Business Strategy and the Environment

Bus. Strat. Env. 22, 6272 2013

Published online 14 May 2012 in Wiley Online Library
(wileyonlinelibrary.com) DOI: 10.1002/bse.1738

Environmental Strategies, Upgrading and

Competitive Advantage in Global Value Chains
Valentina De Marchi,1 Eleonora Di Maria1* and Stefano Micelli2
1

Department of Economics and Management Marco Fanno, University of Padua, Padova, Italy
2
Department of Management, Ca Foscari University, Venice, Italy

ABSTRACT
The literature is increasingly focusing on how rms are improving their environmental
performances and promoting green strategies to transform environmental constraints into
new drivers of competitive advantage. This paper contributes to the literature by expanding
knowledge about environmental management at the value chain level by exploring the
concept of environmental upgrading and its implications in terms of economic upgrading
and greening of industries. Leveraging on the global value chain and environmental managerial
literature, the paper develops an integrated theoretical framework to analyse environmental
upgrading trajectories and their implications in terms of rms green strategies based on case
studies in the Italian home-furnishing industry. Empirical evidence suggests that rms develop
green strategies to reduce environmental impacts while achieving economic benets and
competitiveness, which may be internal to the rm but also apply to value chains, with different
implications in terms of bargaining power and value appropriation. Copyright 2012 John
Wiley & Sons, Ltd and ERP Environment.
Received 13 February 2012; revised 10 April 2012; accepted 17 April 2012
Keywords: sustainability strategies; global value chains; upgrading; home furnishing; eco-innovation; environmental management

Introduction

N RECENT YEARS, THE IMPORTANCE OF THE ENVIRONMENTAL AGENDA FOR INDUSTRY HAS BEEN RISING EXPONENTIALLY AT

the international level. Academics and practitioners are increasingly focusing on which strategies and which
management practices are implemented by rms to reduce their environmental impacts (Kolk and Mauser,
2002; Lucas, 2010). However, in order to understand the trajectories of the greening of industries, it is no
longer sufcient to focus on single rms: the de-integration of production and the integration of trade that is
increasingly characterizing global economies call, instead, for a value chain (VC) perspective (Feenstra, 1998;
Geref, 2005). Since an increasing number of activities are outsourced or delocalized to reduce their impact on
the environment, rms increasingly need to deal with activities extending beyond their boundaries. In this view,
the theoretical framework of the global value chain (GVC) can offer important theoretical support that can enrich
a rms strategic approach to environmental management, due to its analysis of upgrading processes within
VCs (Geref, 1999; Ponte and Ewert, 2009). We maintain that a more integrated approach between strategic

*Correspondence to: Eleonora Di Maria, Department of Economics and Management Marco Fanno, University of Padua, Via del Santo, 3335125
Padova, Italy. E-mail: eleonora.dimaria@unipd.it
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management and GVC literature could enrich the comprehension of the economic implications of environmental
management at the rm and industry level, and also internationally.
This paper sets out to ll the gaps in the literature by investigating the possibility of achieving combined
economic and environmental upgrading in a globalized setting, by coupling the strategic management and the
GVC perspectives. In the next section, the paper presents the managerial studies focusing on business approaches
to the environment followed by the GVC theoretical framework. Then we propose an integrated theoretical
framework leveraging on the literature on green strategies and on GVCs and, in the nal section, we apply it to the
analysis of successful case studies in home-furnishing industries in Italy. Conclusive remarks are then discussed.

