Supply Chain Management: An International Journal

The Effects of Green Supply Chain Management on the Supplier’s Performance through Social Capital
Accumulation:
Su-Yol Lee
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To cite this document:
Su-Yol Lee , (2015),"The Effects of Green Supply Chain Management on the Supplier’s Performance through Social Capital
Accumulation", Supply Chain Management: An International Journal, Vol. 20 Iss 1 pp. -
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 The Effects of Green Supply Chain Management on the Supplier’s Performance through

Social Capital Accumulation

1. Introduction

Firms have increasingly reexamined their supply chains in response to a number of

environmental challenges such as global environmental regulations, green consumerism, and

climate change. In fact, firms might face a wide range of environmental risks associated with
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their supply chains (Handfield et al., 2005). A number of firms have changed their managerial

behavior toward greener supply chains by introducing environmental audits and certification

schemes (e.g., ISO 14001 and SA 8000 １ ) as well as providing their suppliers with

environmental support (Wu et al., 2012) and fostering environmental collaboration (Canito et

al., 2012; Vachon and Klassen, 2006).

As such green supply chain management (GSCM) practices have diffused throughout

industries, researchers have characterized GSCM practices, examined internal and external

drivers of GSCM and assessed performance outcome. The existing GSCM research, however,

has limitations for some aspects. First, organizational theories need to be applied to GSCM

studies in explicit ways because those theories provide a valuable source of theoretical

underpinning for deepening research in the literature (Sarkis et al., 2011). However, much of

the literature on the applications and uses of theory in GSCM research has been relatively

recent, and thus a substantial opportunity exists for an extension of GSCM research utilizing

the myriad organizational theories. Second, while an increasing number of studies have

１
ISO 14001 is one of ISO 14000 family standards that address various aspects of environmental management. It
sets out the criteria for an environmental management system and can be certified to
(http://www.iso.org/iso/iso14000). The SA8000 standard is an auditable social certification standard based on the
UN Declaration of Human Rights, conventions of the ILO(International Labor Organization), and UN and national
law (www.sa-intl.org).

1
 examined the relationship between GSCM and overall supply chain performance (Seuring and

Muller, 2008), this relationship remains inconclusive. This suggests that GSCM research

should consider the identification of intervening variables to better explain the direction of this

relationship (i.e., positive vs. negative). Third, helping suppliers to recognize the importance of

addressing environmental issues and supporting them in implementing their own improvement

initiatives represent a major agenda facing firms today (Ageron et al., 2012). However, the

number and scope of GSCM studies considering both of monitoring and collaboration
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approaches, in particular empirical studies, remain limited (Vachon and Klassen, 2008).

Given these gaps in the literature, this study aimed to examine the effects of GSCM on the

environmental and operational performance of the supply chain by considering social capital

accumulation as a mediating role. The research questions of this study can be specified: Does

GSCM influence the accumulation of social capital in the supply chain? Does social capital

contribute to the improvements of environmental and operational performance of the supply

chain? Overall, does social capital play a critical role to mediate the effects of GSCM on

environmental and operational performance? To explore the relationship between GSCM and

supply chain performance, this study utilizes social capital theory for some reasons. First,

social capital theory has been paid an increasing attention in supply chain management studies

(e.g., Carey et al., 2011; Lawson et al., 2008; Krause et al., 2007). This theory can be applied to

the GSCM studies because GSCM is essentially an extension of SCM by integrating

environmental issues into SCM practices. Second, GSCM and social capital can be understood

to be fundamentally parallel to one another. Social capital is accumulated through a process of

firms building social relationships in ongoing networks. GSCM is essentially a reciprocal

program among supply chain partners, thereby facilitating the embeddedness of partner firms

in a supply chain. Third, social capital or social embeddedness are believed to be promising and

2
 important theoretical underpinning for strengthening research in GSCM (Sarkis et al., 2011).

