives interviewed (Managing Directors (MDs), Operations Directors (ODs), Procurement Directors (PDs) and Human Resources Directors (HRDs)).

9.1 Finding 1: Drivers of Investment in Green Innovation

Our data revealed that chemical and pharmaceutical industry executives in Nigeria appreciate the benefits of eco-friendly technologies and, surprisingly, are investing in them to a degree uncommon in most developing countries. Our executives explained that investment is influenced by six specific factors:

Table 2: Allocation of Codable Moments across the FindingsFindings % MDs % ODs %

PDs%

HRDs%

Codes1. Green innovation technologies drivers

Raw material scarcity 32% 28% 23% 17% 13% Economic considerations 36% 22% 32% 10% 20% Regulator push 28% 42% 16% 14% 10% Technology push 33% 45% 16% 6% 7% Ownership 40% 25% 21% 14% 6% Management

characteristics28% 24% 22% 16% 6%

2. Positive relationship between sustainable manufacturing practices and financial performance

41% 31% 17% 11% 21%

3. Positive relationship between adoption of greenovation and sustainable manufacturing practices

26% 44% 21% 9% 13%

Total 96%

Raw Material ScarcityChemical and pharmaceutical executives lamented the unavailability to source chemical and pharmaceutical raw materials locally, the high cost of raw materials and outrageous local tax. As demonstrated in Figure 3 below, respondent’s reported disillusionment with pessimism about government policy regarding the chemical and pharmaceutical raw materials.

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“Over 80% of the chemical and pharmaceutical industry raw materials come from chemical products. These raw materials are imported” (OD of Company # 16)

“Nigeria is deficient in technological development. Refineries are failing in technological synthesis of raw materials .” (MD of Company # 4)

“There is no incentives and political will to encourage the synthesis of our raw materials locally. We import this materials from Europe and Asia”. (MD of Company # 32).

“The Federal Government tax and other duties on our imported raw materials is 25%. This increases our production cost significant. We become uncompetitive” (MD of Company # 6).

“Over 60% of our production cost is attributed to raw materials. The cost of imported raw materials keep increasing day after day. This erodes our profit margin significantly. (HRD of Company #3)

Figure 3: Unfavourable Government Policy on Chemical and Pharmaceutical Raw Materials

Wrong attitudes of government on public sector operations including refineries for the synthesis of chemical and pharmaceutical raw materials, they concurred (as exemplified in Figure 4 below), has fueled foreign importation of raw materials in Nigeria.

“Nigeria has four operational refineries, but together they produce less than 445,000 barrels a day owing to poor infrastructure and substandard maintenance. . (PD of Company #22)

“While Nigeria is the largest producer of oil in sub-Saharan Africa, the West African country imports as much as 70% of the oil products it needs to sustain its economy as a result of a deficit in refining capacity”. (MD of Company # 13)

“Nigeria refineries are not working. People import crude oil and refine back to us. We import pharmaceutical raw materials. That is why we are not competitive.” (OD of Company # 24)

“The worsening electricity problem in the country has reduced production at the Port Harcourt Refinery to near zero level owing to frequent power outages”. (MD of Company # 2)

Figure 4: Wrong attitudes of Government on Public Sector Operations including Refineries for the Synthesis of Raw Materials

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Economic ConsiderationsIn this difficult operating environment of raw materials scarcity, executives looked to greenovation as the key to building sustainable companies and maximizing the shareholders wealth as indicated in Figure 5.

“We have the challenge of raw materials. We have to innovate to survive. That is why we have to invest in recycling and other cleaner production techniques”. (OD of Company # 35)

Figure 5: Greenovation is the one way to remain in business in the Nigerian Chemical and Pharmaceutical Industry

“Nigeria imports chemical and pharmaceutical raw materials. A lot of us now have recycling plant to bring our cost of production down. I am aware of six functional recycling plants in Lagos. We have to do this to remain in business. (HRD of Company # 18). Nigeria has four refineries. All were working initially. Like Government ventures, they were run down”. The cost of importing raw materials is high. We have to invest in recycling to still remain in business”. (MD of Company #2 1).

