Paper to be presented at the

35th DRUID Celebration Conference 2013, Barcelona, Spain, June 17-19

Exploring the relationship between a firm?s internationalization and its

environmental innovative attitude
Maria Chiarvesio
University of Udine
Department of Economics and Statistic
chiarvesio@uniud.it

Valentina De Marchi
University of Padova
Department of Economics and Management
valentina.demarchi@unipd.it

Eleonora Di Maria
University of Padova
Department of Economics and Management
eleonora.dimaria@unipd.it

Abstract
Consumers, policy makers, NGOs and other stakeholders are increasingly challenging firms to reduce environmental
impacts of their products and processes. The fragmentation of production activities among different firms, geographically
dispersed and independent one from the other poses peculiar challenges for firms that seek to achieve this aim,
especially when they are embedded in supply chains involving countries where environmental standards and consumer
awareness are quite different. In this paper we investigate the relationships between internationalization and firms?
greening activities, considering both for upstream and downstream internationalization. While the existence of a positive
link between internationalization and the diffusion of environmental compliant behaviors and the development of
environmental innovation is pretty established within the developing countries setting, on the contrary evidence on the
developed country context is rather scarce and mixed. Based on original data on Italian firms specializing in traditional
industries, we investigate the relationship between the geography of firms activities ? as far as their presence in
international markets, development of FDIs and engagement in relationships with global suppliers ? and their
environmental practices, considering both big and small firms. Furthermore, we investigate how firm?s innovativeness
and marketing strategies are related to firm?s environmental orientation. Preliminary evidence suggest that, when it
comes to green firms activities and their supply chains, geography matters.

Jelcodes:O32,Q55
 Exploring the relationship between a firms internationalization
and its environmental innovative attitude

Abstract
Consumers, policy makers, NGOs and other stakeholders are increasingly challenging firms to
reduce environmental impacts of their products and processes. The fragmentation of production
activities among different firms, geographically dispersed and independent one from the other poses
peculiar challenges for firms that seek to achieve this aim, especially when they are embedded in
supply chains involving countries where environmental standards and consumer awareness are quite
different. In this paper we investigate the relationships between internationalization and firms
greening activities, considering both for upstream and downstream internationalization. While the
existence of a positive link between internationalization and the diffusion of environmental
compliant behaviors and the development of environmental innovation is pretty established within
the developing countries setting, on the contrary evidence on the developed country context is
rather scarce and mixed. Based on original data on Italian firms specializing in traditional
industries, we investigate the relationship between the geography of firms activities as far as their
presence in international markets, development of FDIs and engagement in relationships with
global suppliers and their environmental practices, considering both big and small firms.
Furthermore, we investigate how firms innovativeness and marketing strategies are related to
firms environmental orientation. Preliminary evidence suggest that, when it comes to green firms
activities and their supply chains, geography matters.

Keywords: green supply chains, green strategies, internationalization, firm size, environmental
innovation