Green Strategies
The contributions of academics and practitioners to the importance of rms in controlling the environmental
performance of production activities have mushroomed in recent years. More and more their analyses are asserting,
on the one hand, that it is important that rms consider the activities performed by their VC partners, and on the
other that those activities may represent a source of innovation and competitive advantage rather than a burden (e.g.
Lee and Kim, 2011).
The managerial literature is increasingly addressing the potential link between economic and environmental
benets or, more generally, the benets to society. Contributions focusing on corporate social responsibility
(CSR) have highlighted why and how multinationals are increasingly responding to their stakeholders expectations
in considering the environmental and social impacts of their and their suppliers activities. Similarly, the strategic
management literature has focused on the different economic advantages and the different strategies that rms
can implement to achieve their social and economic goals. Environmental management strategies are usually
distinguished by the intensity of investment to reduce the environmental impact and the attitude towards pressure
from external stakeholders (Buysse and Verbeke, 2003). Similar classications of rms environmental strategic
stances have been elaborated based on how deeply environmental issues are integrated within a rms overall
strategy and how many decision areas they affect. Lee and Rhee (2007) expand the previous classications by
explicitly considering the activities of the VC partners in the strategy-setting process.
If the majority of the contributions on environmental strategies simply describe rms attitudes and actions
without considering the economic motivations of their activities, Orsatos contributions have focused specically
on the competitive advantages sought by rms through environmental improvements. Based on Porters (1980)
competitive advantage models, which identify low costs and differentiations as two generic types of competitive
advantage, Orsato (2009) proposed four general types of competitive environmental strategy, depending on the
rms competitive focus and its competitive advantage. If the focus is on organizational processes, eco-efciency
and strategies beyond those of compliance leadership are available to rms. Eco-efciency suits companies that compete by offering lower costs and ensuring economic gains while also reducing the impact on the environment, and
reducing waste and the use of resources and energy along the VC. When the competitive advantage that the
company seeks is differentiation, strategies beyond those of compliance leadership will be a rather better bet, enabling
them to leverage on the nal markets, thanks to eco-labelling or marketing instruments that make consumers aware
of their greening efforts. If the rms focus is on products and services, the strategies identied by Orsato (2009)
are eco-branding and environmental cost leadership. Eco-branding is a strategy in which the company seeks to
differentiate itself from its competitors by offering eco-friendly products and services. The premium price the
consumer may be willing to pay for those products will represent a clear economic advantage for those rms that
produce products with less harmful raw materials or in a more environmentally sound manner. The environmental
cost leadership strategy is that by which the rm intends to compete on lower prices but it implies more radical
modications than the eco-efciency strategy, by completely revisiting the products or services and even entering
new industries. A rms characteristics such as size and managers attitudes, the structure of the industry and
the types of markets will likely affect the choice between one strategy and the others (Lee and Rhee, 2007; Albino,
et al., 2009). An additional strategy is proposed within the general strategic approach of the blue ocean strategy,
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where the focus is on resetting the competitive landscape through an innovative strategic vision based on
environmental sustainability.
Despite the great contribution to the understanding of how rms can gain from the reduction of environmental
impacts, these works barely focus on the strategy implications of considering the activities of VC partners. Branching
from supply-chain management, green supply-chain management (GSCM) has addressed the topic of how to
integrate environmental thinking into supply-chain management, analysing the specic strategies of rms in
aspects such as eco-design, waste management and green operation, to improve the environmental performance of
their suppliers (Srivastava, 2007; Seuring and Mller, 2008). Those contributions highlight the pivotal role of
rms in fostering environmental improvements at their suppliers. They suggest that, in order to effectively enable
such changes in suppliers activities, these rms should enact knowledge transfers and technical cooperation on
innovation, which add to the reciprocal dependency, shifting from arms length towards more complex governance
structures (see, e.g., Geffen and Rothenberg, 2000; Simpson et al., 2007; De Marchi, 2011, 2012). Firms specically
those specializing in products for nal markets are asked to develop interactive relationships with their suppliers as
well as with other key players in the VCs from universities to other business service rms and nal users
associations to create and share new environmental knowledge and jointly develop green products or processes
(Geffen and Rothenberg, 2000; De Marchi, 2012).
However, those contributions very often dont consider the economic side of these environmental improvements,
lacking, in particular, in the analysis of the overall strategies of rms rather than single aspects (e.g. supplier
management), which is rather a strength of the managerial literature. Conversely, business studies lack the more
comprehensive analysis of VCs which extend the focus to external stakeholders, including customers and suppliers
other than regulators, demonstrated to be, in many contributions, the key players in encouraging environmental
strategies (Buysse and Verbeke, 2003; Chan, 2010). More specically, given the high fragmentation of production
and its global extension, the point is to understand how rms may reduce the impact of all the activities performed
to realize their products, including those of suppliers and sub-suppliers, therefore moving the focus from rm-level
strategies to VC-level strategies. On top of that, both types of article fail to capture the specics of the geography of
production: a thorough analysis of environmental dynamics within VCs cannot take away the need to consider the
globalization of the production and consumption systems. Globalization poses specic challenges to rms that aim
to reduce the impact of their products on the environment, adding to the complexity of coordination because of
increased distances and the differences in business habits and environmental legislation, especially when it comes
to trade between rms from the North and the South. The more production is fragmented among globally dispersed
actors, the more rms are compelled to shape their environmental strategies, explicitly considering the global
dimension of production, both to reduce the environmental problems linked specically with global logistics and
production and to take advantage of the economic opportunities of the international division of labour. In this paper,
we suggest that the use of the GVC framework may well complement these insights from the GSCM and managerial
literature, lling the existing gaps in our knowledge of environmental and economic upgrading in a context of
fragmentation of production at a global level, allowing an understanding of which strategies rms may implement
to reduce the impacts along the entire VC.

