Supply Chain Governance Mechanisms, Green Supply Chain Management, and Organizational Performance

Abstract

While firms understand that implementing green supply chain management (GSCM) is important, they seem uncertain about how to manage their green initiatives by looking beyond their own facilities. Building a green supply chain requires the participation of all partner firms across the supply chain. However, partner firms are different in size, situation, capabilities, and even industries. Thus, encouraging them to participate in green initiatives is difficult. Many small and medium enterprises (SMEs) hesitate to comply with green initiatives as they require a substantial amount of investment. This study empirically examines the causal relationship between the partnership governance mechanism and the success of GSCM. Based on transaction-cost economics theory (i.e., opportunism) and relational perspectives (i.e., trust) as the theoretical background, this study found that governance mechanisms between suppliers and manufacturers are positively related to GSCM performance. It showed that formal governance is important in the process-management side, while relational governance is critical for sharing knowledge in GSCM. The implications of the study results provide strategic insights on how the choice of governance mechanism affects GSCM performance and thus a firm’s competitiveness.