Environmental Performance of Manufacturing Firms in Vietnam Characteristics and Determinants of Success

■2012 JSPS Asian CORE Program, Nagoya University and VNU University of Economics and Business Environmental Performance of Manufacturing Firms in Vietnam: Characteristics and Determinants of Success VNU University of Economics and Business Pham Quynh Anh * Abstract: The paper identifies and analyses characteristics, determinants of pollution abatement activities of manufacturing firm in Vietnam to meet environmental protection requirements Logistic models are used for a number of newest sub-datasets of enterprise annual survey conducted by Vietnam General Statistic Office, covering approximate 5000 manufacturing firm in Vietnam in the year 2009 The study reveals that small- and medium-sized enterprises (SMEs) or private-owned enterprises (non-SOEs) have made greater efforts to reduce emission as compared to the large ones (LEs) or state-owned, foreign investment enterprises (SOEs, FIEs) respectively However the former sector has been less successful than the latter in satisfying environment standards Environmental system management, firm size, environmental staffs, the foreign firms are the driving forces for firm becoming the government environmentally or ISO 14001 certified In contracts, private local ownership, fluid and solid emission volume has significantly negative sign of coefficient Firm’s pollution abatement expenditure, in both absolute and relative terms, is not the important factors for its pollution treatment success Key words: Firm’s environmental performance, environmental effort, environment success, emission volume, pollution abatement, government and ISO 14001 certification *Faculty of Development Economics, VNU University of Economics and Business 1 Introduction Following the Rio de Janeiro Earth Summit 1992, environment protection has evolved from consciousness to comprehensive action programs at both macro- and micro – level, across virtually all industrialized and industrializing countries As a result, the considerable number of studies on environmental responsiveness of firms has been increasing, especially in developed economies Beyond the works on determinants of firm’s environmental responsiveness (Knudsen and Madsen 2001, Hojat et al 2010), many studies focus on relatively different themes reflecfactors affecting environmental protection movements in the context of each group of country (Lin, 2011) While pollution prevention based on technology innovation and product stewardship is emerging research topic in developed economies (Brunnermeier and Cohen 2003, Lefebrve and Talbot 2003, Filed 2006), pollution control with end-of-pie technology and environmental regulation compliance is the prominent subject in developing economies where there are prevalent limitations of firm financial capability, government legal framework and society’s environmental protection awareness (Dasgupta et al 2001, RuizTagle 2006) Industrialization has been accelerated in Vietnam since the early 1990s with the waves of foreign investment and a latter explosion of newly established private firms Accordingly, pollution has been being serious and there merely have been a small number of management reports on manufacturing firms’ attempts in pollution abatement in order to meet domestic and international environmental standards However, studies on these activities using economics perspectives and econometrics tools to analyze trends, characteristics of pollution treatment and the determinants of environmental success are sparse This paper therefore attempts to contributes to fill this knowledge gap, shedding the light on three environmental issues of manufacturing firm in Vietnam Pollution abatement financial and personal efforts o by firm size and ownership The successful degree of pollution control The distinctive factors influencing pollution abatement success The paper is organized as the following The second part presents the conceptual framework, data and method of the research The next part highlights the features of pollution abatement attempts of manufacturing firms by firm sizes and ownerships The last part is devoted to explain why environmental protection efforts achieve varying results and give policy implications Conceptual framework, data and method 2.1 Conceptual framework Firm environmental performance captures diverse environmental protection actions of firms despite somewhat differences among scholars In this study the concept is defined as firm’s all activities abating pollution caused by its production and the corresponding results with respect to meeting domestic of international environmental protection standards Firm environmental effort new sub-concept introduced in this paper to term firm’s environmental responsiveness in the context of developing countries, comprises two major types of firm environmental protection activities The first is financial effort, measured by ratio of firm’s total expenditure on pollution treatment equipments and environmental regular cost over total capital The second component is personal effort, measured by ratio of firm’s number of environmental