This paper developed a research model by combining GSCM research and social capital

theory and empirically validated hypotheses using survey. The structural equation model

depicting the effects of GSCM on the supplier’s environmental and operational performance

through structural and relational social capital was empirically tested on data of 207 responses

collected from supplying firms in South Korea. By doing this, this paper makes three

contributions. First, this paper utilizes social capital theory in an explicit way to explore the
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relationship between GSCM practices and performance. Little attention has been paid to social

capital in the GSCM literature (Wu et al., 2012). This paper is one of the few studies to explore

GSCM from a perspective of social capital. Second, this study suggests and validates a

mediating role of social capital in the relationships between GSCM and the environmental and

operational performance. Social capital is believed as one of important underlying variables to

connect GSCM and performance outcome. By doing this, this paper provides a better

explanation of the effects of GSCM on performance. Third, the paper clarified GSCM practices

and developed measurement by considering both monitoring and collaboration aspects of

GSCM. This study also provides an empirical analysis of those relationships among GSCM,

social capital, and environmental and operational performance through structural equation

modeling. The results of the analysis indicate that GSCM has positive effects on the supplier’s

environmental and operational performance through social capital accumulation. Relational

social capital, in particular, plays a more important pivoting role in the relationships between

green supply chain management, environmental and operational performance.

The rest of this paper is organized as follows: Section 2 briefly reviews previous research

on GSCM and social capital theory. Section 3 discusses the research framework and

hypotheses. Section 4 describes the research method, and Section 5 presents the results and

3
 discussion of the empirical analysis. Section 6 concludes with the theoretical and practical

implications of the study as well as with this study’s limitations and some suggestions for

future research.

2. Theoretical Background

This section provides a brief review of social capital theory and previous research on green

supply chain management (GSCM).

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2.1 GSCM

GSCM is generally understood as a set of managerial practices that integrate environmental

issues into supply chain management in order to ensure environmental compliance as well as to

foster environmental capability of the entire supply chain (Canito et al., 2013; Paulraj, 2011;

Sarkis et al., 2011). Researchers have examined GSCM by characterizing it as green

purchasing (Min and Galle, 2001) and green supply chain practices (Green et al., 2012; Lee

and Klassen, 2008). Zhu and Sarkis (2004) proposed a broader perspective of practices,

including internal environmental management, green purchasing, investment recovery, eco-

design practices, and cooperation with supply chain partners. The GSCM literature has clearly

identified regulatory and customer demands prompt GSCM practices in a focal firm, but these

practices diffuse along the entire supply chain through buyers as “secondhand” regulations

(Lee and Klassen, 2008; Hall, 2000). A supply chain’s awareness of environmental issues and

its efforts to improve its environmental performance are triggered and motivated mainly by

buyers’ policies and activities in terms of monitoring and supporting the supplier. Green et al.

(2000) provided empirical evidence that regulations played the strongest role in improving

environmental performance, followed by the environmental pressure of customers. Not all

firms are exposed to the same types of pressure or to the same extent. In general, environmental

4
 pressures are often passed along to suppliers from downstream firms. Lee et al. (2014) have

observed some large buying firms such as Benetton in the apparel industry and Samsung SDI in

the electronics industry placed a more stringent environmental requirement onto their suppliers

than that they received from the market while they were responding to new environmental

regulations such as EU’s RoHS and REACH directives.２

Collectively, GSCM practices can be classified into two distinct but complementary

approaches: monitoring and collaboration approaches (Vachon and Klassen, 2006; 2008).
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Monitoring-based practices involve the gathering and processing of supplier information, the

establishment of supplier assessment criteria, and the evaluation of the environmental

performance of suppliers and their products. Many large firms have adopted green procurement

policies. For instance, many firms in the automobile and electrical/electronics industries have

required their suppliers to guarantee their full compliance with environmental regulations such

as the RoHS and WEEE directives ３ (Canito et al., 2012; Lee and Cheong, 2012; Paulraj,

2011). Suppliers have been required to implement environmental management systems (EMSs)

and validate them by securing international certifications such as ISO 14001. In addition, some

major suppliers of high-volume materials, parts, and components have been requested to

submit material composition data on each product, including carbon footprint data.

By contrast, collaboration-based GSCM requires the direct involvement of buyers in their

suppliers to improve the latter’s green performance. Collaboration tends to focus more on

building the supplier’s potential and capability than on achieving short-term results (Vachon

and Klassen, 2006). This approach encompasses a broad range of activities, including training

and education programs, information and experience sharing, and technical and financial
２
The RoHS directive shorts for Directive on the restriction of the use of certain hazardous substances in electrical
and electronic equipment; The REACH directive shorts for Directive on registration, evaluation, authorization and
restriction of chemicals.
３
The WEEE directive shorts for Directive on waste of electrical and electronic equipment.

5
 assistance to implement various environmental management systems and achieve related

certifications in the environmental area (e.g., Wu et al., 2012; Zhu et al., 2008; Vachon and

Klassen, 2006; Zhu and Sarkis, 2004).

