Global supply chain integration, financing restrictions, and green innovation. Analysis based on 222,773 samples

• Published date: 14 May 2018
• Date: 14 May 2018
• Pages: 539-554
• DOI: https://doi.org/10.1108/IJLM-03-2017-0072
• Author: Malin Song,Mei Chen,Shuhong Wang
• Subject Matter: Management science & operations,Logistics

Global supply chain integration,

financing restrictions, and

green innovation

Analysis based on 222,773 samples

Malin Song

Anhui University of Finance and Economics, Bengbu, China

Mei Chen

Nankai University, Tianjin, China, and

Shuhong Wang

Ocean University of China, Qingdao, P.R. China and

Marine Development Studies Institute of OUC,

Key Research Institute of Humanities and Social Sciences at Universities,

Ministry of Education, Beijing, China

Abstract

Purpose –The purpose of this paper is to analyze the influence that the financial restrictions of Chinese

enterprises exert on their green innovation abilities with their increased integration into the global supply

chain (GSC).

Design/methodology/approach –This study uses customs, import, and export data for 222,773 Chinese

enterprises and examined them by ownership type, capital density, and degree of pollution.

Findings –The results show that the deeper the integration into the GSC, the looser the financing

environment would be, and the stronger the green innovation abilities of the enterprises.

Practical implications –The findings suggest that China should step up privatization of state-owned

enterprises, increase government subsidies to private enterprises, and loosen their financing restrictions to

address the recent economic decline in the country and ensure smooth and fast economic growth.

Originality/value –This paper is one of the first of its kind to develop and empirically analyze the

relationship between the GSC and the financing restrictions and their determinant factors in China.

It uniquely contributes to help the authors find approaches to constructingChina’s green innovation and has

far-reaching implications for other developing countries.

Keywords China, Green innovation, Decision-making, Modelling, Global supply chain, Econometrics,

Financing restrictions, Private enterprises

Paper type Research paper

Introduction

With the deepening integration of the world economy, China has become increasingly important

in the world factory. Global resource allocation led by transnational companies hastened the

emergence of new production modes and patterns, such as internationalized production,

processing trade, and outsourcing. A new international division of labor and trade system based

on global supply chains (GSCs) has gradually formed (Humphrey and Schmitz, 2000).

Enterprises in each country switched from trading goods, as in individual production,

processing, and export to “task trade”(Escaith and Inomata, 2011). This significantly changed

the understanding of enterprise internationalization in international trade theories. By virtue of

rich labor force resources and a comparatively thorough infrastructure and industrial system,

China gradually became the largest trading nation and the world factory in the GSC. However,

due to the lack of core technologies, weak industries, resource waste, and serious environmental

damage, manufacturing enterprises in China are facing lock-in at the lower end of the supply

The International Journal of

Logistics Management

Vol. 29 No. 2, 2018

pp. 539-554

© Emerald PublishingLimited

0957-4093

DOI 10.1108/IJLM-03-2017-0072

Received 19 March 2017

Revised 24 April 2017

3 June 2017

Accepted 8 June 2017

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/0957-4093.htm

539

Global supply

chain

integration

chain. Hence, how to upgrade Chinese manufacturing enterprises comp rehensively in the GSC

has become the key task to ensure future sustainable development.

A number of papers in the International Journal of Logistics Management have focused on

the GSC. Sangari et al. (2015) demonstrated the stimulative effect of supply chain integration

(SCI) on knowledge management, using data on 78 Iranian manufacturers in the mechanical and

engineering industry. The higher the supply chain dynamism, the more stimulative is the effect

of SCI on resource flow among enterprises (Lee et al., 2016). Sabet et al. (2017) tested the effects of

SCI on innovation and transformation in industries. The higher the degree of SCI, the faster is

the innovation rate of enterprises. By this yardstick, China is in the stageoffastdevelopment.

Therefore, enterprises participating in the GSC are bound to be highly motivated in innovation.

However, such innovations are related to only productive technologies. Green technology cannot

be shown to stimulate innovation. Besides, although many scholars have researched the

uncertainty about SCI (Kim and Chai, 2016; Aitken et al., 2016), its influence on information

technology (Tseng and Liao, 2015), and the effects on comparative advantage (Mellat-Parast and

Spillan, 2014), no study has examined financial restrictions on enterprises.

China now faces two problems. One is its weak financing ability, and the other is

resource waste and environmental damage. International markets urge China to enhance

environmental regulations, which will greatly affect the rights of enterprises to discharge

pollution (Raymond et al., 2001). In this paper, we will try to clarify two questions:

RQ1. Whether a deep participation in the GSC can motivate enterprises to engage in

energy saving and emission reduction.

RQ2. Whether enterprises would increase their inputs for green technology research and

development (R&D) given a proper financing environment.

This paper researched the above two questions based on data for 222,773 manufacturing

enterprises. The rest of the paper is structured as follows. The next section provides implications

for research and a literature review. The third section describes the model and index selection.

The fourth section presents the results, and the fifth section concludes the paper.

Implications for research

As China is now the second-largest economic entity in the world and a country with high

emissions, the traditional extensive production mode based on high inputs, energy

consumption, and emission is no longer suitable given the imperatives of environmental

protection the world over. Such a mode of production that operates at the cost of the

environment cannot realize sustainable development. China needs to improve its energy

saving and emission reduction ability as soon as possible and gradually adopt a production

mode based on low energy consumption and emission to improve its position in the GSC.

Wang and Song (2017) considered that improving energy saving and emission reduction

technology, that is, green technology, would definitely increase enterprises’production cost

and reduce yield,imposing a burden on the enterprise.Enterprises that would like to maintain

their original yields need governmental subsidies or loans from financial institutions to

compensate for the loss from R&D activities. However, in China, only increased costs

attributableto environmental regulationswould be subsidized by the government,rather than

enterprises’R&D activities, even those intended to improve energy saving and emission

reduction abilities. Besides, the reduction in outsourcing orders for Chinese enterprises is due

to the selection of foreignenterprises. Hence, if China’s manufacturing enterprises would like

to upgrade green technology, their only option is to resort to financial institutions.

Enterprises participate in the GSC by relying on external capital, commodity services require

well-developed financial institutions and markets, and delayed the development of finance

would seriously influence the development process of trade and the economy (Levine, 2002).

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