1
1. Introduction

The environmental sustainability of firms and economic systems has become a priority. Firms are
progressively becoming aware of the environmental implications of their activities of production
and distributions and are starting to implement green practices to reduce such impacts. Studies
exploring how firms are coping with those issues cover multiple perspectives (e.g. Kolk, Mauser,
2002), from green strategies (Orsato, 2009) to green innovation (De Marchi, 2012), from more
focused marketing-based approach (green marketing, Polonsky, 1994) to green supply chain
management (Srivastava, 2007). According to most of the contributions, the core idea is that the
firm alone cannot effectively and efficiently manage and reduce the environmental side of its
economic activities, due to the complexity of the matter as well as the interdependence occurring
across actors and processes (also worldwide).
On the one hand, literature has focused on identifying alternative paths toward greening, by
considering the pro-active vs. reactive approaches of the firm in adopting more sustainable behavior
(Buysse, Verbeke, 2003). In this term it is important to consider the role of the firm within the value
chain, where lead firms are usually observed as the actors that push upstream value chain to be
greener. From a strategic point of view multiple drivers can affect sustainability strategies
(Gonzlez-Benito, Gonzlez-Benito, 2006), combining regulation, technological improvement as
well as market changes. On the other hand, studies have explored the processes and the functions
more interested by sustainability initiative, by emphasizing the marketing side (green marketing),
the innovation side (eco-innovation) or the side of operations (eco-efficiency) and supply chain
management (green supply chain management). The firm can invest in developing capabilities in
one or more of the mentioned areas (Hofmann et al., 2012) as starting point for increasing its
environmental sustainability, with hopefully also positive implications on firms performance
(Hitchens et al., 2004).
Despite this growing body of literature, scholars have instead given less emphasis on the
relationship between greening and internationalization. While the attention for the geographical
dimension of economic activities and its impacts on sustainability is generally considered, many
studies focused on the role of proximity among actors to control and manage properly the
environmental side of firms behaviors (i.e. eco-industrial parks) (Roberts, 2004). Minor attention is
devoted to explore in details the link between the degree of firms internationalization and firms
greening strategies (Aguilera-Caracuel et al., 2012). The paper aims at shedding light on the
connections between the level and characteristics of a firm internationalization approach and its
greening orientations. In this paper we investigate the relationships between internationalization and
2
firms greening activities, considering both for upstream and downstream internationalization.
While the existence of a positive link between internationalization and the diffusion of
environmental compliant behaviors and the development of environmental innovation is pretty
established within the developing countries setting, on the contrary evidence on the developed
country context is rather scarce and mixed. Based on original data on Italian firms specializing in
traditional industries, we investigate the relationship between the geography of firms activities as
far as their presence in international markets, development of FDIs and engagement in relationships
with global suppliers and their environmental practices, considering both big and small firms.
Furthermore, we investigate how firms innovativeness and marketing strategies is related to firms
environmental orientation.

2. Greening strategies and internationalization: theoretical framework

2.1 Firms and the greening of economic activities

According to Orsato (2009) firms have alternative strategic options to be green, on the basis of the
focus of their competitive strategy (cost or differentiation) and the orientation of their
environmental sustainability (process or product). Among the four directions, the two more
interesting and polarized strategies are eco-efficiency, on the one hand (cost
leadership/environmental processes), and on eco-branding on the other hand (differentiation, green
product). The former asks for a business process reengineering (i.e. lean production, Des et al.,
2013) of internal activities, while the latter requires strong and marketing capabilities in order to
convey the green meaning attached to the product to customers (Ginsberg, Bloom, 2004; Grant,
2007; Albino et al. 2009). The firm can position its product or the organization through Corporate
Social Responsibility (CSR) initiatives (Porter, Kramer, 2006). In addition, especially when green-
to-be products are concerned, innovation capabilities become also significant (i.e. internal R&D
functions), since a continuous research on new materials, new design, or new components to be
used can further contribute to reach the goal. Despite the opposite starting points, however, an
overlap between the greening of products and processes emerge over time and the firm can increase
and complete its transformation into a more sustainable firm through further improvements on both
sides. To sum up, the firm has to develop dynamic capabilities that allow the organization better
achieving its environmental goals (Berchicci et al., 2012; Castiaux, 2012).
Studies on eco-innovation have highlighted the characteristics and differences of such form of
innovation compared to others (e.g. De Marchi, 2012, Wagner, Llerena, 2011), where firms
networking is crucial in order to gather key knowledge to be applied for greening purposes (van

3
Kleef, Roome, 2007). On the one hand, eco-innovation is effective according to the level of
absorptive capacity a firm has compared to the specialized environmental-related knowledge that
has to be transferred (acquired). On the other hand, eco-innovation requires the development of
relationships with a large and differentiated set of knowledge providers. Eco-innovation is not
driven only by technological improvements (or leapfrogs) but is also related to institutional
pressures (i.e. toward certifications) or market-driven (Rennings, 2000).
From a different perspective, studies on outsourcing (Oshri et al., 2011) and (international)
fragmentation of production (Feenstra R. 1998) have shown through multiple angles a progressive
enlargement of manufacturing and distribution processes among different actors. Consequently, a
more complete achievement of a firms greening strategy can be obtained only by involving all the
actors in the value chains from suppliers, to distributors, to customers (e.g. Helg, Hultman, 2011).
Compared to the downstream of the value chain, scholars have dedicated larger attention on
upstream greening transformations of economic activities (Seuring, Mller, 2008). According to
Srivastava (2007) green supply chain management (GSCM) means integrating environmental
thinking into supply-chain management, including product design, material sourcing and selection,
manufacturing processes, delivery of the final product to the consumers as well as end-of-life
management of the product after its useful life (p. 54-55). Studies stressed the role of leading firms
in pushing environmental improvements of suppliers (e.g. Kogg, 2003). Scholars suggests that, in
order to change suppliers attitudes and behavior toward sustainability, those nodal firms develop
specific mechanisms of knowledge transfer and technical cooperation, by changing the mechanism
of governance of supply chains from market to more relational-based forms (Geffen and
Rothenberg, 2000; Simpson and Power, 2005; Tseng, Chiu, 2013; Chan et al., 2012).