2.2 Social capital

Social capital is usually understood as a valuable asset that stems from access to resources

made available through social relationships (Granovetter, 1992). Social capital theory has
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provided a theoretical perspective to examine the advantage gained by firms through their

social networks. Nahapiet and Ghosal (1998) proposed three dimensions of social capital:

cognitive, structural, and relational. The cognitive dimension of social capital refers to the

shared goals, vision and values between actors in a social network, which provides the parties

with shared representations, interpretations, and systems of meaning (Tsai and Ghosal, 1996).

Cognitive capital facilitates the development of common understanding and collective

ideologies, outlining appropriate ways for buyers and suppliers to coordinate their exchange,

and share each other’s thinking processes (De Carolis and Saparito, 2006). However, it is

challenging to operationally separate the cognitive dimension from the structural and relational

dimensions, and therefore the latter two types of social capital are often considered in the

literature based on Granovetter’s distinction between structural and relational embeddedness

(Lawson et al., 2008). Following this perspective, the study focuses on structural and relational

dimensions of social capital.

Structural social capital refers to the pattern of connections between actors that is, who you

reach and how you reach them (Nahapiet and Ghosal, 1998). Structural social capital has been

examined along a range of perspectives, including social ties or network characteristics (Inkpen

and Tsang, 2005; Zaheer and Bell, 2005), as information and knowledge sharing (Lawson et
6
 al., 2008), and as the strength of social interactions (Krause et al., 2007; Oh et al., 2004). First,

supply chain partners need to create a social network structure with dense interactions and

multiple connections in order to enhance continued communication. Frequency and interaction

of multiple contacts at different levels and various functions act as conduits for information and

resource flows providing the time, opportunity and motivation to strengthen the relationship of

the parties (Yu et al., 2006). Second, communication quality, the extent of information sharing,

and participating in planning and goal setting are all important aspects of structural social
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capital (Koka and Prescott, 2002). Information sharing encourages the openness of interaction

and behavioral transparency, while simultaneously discouraging opportunistic behavior and

information asymmetries in the relationship. Third, the strength of interactions are usually

operationalized as purposefully designed organizational social events, team building exercises,

joint problem solving workshops and cross-functional team (Carey et al. 2011; Krause et al.,

2007). Such interaction ties facilitate cooperation in the supply chain. In sum, structural social

capital recognizes the advantages derived from the configuration of the network of contacts,

continued communication, information sharing, and social interaction ties.

The relational dimension refers to trust, obligations, respect, and friendship present in

personal relationships between actors (Nahapiet and Ghosal, 1998). Trust is one of essential

elements of relational social capital (Inkpen and Tsang, 2005). Trust built through repeated

transaction reduces the expectation of opportunistic behavior, encourage open communication,

and enhance behavioral transparency between parties (Dyer and Singh, 1998). Similarly

friendship, respect and reciprocity are also developed through repeated transactions and a long-

term relationship (Kale et al., 2000). Relational social capital creates a mutual confidence that

the parties would not exploit the other’s vulnerability, and thus builds reciprocity norms that

serve to transform buyers and suppliers from self-centered partners into members of a

7
 relationship with shared value and a sense of the common good (Villena et al., 2011). In sum,

relational social capital focuses on long-term and partnership based relationships that develop

trust, respect, friendship, and reciprocity over time, and thus facilitate cooperative behavior

while reduce transactions costs.

3. Hypothesis Development

This section suggests a research framework and a total of seven hypotheses on the relationships
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among GSCM, structural and relational social capital, and environmental and operational

performance.

3.1 GSCM and social capital

GSCM is essentially a reciprocal program requiring mutual recognition by supply chain

partners. Through a transparent evaluation of performance and an effective feedback system for

GSCM, supply chain partners can share common environmental goals and thus can reach a

common philosophical understanding. This is because such an evaluation and feedback process

can enable suppliers to become aware of their performance level and the buyer’s performance

expectations in terms of environmental as well as economic areas. GSCM also emphasizes

open and frequent communication and the level of information sharing can increase through the

product’s carbon footprint and chemical composition. Better mutual understanding and an open

channel of communication regarding to environmental requirements can minimize potential

conflicts between the supply chain parties (Wu and Ragatz, 2010) and thus increase the

strength of relationships.