“Nigeria has four operational refineries operating below capacity. The problem is leadership. If you see what we are loosing, you would weep for Nigeria. We have to innovate to remain in business”. (MD of Company # 12)

Such greenovation, they reported, included investment in cleaner production strategies that potentially reduce operating cost and facilitate environmental improvement of their operations including improvement programmes aimed at recovery, reuse and recycling as well as preventive measures to reduce waste at source and ultimate disposal as indicated in Figure 6 below:

“We designed and operate water recovery and wastewater re-use and reduction plan”. We also engage in effective segregation, reuse and recycling for cost effectiveness of our production cost (OD of Company # 13)

Figure 6: Cleaner Production the key to building sustainable companies to maximise shareholders wealth

“We reduce our powdered spills by good manufacturing practices in raw material handling techniques and proper maintenance of equipments. We do this to reduce our production cost. This is the only way to remain in business (HRD of Company # 7). “We adopt lean manufacturing and pollution prevention including reduced lead time, defects, and material loss and damage. Total cost savings for the company are approximately $140,000 per year”. (MD of Company # 29).

“We are environmentally friendly. We run on gas. We built a gas plant. We connect the gas plant to our machines. We ensure effective operation of our boiler to reduce fuel consumption. This has reduced our energy consumption by 40%. This has reduced our operating cost significantly”. (MD of Company # 22)

Regulatory PushWithout exception, all interviewees attested to the role of strong state regulation as a driver of firm investment in greenovation in the four hundred and thirty nine codable moments referenced this finding. In particular, respondents, as indicated in Figure 7, cited

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environmental legislation including guidelines and standards for the abatement and control of pollution and environmental impact assessment, audit, monitoring and compliance regulations for their investments in pollution control and cleaner production.

“There is an edict on waste management in Lagos State. LAWMA has a contract with the industries to cart away waste to sanitary landfill. This is not the case in Oyo State”. (PD of Company # 35)

“We built a world class effluent treatment plant. We are also registered with Lagos State Waste Management Agency (LAWMA). LAWMA collect our solid waste for disposal at OLUSHOSUN Landfill site.” (OD of Com # 16).

“We paid $60,000 to our consultant for environmental audit. That is Government regulation. We update that every 5 years”. (MD of Company # 33)

“LASEPA policy require that we submit an environmental and social impact assessment and environmental and social management plan before commencing operation. There is strict enforcement of regulation” (OD of Com # 21) “LASEPA is responsible for the enforcement of pollution laws in Lagos State. You must submit EIA report to LASEPA before operations.” (OD of Company # 34)

Figure 7: Strong Environmental Regulation

“Lagos State Environmental Protection Agency (LASEPA) makes it mandatory for us to obtain Environmental Permit before commencing the construction of our factory (MD of Company # 11).

Technology PushInterviewees unanimously referenced sources of technological knowledge about plants, equipment vendors and international consultants as important in their greenovation investment decisions as shown in Figure 8 below:

“We have been pre-qualified by WHO. We do machine acceptance test yearly. We look outside the country regularly for innovation” (MD of Company # 27)

“We draw out technological inspiration from Singapore, Malaysia and Indonesia. Our investment in greenovation based on the advise of our technical consultant and equipment vendor in Singapore” (HRD of Company # 15).

“It is the policy of our parent company to invest in pollution control and cleaner production. It is part of our business set up protocol”. (MD of Company # 16)

“Our source of technological knowledge is German. We have upgraded our factory to what we saw in Europe in terms of cleaner production and eco-effiency”. (OD of Company # 8)

“We invest in both hardware and software greenovation including energy savings, pollution control and waste recycling based on the advice of our Singapore partner” (PD of Company # 15)

Figure 8: Source of Technological Knowledge

“We are German affiliate company. We built the first compliance pharmaceutical company in Nigeria based the suggestion from our international consultants” (HRD of Company # 11)

Most of the executives reported that their investment in greenovation resulted from advice rendered by international consultants and their equipment was sourced mostly from vendors in Europe (Germany) and Asia (Malaysia, India, Singapore and Indonesia). No Greenovation, they reported, was Nigeria sourced.