2.2. Exploring the link between greening and internationalization

The geographical scale of economic activities is a crucial issue from a sustainability point of view.
Spatial proximity among actors involved in the manufacturing processes can reduce environmental
related costs and impacts (i.e. lower carbon footprint) and increase the effectiveness of firms green
strategies. The more fragmented and dispersed the productive process, the higher the potentially
negative environmental consequences.
Few studies have highlighted the role of spatial agglomeration as a crucial element to consider in
order to evaluate the scale of environmental impacts. Moreover, territories in which the economic
activities are carried out can influence the firms orientation toward sustainability (Clini et al.,
2008). From this point of view, some scholars have focused their attention on the promotion of
sustainable economic activities by applying the principles of industrial ecology to economic

4
systems, specifically through the promotion of eco-parks or eco-clusters (e.g. Cot, Cohen-
Rosenthal, 1998; Dimitrova et al., 2007; Wallner, 1999). Industrial ecology offers unique
opportunities to add value to manufacturing firms located in a cluster. The clustering of firms with
similar waste and by-product streams create opportunities to concentrate and minimize the
collection costs of waste in one location. [] Industrial ecology thus has the potential to create
opportunities to add value to industrial production through synergies and business networks that
form naturally in clusters (Roberts, 2004, p. 999). Other studies have discussed about the
environmental transformation of industrial districts (Becattini et al., 2009) as important contexts
where to test and promote green initiatives, due to the high concentration of firms specialized in the
same industrial activity in a delimited area, also socially cohesive (Battaglia et al., 2010).
An opposite perspective explores the global dimension of economic activities, taken for granted the
spatial dispersion of production and consumption. Studies on global value chains (e.g. Gereffi,
2005) explored the international organizations of industries and how lead firms either producers
or buyers drive those processes in a global setting, with also environmental implications
(Handfield et al., 1997; Jeppesen, Hansen, 2004; De Marchi et al., 2013). Studies on large global
buyers (i.e. IKEA, see Ivarsson, Alvstam, 2010) for instance show how the global production and
sourcing strategy of large corporations can impact on the environment in positive or negative terms,
where low-income countries (and captive suppliers) may be affected by the detrimental aspects of
such strategies (Ehrgott et al., 2010). However, few studies highlighted also the positive
consequences on firms and economic systems of emerging countries in terms of spreading of
environmental practices among local firms (Sandhu et al. 2012; Zhu et al., 2012).
Studies on sustainable global supply chain management (Reuter et al., 2010; Carbone et al. 2012)
explore how to select and manage suppliers at the international level to cope with environmental
requirements. Specifically, in order to face the growing orientation toward sustainability
(environmental and social one) of consumers and stakeholders in Western markets (e.g. Buysse,
Verbeke, 2003), Western companies have to set up appropriate GSCM strategies such as
certification requirements of suppliers or external audit (Reuter et al., 2010).
Despite those studies we think that further theoretical research is needed in order to describe the
link between the environmental proactivity of a firm understood as the voluntary implementation
of practices and initiatives aimed at improving environmental performance [] manifest through
different strategies, each characterized by a series of environmental practices (Gonzlez-Benito,
Gonzlez-Benito, 2006, p. 88) and the firms degree of internationalization, with specific attention
to eco-innovation practices.