Competing in Global Value Chains

The GVC approach, which has developed since the mid 1990s, is emerging as a key tool in analysing the division of
labour between independent actors from developed and developing countries, focusing on the role of global players
in shaping the development trajectories of such chains, their governance structure and innovative activities (Geref
and Korzeniewicz, 1994; Geref, 2005; Geref et al., 2005). The GVC framework is primarily for understanding
the nature and the content of inter-rm linkages that span international borders, starting from the recognition of
a de-integration of production, moving from a model of vertically integrated rms to the development of complex
forms of coordination between independent globally dispersed actors. VCs are analysed within four main dimensions: (i) an inputoutput structure, which encompass all the activities of the VC; (ii) a geographical conguration,
giving an account of where activities are located; (iii) an institutional context, encompassing not only government
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and non-government agencies but also the rules that govern society and the economy; and (iv) a governance
structure (Bair, 2009).
We argue that the GVC would be a useful framework for understanding the possibilities of jointly achieving
economic and environmental improvements, for several reasons. First of all, the GVC framework enables one to
focus on the role of rms in shaping the development of VCs and governing the ow of products and knowledge.
From the earliest contributions (Geref and Korzeniewicz, 1994; Geref, 2005), this literature has focused on the
role of lead rms as key drivers in the formation of globally dispersed and organizationally fragmented production
and distribution networks (Geref et al., 2005). The rise of global and regional production networks signicantly
affected developing countries, with positive and negative impacts on their production and consumption patterns.
Lead rms proved to be key actors in this process, by managing the GVCs that represent a signicant proportion
of global trade and by imposing standards in their industries. By requiring all suppliers in developed countries to
comply with environmental standards, and by transferring technology and knowledge, rms may also decisively
contribute to their suppliers environmental improvements and beyond (Jeppesen and Hansen 2004). If it is argued
that environmental upgrading in the North is mainly driven by stakeholders and competitive pressures, the market
and the lead rms have the potential to be the main drivers of the change in the South (Jeppesen and Hansen 2004).
The GVC literature also seems an appropriate framework in understanding environmental upgrading because it has
an explicit focus on activities spanning international borders, yet acknowledges the importance of local and national
institutions and of geographically rooted competitive advantages.
Furthermore, many of the theoretical and empirical contributions of the GVC literature have explicitly focused on
the opportunities, in terms of learning and market access, for developing countries suppliers as they participate in
VCs led by rms from developed countries, referred to as upgrading (Geref, 1999; Ponte and Ewert, 2009).
Economic upgrading has been dened as the process by which economic actors nations, rms and workers
move from low-value to relatively high-value activities in global production networks (Geref, 2005). Therefore,
upgrading implies ascending the value ladder, moving away from the low road in which competition is high
and entry barriers are low and which does not represent a sustainable strategy in the long run (Giuliani et al.,
2005). Four typologies of economic upgrading have been identied (Humphrey and Schmitz, 2002):
1.
2.
3.
4.

Process upgrading, transforming inputs into outputs more efciently.

Product upgrading, moving into more sophisticated and advanced product lines.
Functional upgrading, performing higher value-added activities, such as marketing or logistics.
Inter-sectoral or chain upgrading, moving towards more technologically advanced chains.