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OwnershipForeign affiliation, foreign technical partnership and ownership of the firm whether multinational, foreign or local emerged as a key driver of firm investment in greenovation as highlighted in Figure 9 below. Executives acknowledged foreign ownership in the Nigerian chemical and pharmaceutical industry which are predominantly Indian (about 20 percent). We also have small percentage of British, German, Jordan and Swiss ownership. Local ownership amount to about 60 percent however with strong foreign technical partnership and foreign affiliation. However, pure local ownership account to about 5 percent. Hence, most of the investment in greenovation is motivated by foreign ownership mostly multinationals, foreign affiliation and foreign technical partnership. Most of the multinationals and foreign firms have greenovation and sustainable manufacturing practices in place, and often featuring the same technology that operates in their parent companies abroad.

“Our environmental policy is more stringent than National Regulations. Our policy is designed to meet more than expected from Government regulatory body”. (MD of Company # 2)

“Our company has German affliation. We built the first compliance pharmaceutical industry in Nigeria. We are WHO compliance. Our environmental policy is more stringent than that of NAFDAC and LASEPA” (PD of Comp #12)

“Less than 10% are purely indigenous. Nigerian companies does not have the technological back up to practice greenovation ” (OD of Company # 13)

“The pharmaceutical industry is capital and technologically intensive. Only a foreigner can adopt greenovation and remain in business in this industry with long payback period” (MD of Company # 21) “Our liquid waste is treated. We do not emit hazardous waste into the environment. This is our organization policy as an Bfritish company”. (HRD of Company #2 2).

Figure 9: Ownership of the Companies

“Indian has over 20% ownership of the industry and the 60% ownership by Nigerians has foreign partnership. This result in capital flight. It is not good for the economy of the country” (OD of Co # 11)

Management CharacteristicsManagement education, experience and quality influence the adoption of greenovation and sustainable manufacturing as illustrated in Figure 10. The majority of executives we interviewed had advanced university degrees and an average of 20 years of experience in the chemical and pharmaceutical industry, typically including international job and/or training experience, mostly in Germany, Switzerland, United Kingdom, Jordan, Singapore, Malaysia, Indonesia and India.

Typical was a Managing Director with 28 years experience who has worked with 8 pharmaceutical companies in Germany, Switzerland, Singapore, Malaysia, Indonesia and South Korea where he had seen the benefits of greenovation and adopting the same technology in Nigeria. A Managing Director of another firm and a lifelong veteran of the pharmaceutical industry reported bringing cleaner production into this company based on his overseas exposure. Hence, evidence from the study provides a link between adoption of greenovation and sustainable manufacturing practices and management education and experience.

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I am a veteran in this industry. I worked for 20 years in Germany. I have brought a lot of innovation into this company based on my overseas exposures in greenovation technologies” ” (MD of Company # 34).

“I am an Indian and we are an Indian Company. I have been in the pharmaceutical industry for 32 years. I have worked in United States and Singapore. These experience are very useful in my current position (MD of Company #33)

“I have worked in 12 countries. I joined this company 4 years ago. The overseas training is highly important to our adoption of greenovation and sustainable manufacturing practices” (PD of Com #21)

“I became a Production Manager in 1984. I have seen the benefits of cleaner production in United Kingdom. We are working to make our production system attain the same standard” (PD of Company # 23) “I have been in chemical and pharmaceutical industry for 30 years. This exposure overseas is relevant for our innovation in cleaner production” (MD of Company # 18)

Figure 10: Management education, experience and quality

“I worked with 8 companies in 6 countries where I have seen the benefits of greenovation. We are adopting the same technology in Nigeria.” (MD of Com # 2).