staff over total number of employee 2.2 Data and methods Data: The newest data of the environmental session in the annual enterprise survey conducted by Vietnam General Statistical Office (GSO) since 2000 with both technical and financial assistance of World Ban It covers around 5000 manufacturing firms in Vietnam, accounting for 15 percent of the population in the year 2009 The surveyed firms were selected proportionally to all three sectors and fifteen types of firm ownership by classified of GSO, to all twenty two two-digit manufacturing industries classified by UNIDO, revision 3, and to all 64 provinces of OWN: Firm ownership, includes three sectors SOE: Vietnam Such selection excludes the bias of results State-owned enterprise; NSOE: Non-state owned from comparative analysis by firm size and enterprise; FIE: Foreign investment enterprise ownership caused by the possible impact of industry IND: Industry in which firm operates, includes three or province characteristics Econometrics models types BASIND: Basic-good industry; INTERIND: merely employ 2317 observations or firms with Intermediate-good industry; CAPIND: Capital-good positive environmental expenditure industry Method: The comparative analysis method is used to All ownership- and industry- relating variables are identify the features of pollution abatement and dummy ones, being if firm belongs statedcorresponding results by different firm sizes and ownership or industry ; being otherwise ownerships The indicators and measurements of firm Emission types; measured by the volume of size and ownerships are used according to Vietnam emission government decisions, enabling research findings and FLUEMIT: Fluid ; SMOEMIT: Smoke; SOLEMIT: Solid policy implications to be more likely informed and Finance factors: selected by policy makers and deciders FINANEF: Financial effort = (pollution abatement Regression models are used to investigate factors equipment expenditure + environmental regular affecting of environment protections success and their expenditure)/total firm capital impacts TOECOST: Total environmental protection cost = GOVCER = f (SIZE, OWN, IND, EMIT, FINANEF, pollution abatement equipment expenditure + TOECOST, EMS, ESTAFF) environmental regular expenditure ISOCERT = f(SIZE, OWN, IND, EMIT, FINANEF, Environmental management: TOECOST, EMS, ESTAFF,GOVCERT) EMS: dummy variable; being if environmental GOVCERT is dummy one, being if firm is management system presents in firm, being government environment certified; being otherwise; otherwise ISOCERT is dummy one, being if firm is ISO ESTAFF: dummy variable, being if there is 14001certified; being otherwise environmental staff in firm; being otherwise Firm characteristics SIZE1: Firm size measured by number of employee, SIZE2: measured by capital 3.1 Environmental performance of manufacturing firms in Vietnam Table1 Mean environmental efforts and result by firm ownership, 2009 No EP EP EP ISO Firm ownership of cost/ staff/ CertiCertifirm capital labor ficate ficate (%) (%) Central SOEs 19 0.016 0.01 52.6 21.1 Local SOEs 26 0.01 0.006 61.5 11.5 Central limited SOEs 19 0.008 0.005 68.4 21.1 Local limited SOEs 13 0.027 0.008 76.9 7.69 Limited with >50% state capital 115 0.018 0.009 58.3 17.4 SOEs 192 0.016 0.008 60.4 16.7 Collective 35 0.019 0.007 22.9 2.86 Private 481 0.033 0.019 25.8 3.12 Private-limited 1803 0.011 0.015 25.7 4.83 Joint-stock 490 0.016 0.014 44.1 11.8 Joint-stock with state capital 181 0.024 0.014 54.7 13.3 Non-SOEs 2992 0.016 0.015 30.2 6.18 !00% Foreign Joint-venture with SOEs Joint-venture with local private FIEs Total 775 75 57 907 4091 0.011 0.019 0.013 0.012 0.015 0.015 0.01 0.019 0.015 0.015 55.5 52 54.4 55.1 37.3 16.1 26.7 14 16.9 9.04 Source: Author’s calculation from GSO survey 3.1.1 Environment protection performance by ownership The table presents pollution abatement expenditure ratios and corresponding results of manufacturing firm by ownerships in the year 2009, revealing two first striking features First, there emerged significant differentials of relative pollution abatement expenditures and results between ownership sectors and even within a sector, especially with respect to obtaining ISO 14001 certificate Mean ratio of environmental staff over total employee (personal effort) for non-SOEs sector was nearly double for SOEs and FIEs In contrast, mean environmental expenditure over total capital ratio (financial effort) of FIEs was merely about three-quarter all domestic firm types At firm-level, given firm’s limited capital on the average, the environmental effort gap is dramatically widened up to four-times in financial term between the private and the central limited SOEs and even nearly nine times in term of ISO certification between collective and FIEs joint-venture with SOEs In addition, the nearly three-hundred-percentage disparity of relative financial investment emerged within SOEs sector between local limited and local traditional, and within non-SOEs between private limited and private In respect to environmental protection result, in the non-SOEs sector, the number of ISO certifications awarded to the joint-stock with state capital was approximately