5
In addition to external drivers, according to Gonzlez-Benito and Gonzlez-Benito (2006) there are
different company features that affect environmental proactivity: company size and resource
availability, internationalization, position in the value chain, managerial attitude and motivations,
and finally strategic attitude. Concerning internationalization, a multinational firm can benefit from
being located in many countries (both for production or commercial purposes, i.e. through foreign
direct investments, FDI) in terms of new knowledge inputs as well as regulatory or other market
constraints that push the firm to increase its environmental standards also at the entire
organizational level (see also Peng et al., 2009).
Aguilera-Caracuel et al. (2012) studied the relationship between the firms international experience
and its impact on environmental strategies. The authors focused specifically on export activities
measured in terms of number of years a firm is exporting to capture how knowledge and
capabilities the firm has acquired and developed abroad can increase its response to international
demand for environmental products, processes (services) or technologies (eco-innovation) - and the
degree of export diversification to capture how the firm can replicate and exploit knowledge and
experience about environmental related practices across markets (countries). They found that only
export diversification impacts on the firms probability to adopt environmental strategies.
Kennelly and Lewis (2002) explored the relationship between the firms degree of
internationalization and environmental performance, by obtaining positive results. Cainelli et al.
(2012) couple the analysis of spatial proximity and agglomeration economies (characterizing
cluster-related literature) with internationalization strategies and their implications on firms
environmental innovation. By exploring a sample of Italian small and medium enterprises located in
industrial clusters, they did not find a direct and clear connection between internationalization of a
firm and its environmental innovation activities, both considering export propensity and the
presence of (inward) foreign direct investments. Similar results emerge in De Marchi and
Grandinetti (2012), which, using data on the Italian community innovation survey, find evidence
that firms that do export at least part of their products abroad are not more likely to introduce green
practices but firms part of a foreign group does.
Based on these theoretical premises our hypotheses are as follows:

H1 Firms local sourcing is positively related with the eco-innovation practices of the firm
H2 The firms export intensity is positively related with the eco-innovation practices of the firm
H3 The presence of firms FDI is positively related with the eco-innovation practices of the firm
H4 Multinational ownership of the firm is positively related with the eco-innovation practices of
the firm

6
3. Greening means also global? Evidences from the Italian firms

3.1 The empirical context

In order to test the hypothesis on the relationships existing between the eco-innovation attitude
of firms and their internationalization strategies, we use data from an original dataset gathered from
the TeDIS Center within a survey aimed at monitoring the evolution of competitive strategies of
Italian companies. We will focus on a sample of 6841 firms randomly selected from the population
of the companies with a turnover higher than 1 million Euros (2009 last balance sheet available),
belonging to the so called Made in Italy sectors (primarily fashion, home products and furniture,
mechanics, but we also include electronics, plastics and rubber) and stratified by industry and size.
Companies have been extracted from the AIDA database (including 51.048 companies with the
mentioned characteristics); the survey was conducted during May-July 2011 through phone
interviews on a structured questionnaire addressing the entrepreneur, the general manager or a sales
manager, according to the size and internal organization of the firm contacted.

3.2 The variables for the analysis and descriptive statistics

The dataset employed allows to adopt a subjective approach to the identification of