9.2 Finding 2: Positive Relationship Established between Sustainable Manufacturing Practices and Financial Performance

Our data provide strong evidence of a positive relationship between sustainable manufacturing and financial performance in the Nigerian Chemical and pharmaceutical industry. Our interviewees stressed the salubrious bottom line effect of cleaner production adoption. As expected, all respondents stressed the impact of economic conditions on their investment decisions. More than 922 of the 4,389 codable moments representing 21 percent captured in our analysis reflected the consensus of our interviewees that cost considerations and economics, in fact, were considered the first and most significant driver of investments in cleaner production in the Nigerian chemical and pharmaceutical industry.

Although adopting sustainable manufacturing practices tapped financial reserves, executives looked upon that investment in terms of cost saving. As illustrated in the quote tree in Figure 11 below, respondents explained sustained implementation of cleaner production strategies that potentially reducing operating costs and facilitates environmental improvement of operations aimed at recovery, reuse and recycling as well as preventive measures to reduce waste at source and ultimately disposal as a requirement to remain in business.

Conveying the spirit of the majority of the respondents, the Operations Director of one company called it “smart economics” to implemented projects which included adjustments to water pumping and compressed air systems which reduced their annual energy consumption by 2 million kWh of electricity” and the Managing Director of a multinational company said the only option in a raw material crises situation like Nigeria’s is cleaner production which made investment in them compulsory.

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“We implement projects which included adjustments to water pumping and compressed air systems. As a result, we reduced its annual energy consumption by 2millionkWh ”(PD of Company # 2).

“We increase our energy efficiency which enhances responsible business practices. By adjusting boiler settings and repairing minor gas line leakage, we reduced natural gas consumption by 15%.”.. (OD of Company # 15)

“Cleaner production have given us a brand name which ultimately has led to increased product acceptability and profitability” (HRD of Company #2)

“We employ cleaner production to reduce components of the effluent that contributes to high BOD and effluent treatment cost. This reduces our operating costs.” (OD of Com #34) “We purchased of chillers and implement closed loop system to cool heated components which resulted in an 75% reduction in water use. (OD of company #2)

Figure 11: Cleaner Production Technologies Investment Led to Profitability

“We adopt eco-efficiency to reduce our operating cost by minimizing waste, conserve energy, reuse materials and focusing on lifecyclet”(HRD of Com # 14)

Conveying the spirit of the majority of the respondents, the Operations Director of one company called it “smart economics” to implemented projects which included adjustments to water pumping and compressed air systems which reduced their annual energy consumption by 2 million kWh of electricity”and the Managing Director of a multinational company said the only option in a raw material crises situation like Nigeria’s is cleaner production which made investment in them compulsory.

9.3 Finding 3: Positive Relationship Established between Adoption of Green Innovation and Sustainable Manufacturing Practices

Our data provide strong evidence of a positive relationship between adoption of greenovation mechanisms and targets and sustainable manufacturing practices. in the Nigerian Chemical and pharmaceutical industry. As illustrated in the quote tree in Figure 12 below, our interviewees stressed sustainability as a catalyst for greenovation to transform the way companies economise with resources and do business. As expected, all respondents stressed the impact of economic conditions on their investment decisions. More than 571 of the 4,389 codable moments representing 13 percent captured in our analysis reflected the consensus of our interviewees.

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“We adopt sustainable manufacturing practices to gain a sustainable competitive advantage. This encourages to seek new products and technologies” (MD of Company # 15)

“Sustainable manufacturing has brought us opportunities for green innovation. We have deployed a cutting edge technology that is environmentally friendly to produce long lasting competitive advantage .” (MD of Comp #1 4).

“Sustainable manufacturing enable us to decrease out costs by better waste and resource management practices. We have achieved this through reduced energy consumption” (MD of Company # 31)

“Sustainable manufacturing stimulates us to seek new approaches to production and resource use and creates competitive advantage for us” (HRD of Company # 2).