three times as many as the collective and the private The second interesting feature of environmental performance of manufacturing firms is the markedly contrasting magnitudes between financial or personal efforts and the success degrees when comparing nonSOEs to SOEs or FIEs Of three ownership sectors, nonSOEs’ personal and financial ratios emerged as the highest, nevertheless its percentages of firms becoming governmental or ISO 14001 certified turned out to be the lowest Of firm ownerships, such a contradictory investresult was the largest between the collective and central SOEs limited, with the former indicating two-times higher than the latter for financial ratio plus a larger personal ratio, but nearly eight-time and three-time– lower number of 14001 ISO and government certification correspondingly Accordingly, it is evident that being limited by financial capability, non-SOEs in general and the collective and private in particular stood as the least-clean despite their largest environmental expenditure ratio across sectors and firm ownerships In contrast, lesser environmental investment but more success were found for SOEs, FIEs at sector level and the central limited SOEs, joint-venture with state capital, joint-stock with state capital at firm-level It should be emphasized that with a very low ISO certificate rate of only 2.8%, compared to 22.9 % recognized by Vietnamese government, non-SOEs firms were far from meeting international environment standards The above findings suggest the considerable impact of ownership types on environment performance in general and the positive role of all state-relating firm ownerships for success in particular Also, these results raise question why the degrees of firm’s environmental effort have been not consistent with the success? 3.1.2 Environment performance of firm by size The environmental performance features of different firm sizes, reported in the table 1, are relatively similar to those analyzed from table with various financial and personal investments of firm sizes and the opposite relative investment-success of small and medium enterprises (SMEs) as compared to large enterprises Both financial and personal pollution abatement efforts decreased while the success percentage increased with firm size These trends are logical and consistent with analysis by firm ownership since SMEs account for a substantially larger portion of non-SOEs than that of SOE and FIEs, about 95 % and over 85 % correspondingly Table2 Mean protection environment expenditure ratio and result by firm size, 2009 Firm size (No of labor) No of firm PA cost/ capital 5000 25 0.008 Large firm 846 0.014 Total 4091 0.015 Source: Author’s calculation from GSO survey The degree of such a contradictory between firm sizes was much sharper than between firm ownerships by both success indicators The largest enterprises’ average financial effort government as well as ISO environmental certificate was respectively nearly times and even up approximately 20 times higher than that of the latter These results strongly suggest that firm size affected achieving clean production even more substantially than the degree of environmental investment and especially on firm’s successful scale of pollution treatment Explanations for environmental protection success of manufacturing firms 4.1 The abatement expenditure-emission volume relationship approach It is generally supposed that firm’ emission volume is proportionally increased with the production scale or its size, therefore it is not necessary for firms to over-expend to treat their production pollution In other words, a firm’ environmental abatement cost extent should be consistently increased with its size or production, disposal scale But why SMEs and non-SOEs had the highest environmental expenditure rate but lower successful degree? We introduce here the first Envi staff/ labor 0.03 0.015 0.008 0.017 0.005 0.003 0.001 Envi Certificate (%) 11.8 31.3 53 31.4 56.7 66.4 72 ISO Certificate (%) 3.03 5.5 11.5 5.82 16.6 28.7 60 0.004 0.01 59.9 37.3 21.4 explanation from the view of emission-abatement expenditure relationship As it occurred in many developing countries, in Vietnam virtually all pollution abating equipments have to be imported from the advanced highincome, therefore incur a large expenditure relative to average financial capacity of SMEs and a higher environmental cost-total capital ratio compared to large enterprises Nevertheless, the matter here is that such investment is still not sufficiently large, proportional to their emission volume To support numerically the above arguments, we estimate and consequently compare the ratio of mean total emission treatment cost of each firm sizes or ownership to the ratio of mean volume of each emission type since it is impossible to aggregate fluid, air and solid emission in to a figure with a common measurement These rates are presented in Table with the SMEs – LEs ratio by financial investment being higher than that by solid disposal volume, 4.8 % against 1.86%, but lower by fluid or smoke rate (7.85 %, 5.2 %) In addition absolute magnitude of the former emission type was substantially smaller than each later In other words, average SMEs-LEs rate in term of environmental financial effort was lower than that in term of emission volume, explaining why SMEs were less successful in pollution treatment despite their greater attempt relative to financial capability Similar contradictory results and correspondent explanation are appropriate in the comparative cases of non-SOEs and SOEs, ex-small and ex-large enterprises Table3 The mean pollution abatement cost and emission volume by firm types Mean Pollution abatement expenditure Emission volume PA exp (million dongs) Fluid (m3) Smoke (m3) Solid (ton) PA exp (million dongs) Fluid (m3) Smoke (m3) Solid (to) PA exp (million dongs) Fluid (m3) Smoke (m3) Solid (ton) PA exp.