The main GVC argument is that upgrading, in any of these forms, may be successfully stimulated by vertical
interaction with lead rms, more than or other than by horizontal interaction with rms in the same position in
the chain (Ponte and Ewert 2009), since suppliers may learn how to improve their production processes, attain
consistent and high quality and increase the speed of response (Humphrey and Schmitz, 2000, 12). If, until
now, the literature has focused mainly on economic upgrading (Geref, 2005), it has recently been enlarged to also
take into account the social dimension of upgrading, considering the impacts of the inclusion in GVCs on the
entitlements of workers and the quality of employment, and inquiring into the conditions leading to a joint
improvement in the competitiveness of rms and the social conditions of the workers (Barrientos et al., 2011).

Green Strategies, Environmental and Economic Upgrading: an Integrated Framework

We aim to further the GVC analytical tool to include the environmental dimension. In this setting, we dene
environmental upgrading as the process by which economic actors move towards a production system that avoids
or reduces the environmental damage from their products, processes or managerial systems. We argue that it is
possible to envision different types of environmental upgrading, similar to those identied in economic upgrading.
Environmental upgrading involves, in fact, different areas in which companies may upgrade to lower their
ecological footprint, such as their greenhouse effect, and the consumption of soil or other resources at a higher rate
with respect to natural regeneration or production.
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We assert that the managerial literature on environmental strategies can incorporate the framework of
GVCs to improve, towards a higher level, our understanding of the consequences of green strategies. In
our view, the two approaches can be considered as complementary: by adopting one of the green strategies
described by Orsato (2009), a rm can not only redesign its competitive advantage, but can also upgrade
its position to that to which its VC belongs and inuence the activities of its suppliers and the other VC
partners. In this section, we will demonstrate how the two approaches may combine; matching each
upgrading typology with a rms green strategy, enabling an understanding of how such strategies may apply
to the greening of VCs. The power of the GVC framework is that it enables the capturing of the overall
improvements in the chain, without limiting them just to the changes in the focal rms activities (De Marchi,
2011). In adopting a green strategy in terms of both products and processes the rm has to consider how
the entire VC impacts on the environment. This means considering not only suppliers, but also retailers,
customers, technology and machinery providers, as well as related industries that will be involved in the
production of the green product or in the new green process put in place.
In our view, process upgrading dened in the GVC literature in environmental terms can refer to the
strategies of eco-efciency. A rm can transform its internal processes by redesigning them on the basis of
new environmental standards or goals. The strategy dened as beyond compliance leadership can also refer
to the process-upgrading framework, but it may also induce the rm to develop new functions and play a new
role in its VC, therefore pointing to a functional upgrading. In the rst case, this process will result in
improved efciency; in the second in a competitive advantage based on differentiation, that is, a better
corporate image. Product upgrading dened in the GVC literature in environmental terms can occur in
terms of the strategic approach of eco-branding or environmental cost leadership. No matter the strategic
focus on costs or differentiation, through one of those two strategies a rm can increase the value achieved
within the VC and reinforce its competitive position. By considering the corporate strategy option, environmental cost leadership can also affect those industries in which the rm competes (inter-sectoral upgrading).
The two upgrading options, functional and inter-sectoral, can, in fact, also refer to the corporate strategy
options. The environmental sustainability approach not only transforms the business the rm competes in,
but can also modify the rms approach to its competitive arena, by opening up new business opportunities
to cope with the sustainability requirements.
Figure 1 summarizes how environmental upgrading in VC and the rms strategies can match the framework we propose. Those typologies should not be considered to be exhaustive or mutually exclusive, but are
useful in developing a theory on environmental upgrading strategies in GVCs. In fact, to use the words of
Orsato (2009), there is an undeniable relationship between organizational processes and products, and, by
implementing the same strategies, the rm can pursue different forms of upgrading at different times. The
concept of upgrading can help the rm to understand the opportunities related to the adoption of an environmental strategy, where the denition of the competitive focus (organizational process versus products or
services) becomes the second strategic decision to be made. By coupling economic and environmental
upgrading, a rm can increase its power within the VC due to its new competences, market relationships
or technology control, moving up in the VC and in the value captured by the rm. At the same time, by
implementing a sustainability strategy, the rm affects the greening of its VC, modifying its relationships with
other players in the VC (i.e. pushing suppliers environmental upgrading or affecting buyer selection).