GSCM practices focus more on developing future technical, product development, and

management capabilities than on improving current quality, cost, and environment (Watts and

Hahn, 1993; Vachon and Klassen, 2006; Lee and Klassen, 2008). The greater the extent and

8
 scope of support or joint activities, the more likely the buyer is to perceive its suppliers as

partners than as contractors (Krause and Ellarm, 1997) and thus to move toward a closer

relationship (Nyaga et al., 2010; Joshi and Stump, 1999). Similarly, suppliers are likely to

perceive buyers’ direct involvement and joint events, including training, education, and

technical assistance, as a signal of long-term commitment and partnership (Krause et al., 2007),

and therefore social capital is likely to be easily accumulated through GSCM practices.

Based on the above discussion, this study tests the following hypothesis:
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H1a. GSCM is directly and positively related to the level of structural social capital.

H1b. GSCM is directly and positively related to the level of relational social capital.

3.2 Social capital and the environmental and operational performance of suppliers

This study posits that social capital has considerable influence on supplier’s environmental and

operational performance by mediating the effect of the buyer’s GSCM practices. When strong

interaction ties and trust are built based on a long-term based relationship, suppliers are likely

to be motivated to generate new ideas, find new solutions, work together to solve complex

problems, and improve their environmental as well as economic performance.

Few studies have examined the effects of social capital on environmental performance in

explicit ways. Recently, Wu et al. (2011) considered social capital as one of drivers for the

adoption of GSCM practices. They did not examine the effects of structural and relational

dimensions of social capital in an explicit way. Their work, however, provided a meaningful

implication about the possibility of the positive relationship between social capital and GSCM

practices.

Improvements in environmental performance require a high level of technical expertise in

production and product design. For example, the life cycle assessment is highly technical in
9
 nature and demands the use of material science. Environmentally conscious product design

skills such as “design for the environment,” “cradle-to-cradle” design, and “servicizing” are

built on solid conventional capabilities such as engineering skills, design expertise, and product

knowledge (Parmigiani et al., 2011). Suppliers are not likely to possess sufficient information,

know-how, and knowledge to address these emerging environmental issues in their products

and operations. Social capital such as communication, information sharing, and joint activities

can facilitate knowledge transfer (Modi and Mabert, 2007), which helps suppliers to address
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those limitations and improve their environmental capability and performance (Parmiginani et

al., 2011).

Long-term and trust-based relationships with suppliers increase the suppliers’ commitment

and provide them with more incentives to improve their environmental capabilities. In sum,

communication, information sharing, trust, and knowledge transfer formed through a strong

relationship (Krause et al., 2007; Ireland and Webb, 2007) can provide a basis for the

development of innovative solutions to environmental challenges (Parmigiani et al., 2011) and

thus improve the environmental performance of the supplier.

Based on the above discussion, this paper tests the following hypotheses:

H2a. Structural social capital is positively related to the supplier’s environmental

performance.

H2b. Relational social capital is positively related to the supplier’s environmental

performance.

In terms of operational performance, a number of SCM studies have provided support for

the notion that social capital plays a critical role in driving performance improvements in

supply chains (e.g., Carey et al., 2011; Lawson et al., 2008; Krause et al., 2007). Structural

10
 social capital, operationalized as communication and information exchange, allows for better

planning, goal setting, and problem solving, and thus leads to improvements in buyer and

supplier performance (Lawson et al, 2008). Social interactions such as technical exchanges

help to improve supply chain performance (Kotabe et al., 2003). Similarly, relational social

capital also helps improve performance within buyer and supplier relationships. For instance,

trust, friendship, respect, and reciprocity contribute to improving relationship performance by

reducing the expectation of opportunistic behavior and decreasing monitoring costs (Dyer and
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Singh, 1998). Relational social capital also provides the buyer and supplier with incentives to

engage in value-added initiatives, and increases the willingness to explore new opportunities

(Kale et al., 2000). There are a large number of empirical evidence of the benefits of relational

social capital in terms of improved quality, cost, flexibility, productivity performance (Lawson

et al., 2008; Cousins et al., 2006; Dyer and Chu, 2003), and innovation performance (Carey et

al., 2011; Capaldo, 2007). In sum, social capital fostered by information sharing, frequent

communication, and joint problem solving events as well as trust, partnership and familiarity

can provide supply chain members with opportunities to improve its operational performance

(Nyaga et al., 2010; Daugherty et al., 2006; Whipple and Frankel, 2000).

H3a. Structural social capital is positively related to the supplier’s operational

performance.