(million dongs) Fluid (m3) Smoke (m3) Hard (ton) Firm type (1) (2) SM Large 425 8862 12071 153854 319051 6133794 272.6 14695 ExEx-Small Large 4.36 2330 104.9 113955 23.4 5555 41 603.7 nonSOEs SOEs 403 14785 5680 662409 590754 1.18 572 4009.5 nonSOEs FIEs 403 6780.22 5680 60959 590754 5074719 572.7 12304 Rate (1)/(2) (%) 4.8 7.85 5.2 1.86 0.19 0.09 0.42 6.8 2.73 0.86 5.01 14.3 5.95 9.32 11.6 4.65 Source: Author’s calculation from GSO survey 4.2 Regression approach Table reports the regression results of factors affecting firm’s success in pollution treatment, indicated by receiving environmental protection certifications or ISO 14001 certificate Firm characteristics have considerable impacts on its environmental success Firm size measured by number of employee, has little effect despite its statistic significance at % for ISO obtaining However, with capital measurement, firm size affects strongly obtaining both certificates and significantly statistical for ISO 14001 award Table4 Logistic regression on determinants of firm’s pollution control success Dependent Independent Variable FIRMSIZE1 FIRMSIZE2 SOE NSOE FIE BASIND INTERIND CAPIND FLUEMIT SMOEMIT SOLIEMIT FINANEFF TOECOST EMS ESTAFF GOVCERT Observations Wald Chi square Pro> Chi square Log likelihood Variable Being Environmentally Certified Government ISO 14001 Coefficients Coefficients (robust-Z) (robust -Z) (1) (2) (1) (2) 0.0003* 0.0003* 7.92 5.565** 0.51* 0.257 - 0.768*** -0.886*** 0.725*** 0.796*** -0.262 -0.480 0.073 -0.195 0.185 0.803** 2.68 -6.364** -3.81 2.54 -1.39*** 3.71 1.98 -2.046 -9.02 -2.56 1.80*** 1.188*** 1.315*** 0.834** 1.584*** 2236 639.22 -943.15849 Note: Level of significance *10%;**5%;***1% Firm ownership types have relatively strong influence on environmental result with similar positive significant impact from the foreignowned on firm meeting domestic as well as international standards This supports arguments that foreign firms generally bring to the host country not only more modern technology, management skill but also environmental responsibility culture The state ownership helps firm more likely be familiar and comply to government environmental regulations but its positive impact on meeting international standard is not significant In contrast to FIEs, collective and private ownership (non-SOEs) strongly and significantly affect firm’s success in pollution abatements These results, combining with those identified in the previous session, imply that in 2236 202.06 -324.50191 spite of their considerable efforts, non-SOEs have to invest more effectively on pollution treatment to the extent that absolute abatement expenditure is adequately large relative to firms’ emission volume Firm ownership types have relatively strong influence on environmental result with similar positive significant impact from the foreignowned on firm meeting domestic as well as international standards This supports arguments that foreign firms generally bring to the host country not only more modern technology, management skill but also environmental responsibility culture The state ownership helps firm more likely be familiar and comply to government environmental regulations but its positive impact on meeting international standard is not significant In contrast to FIEs, collective and private ownership (non-SOEs) strongly and significantly affect firm’s success in pollution abatements These results, combining with those identified in the previous session, imply that in spite of their considerable efforts, non-SOEs have to invest more effectively on pollution treatment to the extent that absolute abatement expenditure is adequately large relative to firms’ emission volume Industry in which firm operates has insignificant statistical coefficient on environmental success by both indicators, beyond that of capital-good industry on meeting ISO14001 requirements, The emission magnitudes in either form has the largest and negative effects on firm’s pollution treatment success except two relationships, fluid and government certificate or smoke emission and ISO certification correspondingly But the positive signs of coefficients in these cases are not significant Solid disposal volume is found to be the largest and the most highly significant constraint for manufacturing firms to become environmentally governmental certified Similarly, fluid emission extent comes out clearly to be the highest barrier for being ISO14001 certified In other