Figure 1. The proposed framework for environmental upgrading strategies

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Case Studies in the Italian Home-furnishing Industry

To test our framework empirically, we focused on the home-furnishing industry (concentrating on Italy), which
seems an appropriate setting for reasons concerning both the economic and the environmental dimension. On
the one hand home-furnishing is among the biggest low-tech industries worldwide (International Trade Center,
2011); in addition to the core furniture activities, a number of supporting industries are to be considered within
this industry, spanning from textiles to chemicals. It is a buyer-driven industry (Kaplinsky et al., 2008): if VC steps
are traditionally fragmented among different rms, starting in the late 1990s technological innovations have
allowed a division of labour at the global level, which has resulted in a steep increase in the international furniture
trade. The majority of furniture production takes place in developed countries Italy is the rst country in EU and
the third worldwide for furniture production (Csil, 2010) but this share is fast shrinking to the advantage of
transitional and developing countries mainly China, which toppled Italy in 2005 to gain the number one spot
as world leading exporter.
On the other hand, at least as far as developed countries are concerned, eco-friendly practices are slowly
becoming mainstream in this industry, more diffused than in the majority of the others industries, thanks to the
actions of policy-makers and high consumer awareness. In Italy, an increasing number of home-furnishing rms
are attempting to overcome the loss in competitiveness related to the competition from Asian countries and the
recent recession crisis through the implementation of green strategies. This evidence is supported by the growing
number of ISO14001 certied furniture rms, which increased by 29.4% in 2009 with respect to the previous year
(Federlegno-Arredo, 2010).
In the following, we present four case studies, one for each environmental upgrading strategy identied above,
which aim to illustrate the proposed framework and how the strategies may interact in an empirical setting
(Siggelkow, 2007). The narrative is based on interviews with entrepreneurs and managers of rms all located
in the same geographical area, north-east Italy that have successfully reduced their environmental impacts while
achieving economic advantages. Given the aim of developing theory on green strategies, we deliberately selected
rms that put the environment at the core of their businesses and of their communication efforts. In other words,
we selected frontrunners in their industry for the development of successful green strategies.