environmental innovations, similar to what has been employed in several of the most recent analysis
on environmental innovations based on community innovation survey (CIS) data (see e.g., De
Marchi, 2012; Borghesi et al 2012; Horbach et al. 2012). In other words, the identification of green
innovators is based on self-reported information. The questionnaire included two questions useful
for the identification of such firms. The first asked firms to report if they have introduced any
process innovation aimed at improving environmental sustainability and was used to build the
dependent variable EI-PROC, which is a dummy. The second question used to build the dependent
variable asked firms about the attributes that make their product new, in case they reported to have
introduced a product innovation. Firm could select all the attributed that apply among the following:
a) aesthetical design, b) material employed, c) embedded technology, d) functionality, e) service, f)
reduced environmental impact. Given the low number of firms reporting that their products were
new for their environmental characteristics (58 firms, representing the 8.5% of the sample), we did
not perform the analysis just on environmental product innovators but considered them through the
variable EI-PRODPROC. The variable EI-PRODPROC is a dummy valuing one if the firms have
1
From the 718 firms initially included in the dataset we excluded firms that declared that their main activities is to
produce services and which were not specialized in Made in Italy sectors, which amounted to 34 firms.
2
Based on the ATECO Italian classification, the following industries have been considered: fashion (13 textile, 14
7
introduced any product innovation whose novelty was the reduced environmental impact or any
process innovation with environmental benefit (EI-PROC).
To test hypothesis 1 on the role of local sourcing for firms environmental innovation
propensity we include in the analysis the variables LOCALSUPP and OUTSOURCING.
OUTSOURCING values 1 if the firms outsource at least part of their manufacturing activities and
rely on suppliers: LOCALSUPP, instead, is a continuous variable reporting the share of suppliers of
the firm, if any, that are located within the industrial district, local labor system or region the firm is
located in. In order to understand if firms export intensity is positively related with its eco-
innovation practices (Hypothesis 2) we employ a question of the questionnaire asking interviewees
to report the share of their turnover done on foreign markets. The dummy EXPORT50 captures if
the firm has a strong export propensity: it values 1 if more than half of its turnover is done serving
non-Italian customers. The dichotomous variable FDI has been introduced to test Hypothesis 3 on
the role of foreign direct investments and consolidates information coming from different questions.
More precisely, it indicates if the firm has a) fully owned or participated investment for
manufacturing; b) commercial branches; c) franchising store, or d) proprietary store. Finally, to
verify the hypothesis on the existence of a relationship between the introduction of environmental
innovative practices and the participation to a multinational group (Hypothesis 4) the variable
FOREIGNFIRMS was introduced, valuing 1 if the firm is part of a group whose headquarters are
abroad or if the group is Italy-based but includes firms located abroad.
In addition, we include a number of control variables regarding structural characteristics of
the firms and their innovation strategies. Several studies reported the positive role of the presence at
firms of environmental management system (EMS), including the EMAS or ISO14001 certification
schemes, on their attitude toward environmental innovations, especially those regarding the
production process (e.g., Wagner, 2007). We therefore include the dummy CERTIFIED, which
values 1 if the firm has obtained or is in the process of obtaining any environmental certifications.
Considering that the literature reports that size affects eco-innovation propensity (see e.g., Del Rio
Gonzalez, 2005, 2009; De Marchi & Grandinetti, 2012), emphasizing the difficulties of small and
medium enterprises in facing the complexity of environmental innovations and the investments
needed to switch to greener technologies, we include in the analysis the dummies MICRO and
SMALL, equal 1 if the firm has less than 10 employees or more than 10 and less than 50,
respectively. Moreover, we control for the innovative strategy of the firms with the variables R&D
and COLLABORATION, the first measuring the existence of internal inputs of the innovative
activities (in terms of presence of a structured R&D internal activity), the second to external ones.
The questionnaire has a question asking respondents to report if they cooperate on innovative

8
activities with any of the following knowledge partners: a) Italian universities; b) foreign
universities, c) scientific parks; d) Italian research centers; e) foreign research centers; f) local
service centers; g) other (including consultants, certification agencies and the like).
COLLABORATION is a measure of the openness of the firm in its innovation activity: it is a count
variable reporting how many of those knowledge partners the firms cooperate with, taking on
values from 0 to 7. Finally, we control for industry specialization including four industry
dummies2 capturing the impact of different policy restrictions and consumers awareness in
different sectors. Table 1 lists the definition and the descriptive statistics of the variables used in the
analysis and Table 3, in the Appendix, report the simple correlations among the regressors.

Table 1: Description and descriptive statistics of the variables used

Name Description Mean S.D.

EI-PROC Green process innovators 38.16% 48.61%
EI-PRODPROC Green process or product innovators 41.08% 49.23%
LOCALSUPP % supplier from the district or region 41.74% 45.46%
OUTSOURCING Firms outsourcing at least some activities 63.89% 48.07%
EXPORT50 Firms exporting more than half of their turnover 29.51% 45.64%
FDI Firms having FDI 18.42% 38.79%
FOREIGNFIRMS Firms part of a group affiliating foreign firms 19.74% 39.83%
CERTIFIED Certified firms 22.37% 41.70%
MICRO Firms with less than 10 employees 10.43% 30.59%
SMALL Firms with less than 50 employees 53.20% 49.93%
R&D Firms implementing R&D activities 50.29% 50.04%
COLLABORATION Number of knowledge partners the firms cooperate on innovation with (0:7) 0.462 0.976
FASHION Fashion industries 17.54% 38.06%
HOME Home furnishing industries 16.37% 37.03%
MECH-PLAST Mechanics, electronics, plastics 59.50% 49.13%
OTHER Other industries 6.58% 24.81%

