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 a 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. 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

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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 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

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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 positive growth in terms of the economy. In order 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.

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 similar products (Marketline, 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).

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 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 aforementioned

regions (Marketline, 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 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

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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 & 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, with the exception of the years 2008 and

2009 when the global financial 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 in order 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 due to the fact that 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 reasons why customers have a pre-approved

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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 on 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 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

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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 employed in EMSCAI?

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

period 2011-2015?

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 in order to further enhance the

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

sustainability performance?

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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 in order to gather firm-level data to

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

Assembly, Inc.

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.

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 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 has in order to 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, various 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. 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.

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 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 in order 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 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.

In order 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

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the like. The proponents aim to identify the relationship between the sustainability performance of

EMSCAI and its long-term corporate financial performance through the use of 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 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 conducting an assessment of the company. The need for the managers to

have been in the company for at least 5 years as they are in a position 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). In essence, 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 and the exclusion of individual level

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data means that instead of surveying or interviewing each and every 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 results 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.

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.

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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 in order 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 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, in order 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

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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).

Global electronic brands have reorganized their supply chains in order 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

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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

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 have to 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

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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 & 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,

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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 (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 lead to lower raw material

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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 in order 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 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.

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 Buying firms therefore put great 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 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

20
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

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

considered to be 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

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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 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

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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 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

23
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 of 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.

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 particular 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 based on the sale

growth, provision of value added for the customer, adaption to changes and new trends.

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 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 have to 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

are able to resolve the contradiction between economic, social and environmental interests as well as to

create corporate interests in resolving them. In order to meet the requirements imposed by this condition,

a conscious strategy planning is needed that expresses the companys default position on the subject of

sustainable development.

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

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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 different types of sustainability strategies are:

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

environmental and social aspects in order 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).

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

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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 differentiate 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 are especially important (level 3 of sustainability maturity), which supports

the increase of credibility in society such as corporate citizenship, no corruption or cartel, health and

safety and also 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

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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

have to be derived in order 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; in particular, 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 in order to 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 in order 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 direct 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 has to show

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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 more or less 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 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 have to 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

29
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, 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 so as to effectively allow for the attainment of

corporate objectives and strategic intents (Sellitto, 2011). The Business for Social Responsibility (2002)

30
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. 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.

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

31
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 have to delegate.

Sustainability staff work across different 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, 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

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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 have to 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., 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

33
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 made significant 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).

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 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).

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 of

time, 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).

35
 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 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).

36
 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 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.

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Furthermore, to have a thorough view and evaluation of a companys sustainability, the performance

measures regarding strategy, structure, management systems, programs, and actions should also be taken

into account 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, this is why 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 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).

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 Many authors emphasize that corporate performance should not be viewed only on the basis 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 take into

account 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 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 in order to minimize the information loss of original KPIs. Weights

39
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

in order 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. In order 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, 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

40
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

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

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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 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 hard 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 different aspects of sustainability performance.

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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 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 in order 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 taking into account 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 in order 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

43
that corporate sustainability is a way to add value to a 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 taking into account 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).

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

44
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 takes

into account 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 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

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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 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

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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 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

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 Control & Instrumentation

Medical/Industrial Instrumentation

Automotive Electronics

Solar

2.13.1 Porters Five Forces Analysis

Factors Affecting Strength of Rivalry

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 new technology being

developed everyday, 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

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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 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 a huge 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 in order 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. In order for the buyers or customers to determine whether the substitute

49
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.

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 as of 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 goals

Product diversification into the other and objectives

market segments High utilities costs

Creation of unique products or Graft and corruption in some government

technologies which may be patented agencies

Advancements in technological innovation Laws and regulations for international

that speed up the manufacturing process business relations

Growing demand for surface mount Uncertain and volatile financial markets

technology and other digital products New administration is against

The Philippines is starting to become an contractualization as some employees are

appealing supplier country to foreign on contract-basis

customers

Increased demand for industry standard

compliant suppliers

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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 in order 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 in order 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 registered CS200400731. As

of 2014, the companys revenue was derived from 60% electronic parts, 15% from consumer electronics,

5% from semiconductors, 2% for automotives , 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

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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, in order 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 a number of 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 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 is able to become more efficient, effective

and also 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

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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 in order to be one team and to move as one team towards one ultimate 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 a

particular 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 new ways of

executing a project to shave of a few seconds of time for each assembly which eventually will add up and

save money 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 number of 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.