Friulintagli: Eco-efciency and Process Upgrading

Friulintagli specializes in the production of paper and veneer wrapped proles and doors, furniture elements and
at-packed furniture. Established in 1968 as an artisan furniture manufacturer, it now employs 850 workers in
the development and production of large quantities of low-cost products for mass retailers. Friulintaglis green
strategy was initially a response to the requests of one of its customers, IKEA, which was concerned with increasing
the environmental performance of its VC, but it is now becoming more proactive. Its willingness to take on the
sustainability challenge reinforced its competitiveness with respect to Asian producers, which are targeting the
same segment and enjoying lower labour costs. Despite it increasingly substituting Asian suppliers for European
ones, IKEA has continued to increase its supply from Friulintagli, and business with IKEA now represent up to
70% of its total turnover and has motivated much of the recent growth of the company.
The company heavily invested in its production process to achieve environmental sustainability, which allowed
it to obtain process certications such as the international environmental process certication ISO14001, pursuing
an eco-efciency strategy. Friulintagli has optimized its logistics, improved its manufacturing efciency and
considerably reduced its production waste. Other than reducing the use of energy, it is increasing the share of its
energy coming from renewable sources. In order to achieve those environmental goals, it heavily invested in
equipment and machinery and revisited the way it manufactured its products. For example, it acquired photocellequipped machinery that enables it to reduce energy consumption by ensuring that machinery works just when
needed and it substituted machine engines and the existing lighting systems with more energy-efcient ones.
Furthermore, it replaced its existing boilers with more efcient ones, which produce lower emissions and use
recycled chips waste from the production process. Finally, it adapted its production process to use glues and
varnishes that are less toxic than the traditional ones. Collaboration with its main client, IKEA, was key in motivating
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the change and in effecting it. IKEA, in fact, supported this process by providing knowledge of the products, the
processes and the raw materials to be used. On the contrary, the company did not cooperate very much with its
suppliers if they did not ensure better logistic integration. The adjustments have been realized mainly internally
or in cooperation with the client and even the more environmentally friendly inputs were supplied through
arms-length market linkages rather than being co-developed in a relational partnership.
By reducing energy and materials used in the production process and improving the logistics and waste
management, Friulintagli reduced its ecological footprint while improving production efciency, which allow it to
remain competitive with respect to rms located in lower-cost countries and to increase its bargaining power with
respect to its main business customers.
ILCAM: Beyond Compliance Leadership and Functional and Process Upgrading
ILCAM is a group based in Gorizia, in north-east Italy, with subsidiaries in Slovenia and Romania, which specializes
in the production of furniture frontals and components. In 2009, the group employed 760 people and its turnover
was 99.6 million, realized mainly in foreign markets. For ILCAM as well environmental upgrading started as a
reaction to the requests of its customers mainly mass-market retailers in northern European countries, where
environmental awareness is relatively high.
Being a highly automated company whose competitive advantage is its ability to keep prices low, it opted for
an environmental strategy seeking a low-cost competitive advantage. It introduced several processes and
organizational environmental innovations, invested in more efcient machineries and optimized its production
processes. ILCAM revisited its logistical and packaging systems to reduce waste and the use of non-renewable
materials. Moreover, it modied its equipment to use water-borne varnishes, which are less toxic and polluting
than traditional ones, and substituted PVC and traditional glues with new materials which ensure lower levels of
formaldehyde emissions. To achieve those important results, the company invested heavily in the development
of new products and in more eco-efcient machinery and cooperated, but to a lesser degree than Friulintagli,
with clients. Again, this company did not cooperate much with suppliers. ILCAM is also an example of a case
of functional upgrading in that it performed more value-added activities with the purpose of reducing its
environmental impact. To comply with customers requests, the group decided to use Forest Stewardship
Council (FSC) certied wood, that is, wood from forests certied as responsibly managed. Since, at that time,
it was difcult to obtain the required quantities of FSC certied wood in the market, the company decided to
vertically integrate upstream by managing the forestry and sawmill functions through own subsidiaries in
eastern Europe. The ability of the rm to be competitive both on costs and on environmental performance
enabled it also to achieve important new customers, like IKEA.
ILCAM can be considered to be an example of both process and functional upgrading, achieved through a
beyond-compliance leadership strategy. Its green strategy had a profound impact on its VC organization, since it
fostered vertical integration, which then allowed the rm to gain important economic advantage with respect to
competitors. It is interesting to note that the new activities performed to improve environmental performance were
upstream in the VC (raw materials) rather than downstream (marketing and design), which is more common in
cases of economic upgrading. The inclusion of environmental concerns in the business activities, in fact, may spur
rms to become directly involved in the management of raw materials and the initial steps of their VCs.
Valcucine: Eco-branding and Product Upgrading
Valcucine, based in north-east Italy, is a company specializing in high-end and design-driven kitchens and
parts thereof. It is a small yet very successful enterprise; in 2009, it employed 171 people and had a turnover of
36.4 million, almost half sold in foreign markets. Thanks to the attitude of the entrepreneurs, attention towards
the reduction of the impact of production and consumption on the environment has not only characterized the
rms activities since its foundation, in 1980, but has grown over the years to become one of its core competitive
advantages, strongly built into its corporate culture and brand.
The strategy implemented by Valcucine is that of eco-branding: to differentiate from competitors thanks to their
environmental features and therefore ask for a premium price, the rms is continuously introducing innovations,
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often radicals ones, to increase sustainability, ergonomics, usability and the aesthetic design. Since it has
outsourced the majority of its production activities to local suppliers, it invests mainly to reduce the environmental
impacts of product rather than processes, thanks to its design and R&D effort. Valcucines innovations allow
the reduction of the environmental footprints of suppliers at production (e.g. the company designed its product
to be made from recyclable and recycled raw materials, to reduce the toxic emissions produced by varnishing
and to use less energy and materials in the course of production) and of its customers at use (e.g. reducing
emission thanks to the highly efcient electronic appliances and lighting systems installed in the kitchens
and the use of resources thanks to longer-than-usual product durability). Among its most interesting and
ground-breaking product innovations is the development of kitchen doors, worktops and base units that allow a
reduction of up to 70% in the raw materials used, which is now used in the majority of its products. Similarly,
it developed a 100% recyclable kitchen, thanks to the use of recyclable materials glass and aluminium and
to an innovative design that facilitates disassembly. The majority of those innovations were developed in close
cooperation with suppliers.
Valcucine is a case in point of how a rm can upgrade by introducing new products, reducing the
impacts on the environment while achieving economic advantages through a differentiation strategy. It is
also as a result of its investment in the reduction of the environmental impacts of its products and its ability
to communicate this effort that the company achieved and sustains a good market position. Thanks to
the careful design and the R&D effort, the environmental upgrading takes place not only at the lead rm,
but also at the suppliers, which are asked to produce products more efciently or to employ less-polluting
raw materials.