H3b. Relational social capital is positively related to the supplier’s operational

performance.

3.3 Environmental performance and operational performance

A number of studies have provided evidence and explanations of the positive correlations

between environmental and firm performance (e.g., Russo and Fouts, 1997; Klassen and
11
 McLaughlin, 1996). However, it should be noted that previous empirical studies have generally

produced mixed results indicating trade-offs or some ambiguity between environmental and

firm performance, fostering an ongoing debate (Corbett and Klassen, 2006). Several

explanations for the mixed empirical results have been suggested. Inconsistency in how key

variables are defined and measured across studies can be one explanation (Peloza, 2009). With

regard to environmental performance, several different approaches to operationalize and

measure the performance have been used such as third-party assessments (e.g., KLD
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environmental ratings), a more direct measure (e.g, the US Environmental Agency’s Toxics

Release Inventory), and self-reported data (e.g., questionnaires). Furthermore, the measures

have been extended to encompass a wide range of dimensions such as product-related,

organizational-related, and supply chain-related environmental performance (or capabilities) as

well as manufacturing process-related one (e.g., Lee and Klassen, 2008). Another explanation

for the mixed results is that the relationship between environmental strategy (or environmental

performance) and firm performance is very likely recursive in nature and highly complex in

any case (Russo and Minto, 2012: 37p).

Despite such mixed empirical results, there are multiple persuasive theoretical logics

underlying the relationship between environmental performance and economic performance.

First, in operations and supply chains, a win-win view is often exemplified by total quality

management (TQM) and lean manufacturing, which perceive that quality management, lean

production, and environmental management (e.g., waste reductions, efficient and effective

input use, and control of internal processes) are fundamentally parallel to one another

(Curkovic et al., 2008; Corbett and Klassen, 2006). An increasing number of studies have

provided support for this notion by presenting empirical evidence that environmental

improvements can enhance delivery performance and reduce the cost of goods (Carter et al.,

12
 2000) as well as improve net income and reduce overall costs (King and Lenox, 2002; Melnyk

et al., 2003; Rao and Holt, 2005). Second, the concept of “innovation offsets” has been widely

used to explain win-win scenarios. Porter and van der Linde (1995) stated that the benefit of

environmental management exceeds its cost because it can facilitate innovation and thus reduce

the cost of pollution. In addition, innovation-driven environmental improvements can reduce

regulatory costs. Third, an increase in the environment-friendly demand for products can

explain win-win scenarios (Hanna and Newman, 1995). Brands have increasingly demanded
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higher product standards from their suppliers in the terms of environmental and safety quality.

In this regard, those suppliers who can guarantee their green capability and performance are

more likely to win contracts.

Based on the above discussion, this study proposes the following hypothesis:

H4. The supplier’s environmental performance is positively related to its operational

performance.

Overall, this study examines the effects of GSCM on supplier environmental and operational

performance by considering the mediating role of social capital. Figure 1 visualizes the

relationships between these constructs as an antecedent, consequences, and an intervening

factor.

(Insert Figure 1 about here.)

4. Research Methodology

4.1 Survey

The theoretical constructs used in this study such as GSCM, social capital, environmental

performance, and operational performance were adopted from previous research. This study

13
 developed measurement scales by selectively combining items that were used and validated in

the previous studies (See Appendix). The survey instrument was pre-tested with managers of

six suppliers in Korea. These managers were well acquainted with the GSCM practices of their

customers because they dealt with their customers’ environmental requirements as well as

conventional quality, cost, and delivery demands. Their feedback was used to improve format

and clarity of the survey. All items are perceptual measure using a seven-point Likert scale.

Firm size was considered as a control variable that was measured in terms of the number of
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employees. Collectively, the survey included measurement scales of GSCM, structural and

relational social capital, environmental and operational performance, and firm size.

Green Supply Chain Management This study developed seven items for GSCM by

combining items adapted and modified from previous research on GSCM (e.g., Giovanni 2012;

Green et al., 2012; Zhu et al., 2008; Lee and Klassen, 2008; Klassen and Vachon, 2006; 2008).

This seven-item scale also reflected the two approaches (environmental criteria for supplier

evaluations, environmental management system certification, auditing, environmental

information sharing, educational and technical assistance, and environmental collaboration).