“Sustainable manufacturing is our catalyst for greenovation to transform the way we economise with resources and do business” (MD of Company # 2)

“Sustainable manufacturing is our source of greenovation to create environmentally friendly value chains to become more efficient”(PD of Company #22)

Figure 12: Adoption of Greenovation Led to Sustainable Manufacturing Practices

10.0 Discussion

Our findings challenge conventional expectations that energy intensive industries in developing markets operate amid highly pollution-intensive conditions, within weak or non-existent formal environmental regulatory frameworks and enforcement mechanisms, and with limited institutional capacity, inadequate information on emissions and nearly zero government-imposed “price of pollution.” We found the Nigerian chemical and pharmaceutical industry is fast adopting environment benign and cleaner technologies that are similar to those in developed countries and emerging economies in Asia.

Evidence from our analysis suggests that the adopted green innovation involves hardware and software innovation that is related to green products and processes, including the innovation in technologies that are involved in energy savings, pollution prevention, waste recycling, green products designs and corporate environmental management.

Evidence from our study supports some of these previously noted factors, but our findings include other drivers of greenovation that might be sector specific and also peculiar to tropical developing countries. While economic considerations, technology push and ownership characteristics, are all well demonstrated in our study as drivers of greenovation, have been previously acknowledged, raw material scarcity, regulatory push and management quality have not been.

Furthermore, the study provide strong evidence of a positive relationship between sustainable manufacturing and financial performance in the Nigerian Chemical and pharmaceutical industry. Positive relationship between sustainable manufacturing and green innovation was also established. Such sustainable manufacturing initiatives includes cleaner production, closed loop production, eco-efficiency and life-cycle thinking.

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11.0 Limitations

Several limitations to the study are noteworthy:

Our findings were based on a sample that was small, non-random and geographically limited. Our respondents represented only 35 out of a population of 364 chemical and related firms in Nigeria. In addition, about 90 percent of them are located in Lagos State. The institutional capacity for environmental regulation is an important determinant of firms' technology responses to the imperatives of environmentally sustainable industrialization. The institutional capacity for environmental regulation is difficult to quantify, and as such, could not be incorporated into the study.

Our findings appear to be satisfactorily robust and appreciably achieved the study objectives. However, quantitative research is recommended to verify the relationship between the decision of the firms’ investment in green innovation in developing markets.

12.0 Policy Implication of the StudyThe research will have implication for global greenhouse gas emission and climate change. The finding from the research have implications for both industry and government to better understand and determine how to move towards a sustainable future. This is critical in tropical developing countries like Nigeria characterized by lack of formal regulatory framework and enforcement mechanisms, limited institutional capacity and inadequate information on emissions.

The study has indentified low carbon pathways through green innovation for industrial development in Nigeria. This low carbon development will focus on the inter-linkages between different environmental dimensions – carbon, water and materials. It will also focus on the inter-linkages between water and different environmental dimensions – energy, materials and carbon. In the context of growing concerns about water, this will have great impact and appeal for country like Nigeria under water stress and likely to become further stressed because of climate change.

These low carbon pathways suggested (three Rs – reduce, reuse and recycle) is an integral part of the country’s industrial development strategy. These will provide a road map for reducing the environmental footprint of value chain in Nigeria. Finally, the study provide pathways for the factory of the future. This will include designing manufacturing plant to minimise environmental footprints in Nigeria.

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Appendix

Interview ProtocolSubject ID # _______________

Chemical and Pharmaceutical Industry

1. Tell me about yourself? How did you get involved with the chemical and pharmaceutical industry?

2. What are the technologies that you have adopted in your production processes?

3. What are the technologies that you have adopted in the management of the waste (solid, liquid and gaseous emission) from the production processes?

4. Describe the decisions that went into the most recent adoption of the technologies for your production processes and waste management?

5. Describe the attitude of your organisation to environmental regulation and compliance?

6. What is your understanding of sustainable manufacturing in the chemical and pharmaceutical industry?

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