words, the manufacturing firms in Vietnam are still limited in treatment of two these emission types as required correspondingly by Vietnam environmental standards and ISO 14001 criterion Contrary to the normal thinking both relative financial investment has not only significant impact on firm’s insignificant pollution treatment success The environmental expenditure-capital rate has only positive impact relationship with government certificate but this factor and even total or absolute abatement cost has negative correlations and with firm’s environmental success by both indicators Such coefficients helps majorly explain the opposition between pollution treating success and relative financial effort of firms when comparing non-SOEs and SOEs, SMEs and LEs as indicated in the previous session These results also imply that the spending way is more important than the amount of expenditure in achieving pollution treatment target, especially on the average firm’s absolute financial investment is still considerably low as compared to that in developed economies The findings on environmental management system supports to the above financial implications EMS is found to be the most important explanatory variable for achieving pollution control success by both certification indicators Both dummy managerial variables, the presence of environmental staffs or environmental management system (EMS) have large, positive and distinctive on firm satisfying environmental protection domestic and international standards The strong, positive effect of obtaining environmental government on receiving ISO 14001 certificate imply that meeting pollution abatement domestic requirements is good consequent preparation for manufacturing firms to pursue and satisfy higher environmental criterion issued by international organizations In addition to adding knowledge of pollution abatement characteristics of various firm types by size and by ownership in the case of Vietnam, our study’s finding share similarities with the previous studies on the determinants of firm environmental success These comprise the strongest impact of environmental management system, the driving force of firm size, foreign firms, the cleaner public ownership compared to the local private, the support from satisfying local government regulation for meeting international environmental standard and the insignificant effect from features of industry or firm’s manufacturing technology However, despite an emphasis of the emission volume as one of the main barrier (the fluid for FIEs and the solid one for SOEs), contrary to normal thinking and the results form study by Earnhart and Lizal (2007), one of our study results questions the driving role of financial investment for firm’s pollution control achievements This therefore strongly recommends the further studies on this important and disputable topic Conclusion Manufacturing firms in Vietnam have made considerable attempts to control pollution given their small financial resource compared to counterparts in the world, even those in South East Asian regional countries In term of financial effort (abatement cost/total capital) or personal effort (environmental staff/total labor), the greater was SMEs and non-SOEs rather than large enterprises and SOEs or FIEs Nonetheless, with respect to environmental successes, the results are contrasting, with a substantially larger number of LEs, SOEs, FIEs becoming domestically or internationally environmental certified or achieving both standard levels The contradictory features between environmental protection efforts and results are firstly explained by the fact that in spite of a larger abatement expenditure relative to capital of SMEs or private local firm, it still not sufficiently large to the emission magnitude released from their production Solid, fluid emission volume, private ownership affects negatively and significantly on firm being verified environmentally responsive while environmental management factors, either being personal or organization, are the positive and strong determinants of achieving government as well as ISO certification Reaching domestic environmental protection levels is markedly enables firm to achieve that by international standards The amount of environmental expenditure either in relative or absolute term is less important than the managerial method and human factor for success in pollution control of 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A Case study”, Discussion Paper Series, Department of Land Economy, University of Cambridge 10 ... collective and the private The second interesting feature of environmental performance of manufacturing firms is the markedly contrasting magnitudes between financial or personal efforts and the success. .. Statistical Office (GSO) since 2000 with both technical and financial assistance of World Ban It covers around 5000 manufacturing firms in Vietnam, accounting for 15 percent of the population in the... being ISO14001 certified In other words, the manufacturing firms in Vietnam are still limited in treatment of two these emission types as required correspondingly by Vietnam environmental standards