As reported in Table 1, firms that have introduced any process innovations that reduce
environmental impacts represent the 38.16% of the sample. Environmental product innovations are
much less diffused, being introduced just by 8.48% of the interviewed firms. It is interesting to
notice that the great majority (65.52%) of firms that have introduced product innovations have
introduced also process ones, suggesting that the development of product with environmental
features implies changes in the production processes. This overlap between the two approaches
toward the reduction of environmental impacts those targeting the product and the process
explains why the incidence of firms that have introduced one or the other (EI-PRODPROC) is just
slightly bigger than that of firms introducing just process ones (EI-PROC), being 41.08% and
38.16% respectively. The diffusion of certifications among the firms part of the sample is lower

2
Based on the ATECO Italian classification, the following industries have been considered: fashion (13 textile, 14
clothing, 15 leather), home products and furniture (16 wood, 31 furniture, 23 products not based on metals), 25
mechanics, 26-27 electronics, 22 plastics and rubber, other manufacturing industries (17 paper, 28 machinery, 29
automotive, 30 transportation).
9
(29.51%) but in line with evidence coming from other empirical contexts (see e.g., Gonzales et al.
2008)
The majority (63.89%) of firms part of the sample outsource at least part of their production
activities: 10.23% of the firms reported to be responsible just for the logistic activities, being neat
examples of the so-called manufacturers without factories, whereas 53.65% focus on some
activities and rely on suppliers for others. On average, a great part of such suppliers (41.74%) are
local, being located within the same region or even the same industrial districts, whereas foreign
suppliers represent still a minority (on average, 11% of the total number of suppliers): 72.66% of
the firms do not have any supplier outside the Italian border. On the contrary, firms are quite open
to international markets: 75.23% of the firms do export and export amount to 32.60% of the overall
turnover, on average. The share of firms that earn the majority of their turnover in such markets
(EXPORT50) is 29.51%. Almost one firm out of five has foreign direct investments (FDI), being
them productive or commercial, and a similar incidence describes companies part of a group that
affiliate firms located abroad (FOREIGNFIRMS).
The majority of firms of the sample are small, which is coherent with the distribution of
firms in the empirical setting considered: Italy. 63.63% of interviewed firms have less than 50
employees, among which 10.43% can be defined micro firms, having less than 10. However, the
sample includes also bigger firms, mainly medium-sized firms, namely companies with more than
50 and less than 250 employees, which represent the 30.85% of the sample. As far as their
innovative activities are concerned, half (50.29%) of the firms interviewed have an internal R&D
capacity whereas just 26.32% of them cooperate with any knowledge partners on innovation.
15.35% cooperates with just one typology of the partners listed; on average they cooperate with
0.46 partners. It is interesting to notice that Italian universities are by far the partners they cooperate
more likely with, among the ones listed. Table 1 reports also the firms industry specialization:
59.50% of the firms work within the mechanics, electronics or plastics industries, followed by firms
specialized in fashion industries, represented the 17.54% of the sample and in the home-furnishing
(16.37%).

3.3 Green process and product innovators and internationalization

Since the dependent variables of our model are dummies, we implement a logit regression,
which identifies the relationship between the measures of internationalization and the controls we
used on the probability to introduce an environmental innovation with respect to not introduce it.
Table 2 reports the results of such regression considering environmental process innovation (EI-
PROC) and product or process innovation (EI-PRODPROC) as dependent variables.

10
Table 2: Logit regression, explaining the propensity to introduce process EI (EI-PROC) and
process or product EI (EI-PROD)

EI-PROC EI-PRODPROC
Coef. S.E. Coef. S.E.
LOCALSUPP 0.804*** (0.278) 0.930*** (0.274)
OUTSOURCING -0.842*** (0.273) -0.854*** (0.269)
EXPORT50 -0.402* (0.207) -0.394* (0.203)
FDI 0.327 (0.250) 0.350 (0.249)
FOREIGNFIRMS 0.560** (0.239) 0.533** (0.242)
CERTIFIED 0.656*** (0.209) 0.758*** (0.210)
MICRO -0.561 (0.353) -0.691** (0.350)
SMALL -0.385* (0.207) -0.379* (0.205)
R&D 0.285 (0.203) 0.281 (0.198)
COLLABORATION 0.185* (0.099) 0.219** (0.105)
HOME 0.555* (0.315) 0.189 (0.303)
MECH-PLAST 0.692*** (0.255) 0.471** (0.238)
OTHER 0.388 (0.419) 0.165 (0.407)
Constant -1.007*** (0.361) -0.724** (0.345)
Observations 644 644
Pseudo R-squared 0.0928 0.0983
Chi-squared 64.17 67.08
Robust standard errors in parenthesis. *** p<0.01, ** p<0.05, * p<0.1