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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 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 in order 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

on 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.

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 In order 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 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

56
Japanese executives as Japan is one of the leading countries when it comes to technology, innovation, and

electronics.

2.14.2 Vision Statement

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 in order 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 in order 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 communication Focused product line mainly on Hard Disk

and decision-making faster Drives

Competitive pricing scheme Business model can easily be duplicated

Manual assembly capabilities with high Limited technical abilities and too

technology like Surface Mount comfortable with defined processes

Technology Machines Buyer demand is relative to fluctuations in

Ugnayan Sessions and streamlined the electronics industry

governance system for improved employee No bargaining power against customers

- management communication Customers supply raw materials and inputs

Full performance monitoring

No major safety and health issues since

58
 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 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.

59
 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. In order to obtain funds for investment in SMT

machines were are increasing in demand and to purchase more advanced equipment to 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 into 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

60
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 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

in order 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.

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 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.

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 by Competitive support Dependent
customer Facilities On-time pricing based on on customer
management delivery direct customer Certification wants and
Other suppliers to customer requirements and needs
are audited Human labor accreditation
management Word of mouth assistance
Compliance to
ISO standards Use of high
technology and
manual labor

Technology, and Systems Development

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In-house developed software for human resources, SMT machines, soldering equipment, 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.

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.

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 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 research 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 located 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 evaluated using an interval scale,

specifically a likert scale. The proponents would also use collect data 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. These 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

64
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 a criteria. However, if the company does decide to apply for credit

from big international firms, sustainability performance is a 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 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

67
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.

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

69
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

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 all of 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

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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

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.

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 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 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. From the point of view

of the selected company for our case study, supplier management is irrelevant. In its business model, the

72
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 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.

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 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

actually 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 mean 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:

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.

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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:

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 are able to achieve positive performance across all four factors

(economic, social, environmental and corporate governance) are more sustainable. (Docekalov &

Kocmanov, 2016).

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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 a higher degree of 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 criteria of new suppliers, and

noncompliant suppliers do not enter the supply base (Agan et al., 2014).

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 .

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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.

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.

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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.

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 plans 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 in order to avoid risks for the company to achieve

sustainable operations.

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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.

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 a given 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 evaluated during their life cycle

with the aim to improve them/total number of products they produce] 100.

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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 through the use of 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 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.

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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 |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

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 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.

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.

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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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 CHAPTER 4: METHODOLOGY

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 located 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 in order 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 an single-case embedded case study.

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 single case study design,

analogous to a single experiment design, meeting all of the conditions, can extend the theory and identify

the relevant set of explanations (Yin, 2013).

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 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 important 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.

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.

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 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 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 single 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

86
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.

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

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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

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

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Information Technology 1 1 4 6

Business Development 1 2 0 3

Total Quality Management 1 1 3 5

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

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performance in terms of sustainability strategy evaluation, sustainability structure evaluation, and

sustainability system evaluation.

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 main 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 common 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 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

91
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

Item-Total Statistics

Scale Mean if Item Scale Variance if Corrected Item - Cronbach's Alpha if

Deleted Item Deleted Total Correlation Item Deleted

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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

Q15 76.90 388.095 .877 .954

Q16 76.90 413.042 .503 .957

Q17 76.65 403.713 .717 .955

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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

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

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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 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

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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 single 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 a sample to determine whether the proposition is true (Hak & Dul, 2009). In

this paper in particular, 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

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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 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 different 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 in order 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 as long as 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

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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.

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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