Aqual: Environmental Cost Leadership and Product and Inter-sectoral Upgrading

Aqual is an Italian-based group, formed by 12 companies located from North America to Asia, specializing in
the production of nylon yarns for carpeted oors. In 2009 the group had a turnover of 337.9 million. It started
to develop a green strategy in the mid 1990s, driven by the requests of its main client, Interface a US-based
multinational company leader in the production of carpets and products for the residential market.
Aqual invested in many directions to reduce the environmental impacts of its business. The rst step to
achieve environmental benets was to lower pollution, reduce the use of resources and invest in energy
production and management through a co-generation plant that allowed the company to manage energy more
efciently. Just after, the company invested in improving the environmental benets of its products. In particular, Aqual developed a new product line the yarn Econyl which reduced the use of raw materials and
product pollution at the end of the products life. Econyl, in fact, is made by recycling carpets that are to be
disposed of. Those old carpets are high in pollutants and difcult to transform because of the chemical
materials used several years ago to produce them. Through its R&D, Aqual developed a new recycling
process that allows the company to obtain safe new inputs for new polyamide, containing 70% post-industrial
recycled materials, which also entails reduction in the use of water and energy and lower CO2 emissions to be
manufactured. Cooperation with the client was important in motivating the change towards greener production and in collecting the materials to be recycled, yet the effort to develop the new technology was carried
out internally. Many of Aquals customers Interface among them shared this sustainable vision and
developed entirely new carpet lines based on this new recycled material, and new customers started to buy
from the company because of its green approach. This technological innovation enabled Aqual to acquire
bargaining power within its VC, getting the major and for some product lines even the only supplier
for several of its more important customers.
Such a case study can be considered to be a successful example of product upgrading in terms of environmental cost leadership, where the company developed a completely new product pushed by a new environmentally friendly approach. At the same time, it can also be explained as a case of inter-sectoral upgrading. The
development of such a new product drove Aqual to enter into a new sector the recycling industry since
the company had to design a reverse supply chain for used carpets as well as investing in new technologies
and processes for recycling.
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Discussion
Table 1 summarizes the main ndings emerging from the four cases presented, highlighting how the GVC
perspective can increase the understanding of economic dynamics related to sustainability. On the one hand, in fact,
the rms analysed implemented alternative strategic paths toward economic and environmental sustainability,
consistent with strategic management theories. On the other hand, those environmental trajectories give rise to
multiple forms of upgrading processes and changing governance structures within the VC, which change according
to the position that the rm holds within its VC.
Through the analysis of four green Italian companies that differ in size, product specialization, business model
and VC positioning, we have shown that coping with environmental constraints and transforming them into
opportunities is a competitive behaviour that is viable for different types of rms, at least in industries like homefurnishings, where environmental awareness is pretty high. The four case studies show different possible directions
toward sustainability, with multiple impacts on the rms competitiveness as well as on the VC.
In all the cases except Valcucine, large customers (like IKEA and Interface) have played a fundamental role in
initiating and supporting environmental management, but in a second phase suppliers have also shown the ability
to proactively approach sustainability and upgrade autonomously. Firms adopting a sustainable strategy coherent
with clients requests increased their power within the VC, becoming less substitutable to that client even with
respect to suppliers located in countries enjoying lower production costs (see, e.g., Friulintagli). At the same time,
pursuing such strategies, and the consequent development of new competences, has allowed suppliers to gain new
customers in the same market or even enter new ones (see, e.g., ILCAM and Aqual). The case of Valcucine the
only rm that is selling to the nal clients instead of business clients pointed out that also the entrepreneurial
attitude and strategic intent can drive the development of an effective environmental strategy.
It is interesting to notice that the rms green actions were meant to reduce environmental impacts both inside
and outside its boundaries, namely at suppliers and at customers. Our empirical evidence suggests that green
strategies allow the achievement of economic benets concerning both the rms operations and market strategy
being the reduction of production costs, the improvement of the competitive position, the entry into new markets