We find strong evidence that firms that, when outsource part of their manufacturing
activities, rely on local suppliers are more likely to introduce environmental innovations; the
coefficient of LOCALSUPP, in fact, is positive and highly significant. Interestingly, the coefficient
of OUTSOURCING is significant but negative, meaning that firms that perform internally all the
steps needed to produce their product have higher probabilities to introduce products or processes
that lower the impact on the environment. If we found evidence to support Hypothesis 1, the
contrary is true for Hypothesis 2 that suggests the existence of a positive relationship among firms
export propensity and their attitude toward sustainability. Actually, the coefficient of the dummy we
use to proxy export (EXPORT50) is negative, even if it is significant just at the 10% level. It is
worth reporting about the results that we obtained when regressing different variables capturing
export strategies, including the incidence of foreign markets on total turnover and a dummy
reporting firms export propensity. The coefficient of such proxies, in fact, were negative even if
not significant, which is in line with results proposed in other analysis on similar empirical contexts.
As far as hypothesis 3 is concerned, which postulate the existence of a positive relationship
between the firms eco-innovation propensity and its direct investment in foreign countries, we find
no support. The same result was found when controlling just for FDI regarding manufacturing
activities or commercial ones, and also when considering just those targeting emerging economies,
which suggest the robustness of this evidence. Being part of a group composed of firms located
abroad (FOREIGNFIRMS) is positively correlated with the introduction of both process and
product innovations, giving support to hypothesis 4. The participation in multinational groups may
11
represent for firms a fruitful occasion to learn about new eco-innovation possibilities or about best
practices characterizing other countries3.
Results presented are consistent across the two models the one measuring just process EI
propensity, the second both product and process EI propensity except for control variables.
Interestingly, size appear to be a matter especially when product innovations are concerned,
whereas there are not significant differences between micro firms and medium or big ones when it
comes to process EI introduction. This evidence is consistent with the fact that product innovations
are more complex and may therefore benefit from the existence of a larger stock of resources at the
firm, being them financial or technological. Moreover, bigger firms may experience higher
incentives to introduce green products, either because they are better able to exploit their potential
on the final markets, thanks to their brand and communication effort, or because they are willing to
avoid reputation risks, higher for more visible firms. On the contrary, process EI results often in the
application of end-of-pipe technologies or the implementation of eco-efficiency measures, which
are practices that are nowadays accessible (if not compulsory) even to smaller firms. Another
interesting result emerging from the analysis of the coefficients of the dummies capturing the size
effect regards the fact that returns of size to EI propensity seems to be not linear: in fact, in the
model using EI-PROC as a dependent variable, the coefficient of SMALL is significant, whereas
that of MICRO is not. Such analysis may be interpreted as evidence that also very small firms may
be proactive in considering environmental sustainability issues in their activities or, in other words,
that sustainability is not a matter just for big firms. As far as control variables considering for the
firms innovative effort are concerned, the coefficient of R&D is not significant, whereas
COLLABORATION is, even if just at the 10% level in the first model presented. Finally, results
support the existence of differences in EI propensity across sectors, which varies when considering
process or both process or product innovations.

4. Conclusions and future research

The aim of this paper is to investigate the relationship between internationalization and
environmental innovation of firms, both in terms of process and product innovation. The
internationalization processes going on downstream and upstream suggest that a firms greening
strategy needs the involvement of the whole value chain. However, the literature is quite
controversial about the impact of the internationalization on the environmental companies
proactivity. On one side, spatial proximity among actors can reduce negative environmental impacts