Firm
Friulintagli
Green strategy

Eco-efciency

ILCAM
Beyond compliance
leadership
Functional and process
upgrading
Clients strategies

Form of
Process upgrading
upgrading
Drivers of green Clients strategy
strategy
Impacts on
Enhanced efciency, reduction Improved internal
competitiveness of product costs
efciency, new clients
Impacts on the
environment

Value chain
implications

Valcucine

Aqual

Eco-branding

Environmental cost
leadership
Product upgrading
Product and inter-sectoral
upgrading
Entrepreneurial vision Clients strategies
Strengthened market
positioning

Enhanced cost reduction

and entry into new
markets
Reduced use of energy, Use of recyclable and Energy savings, emission
Reduced use of energy and
substitution of polluting certied raw materials, reduction, recycling of
inputs, reduced emissions
removed materials
de-materialization,
(glues and varnishes), waste materials, use of FSC
recyclability
certied wood
management
Increased bargaining power
Upstream vertical
Upgrading of strategic Increased bargaining power
and deeper relationship
integration
suppliers (thanks to
and deeper relationship
(cooperation) with client
design and knowledge (cooperation) with client
sharing), deep
relationships

Table 1. Green strategies, upgrading and greening of value chains

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Bus. Strat. Env. 22, 6272 (2013)

DOI: 10.1002/bse

Environmental strategies, upgrading and competitive advantage in GVC

71

and its VC position increasing bargaining power towards VC partners or the entrance into new VCs. This
evidence conrms the utility of the GVC framework to understand the impact of green strategies. Green strategies
altered the governance of the VC not only by stimulating the strengthening of relations among actors for the
development of green innovations but also, in the case of ILCAM, spurring vertical integration. In particular,
cooperation with upstream partners emerges as being important mainly for product upgrading, whereas process
upgrading involves rather downstream cooperation.

Conclusions
In this paper, we have proposed an integrated theoretical framework to understand different trajectories that may
lead rms to jointly achieve economic and environmental improvements. By enlarging the extant literature, which
studies environmental strategies from just the rms point of view, we developed a framework that allows
understanding the greening in a context of disintegration of production and integration of trade (Feenstra,
1998). In particular, leveraging on the managerial literature on environmental strategies and on the notion of
upgrading developed within the GVC framework, we identify four environmental upgrading trajectories for a VC
that may correspond to four rms green strategies, supporting the evidence with case studies in the Italian
home-furnishings industry. We suggest that, rather than being in contrast, such perspectives should be considered
as complementary frameworks to be adopted to investigate environmental management directions even beyond
rms boundaries.
Our contribution aims at including the VC approach in strategic management analysis, exploiting the GVC
theoretical framework, which offers useful conceptual tools to understand upgrading driven by inter-rm relationships. Our theoretical assessment can provide a better understanding of the impacts of a rms implementation of
its sustainability strategies at the VC level by offering a more comprehensive view of the roles of the players in
the VC (distributors/buyers, manufacturers and suppliers) in greening the VC and on the governance implications
of such a shift. Moreover, since attention to the environmental domain in GVC studies is still limited, our study
proposes an additional level of analysis in this theoretical approach that could help scholars in investigating the
internal dynamics of GVC from an environmental viewpoint as well.
Future research should improve this study by investigating the impact of the geographical dimension of the
VC on the green strategic options of rms and the related environmental upgrading trajectories, and investigate
the impact of those strategies on the governance of the VC. Furthermore, in-depth studies and quantitative research
may improve this study, which is exploratory in nature, by better characterizing each of these upgrading trajectories,
better assessing the impact along the VC and identifying the conditions under which we may expect one strategy
or the other to arise.

Acknowledgements
The authors are grateful to Stefano Ponte, participants to the 3rd Duke-VIU International Summer Research Workshop, Venice,
1315 July 10, to the Twelfth International Conference of the Society for Global Business and Economic Development, Singapore
Management University, Singapore, 2123 July 2011, and the two anonymous referees for useful comments on previous versions
of this paper. We thank the interviewees for their helpfulness. The usual disclaimer applies.

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