3
This result is driven by the multinational dimension of the group and not by the participation to the group itself: we
performed the above presented analysis including a variable capturing this second effect and its coefficient was not
significant, whereas that of FOREIGNFIRMS was still positive and significant.
12
and increase the effectiveness of green innovations; on the other, multinational with dispersed
locations can access multiple sources of knowledge and be stimulated by different regulations to
improve environmental standards. Besides, while some studies have found a positive relation
among international experience and environmental strategies, other give less straightforward results.
Our results show that in our sample of Italian firms specialized in traditional manufacturing
industries the probability to invest in product or process environmental innovation is higher when
the company does not outsource the production or the suppliers are mainly local, within the same
cluster or region. This could be interpreted as a need to strictly govern the environmental innovation
in order to get results on the market. An environmental innovation is more effective when it
involves the whole value chain and it is positively perceived by the final customer. Hence, this is
feasible when the suppliers are close (also from a cognitive point of view), but it could be very
difficult to carry out eco-innovation practices if they are geographically dispersed and the company
does not have enough market power. Otherwise, vertical integration allows being more independent
in developing eco-innovation strategies.
On the downstream side, we find a negative correlation between export propensity and
environmental innovation. Confirming other researches (see e.g., De Marchi, 2012, De Marchi &
Grandinetti, 2012; Borghesi et al., 2012), while the export performance is usually positively related
with the more general innovation effort of a firm (e.g. Roper and Love, 2002), it seems not to be
compatible with innovation strategies aimed at reducing the environmental impact of firms
activities. One reason, in our case, could be the fact that Italy is considered among the countries
with a high environmental propensitybeing part of the EU, becoming an ideal market for green
firms, compared to other markets. Being characterized by a level of consumer awareness and of
policy stringency similar to that of the most advanced markets, as for environmental practices, firms
based in Italy do not find additional incentives to introduce product or process innovations entailing
lower environmental impacts when exporting.
Finally, belonging to a multinational group reinforces green strategies, both because the group
becomes a crucial source of knowledge and the company can take advantage of intra-group
synergies. Three are the only structural firm variables of those included in the analysis that seem to
be related to the environmental proactivity as far as eco-innovation is concerned: a) the presence of
an environmental certification; b) the size, and c) the propensity to innovate within a network of
collaborations, especially when product innovation is concerned.
Summing up, our results offer interesting insights on the link between the firms
internationalization and its environmental attitude, by stressing a twofold path in this direction. On
the one hand, the less internationalized the production value chain, the higher the probability to

13
invest in green processes or products. On the other hand, the opposite relationship appears when
considering the knowledge value chain. In fact, the company benefits from being inserted in an
international group and being open in the process of innovation development, cooperating with
national and international research partners.
We think these results can contribute to the stream of research about the determinants of
environmental innovation, that is still young especially when the focus is the impact of a firms
internationalization. Nevertheless, this study suffers some limits due to the definition of process and
product innovation, that was considered only in general terms and that do neither control for the
intensity of the eco-innovative effort, nor distinguishing between firms introducing a high or a low
number of EIs, which can lead to very different results (see e.g.. De Marchi & Grandinetti,
forthcoming).
Future research is needed to better analyze the role of internationalization, going more in depth in
investigating if the geography of exports (countries served) is related to different green strategies
impact of firms propensity to include environmental concerns in their innovation activities. In fact,
our analyses indicate that the relationship between the environmental innovation and export may
not be linear and straightforward and encourage to further the analysis considering for different
market destinations characteristics and to interact such variables with other characteristics of the
firms strategy.

Appendix

Table 3: Simple correlations among regressors

1. 2. 3. 4. 5. 6. 7. 8. 9.
1. LOCALSUPP 1
2. OUTSOURCING 0.6840* 1
3. EXPORT 0.0332 0.1612* 1
4. FDI -0.0067 0.1688* 0.2108* 1
5. FOREIGNFIRMS -0.0682 0.044 0.2141* 0.3329* 1
6. R&D 0.0458 0.1840* 0.2187* 0.2838* 0.1771* 1
7. CERTIFIED 0.0074 -0.0055 0.0582 0.1069* 0.2274* 0.1267* 1
8. MICRO -0.0121 -0.0516 -0.1105* -0.1007* -0.1189* -0.2463* -0.1345* 1
9. SMALL -0.0137 -0.0863* -0.1071* -0.2417* -0.3067* -0.1662* -0.1782* -0.3639* 1
10. COLLABORATION 0.012 0.0815* 0.1231* 0.2584* 0.2548* 0.3572* 0.1667* -0.1368* -0.1977*

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