Social Capital This study designed two scales to measure the level of social capital in terms

of the structural and relational social capital dimensions. First, four items were developed for

structural social capital based on the relevant previous studies (e.g., Villena et al. 2011; Carey

et al. 2011; Lawson et al. 2008; Krause et al. 2007). These items reflected information sharing,

frequent interactions, joint problem solving, and knowledge transfer. Second, four items were

used to measure relational social capital by adopting those items used in the literature. These

items include mutual trust, mutual respect, long-term partnership, and family-like atmosphere

(e.g., Villena et al. 2011; Carey et al. 2011; Lawson et al. 2008; Chen et al., 2004; Kale et al.,

2000).

14
 Environmental Performance A perceptual scale consisting of six to measure the supplier’s

environmental performance was developed. This study utilized self-reported perceptual

measurement because the third-party assessments (e.g., KLD) or a direct measure (e.g., TRI) of

the sample were not available. Among the six items, two were related to product-related

environmental performance, reflecting the ability to develop green product (Chen, 2008) and

provide environmentally conscious products to the customer (Lee and Klassen, 2008). The

other four items were related to operations-related environmental performance in terms of the
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input of materials and energy, and the output of waste and emission, which were commonly

used in the literature (e.g., Green et al., 2012; Giovanni, 2012; Paulraj, 2011; Zhu et al., 2008).

Operational Performance This study measured the supplier’s operational performance with

perceptual measures. Previous studies of operations and SCM have reached a general

consensus on a list of competitive priorities that can serve primary performance goals for

supply chain partners, including quality, cost, delivery, and flexibility (Krause et al., 2007;

Ward et al., 1998). In addition, productivity, new product development and customer

satisfaction were included in this scale.

4.2 Sample

The data were collected via a survey sent to 850 supplying firms (B2B firms), sampled from a

database of the Korea Small and Medium Business Administration. This study targeted a single

well-informed respondent who was well acquainted with buyers’ requirements and

collaborative activities in economic and environmental areas, such as the CEO or the senior

manager in charge of sales, quality assurance, production, or planning. Each firm was first

contacted by telephone to request its participation in the survey, and for those willing firms,

and asked for appropriate respondents. The questionnaire was then mailed, faxed, or e-mailed

to potential respondents. One week after sending the questionnaire, non-respondents were
15
 reminded by telephone and asked again to submit the completed questionnaire. The survey was

conducted in 2011 and a total of 248 responses were collected (a 29.2% response rate). Table 1

provides a summary of the respondents.

(Insert Table 1 about here.)

Non-respondent bias was assessed by comparing the responses that were returned before

the reminder call with those were returned after the call. For this, 20 items from the survey
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were randomly selected and conducted a t-test to examine any differences in responses between

early and late respondents (n1 = 143, n2 = 105). No significant difference was found at the 95%

confident interval, indicating no difference between the sample and the population. A total of

41 responses were excluded from further analysis because they were B2C firms or had missing

data. Common method variance (CMV) was also examined by using the Harmon’s single-

factor approach. If CMV exists, a single factor will emerge from a factor analysis of all survey

items or one general factor will account for most of the common variance in the data

(Podsakoff et al., 2003). A factor analysis revealed five distinct factors with the eigen-value-

greater-than-one criterion that accounted for 67% of the variance and the first factor accounted

for only 28% of the variance. The results suggested absence of the CMV problem.

4.3 Validity of the Measurement Model

This study tested the measurement model for its reliability, validity, and unidimensionality.

Before collecting data, this study established the content validity of the survey through an

extensive literature review, discussions with both practitioners and academic experts in the

area, and a pretest of the survey with the interviewees. This section addresses the issue of

construct validity.

16
 The study conducted an exploratory factor analysis (EFA) and a confirmatory factor

analysis (CFA) to evaluate construct validity (Villena et al., 2011). First, an EFA for GSCM

provided one factor, representing all of seven items were loaded on one dimension. Second,

this study conducted an EFA for social capital, and as expected, the study identified the two

dimensions: structural and relational social capital. Third, an EFA was also carried out for

environmental performance and confirmed one dimension. Then, a CFA was conducted to

evaluate the unidimensionality of the variables. Table 2 shows the standardized factor loading.
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Each indicator’s estimated loading on its posited construct was significant. The CFA results

provide support for the unidimensionality and convergent validity of the constructs. Table 3

shows the correlations between the latent variables. Discriminant validity was assessed by

examining whether the average variance extracted for items exceeded the average shared

variance (square of off-diagonal correlations) between two constructs (Fornell and Larcker,

1981). All constructs satisfied this criterion, indicating sufficient discriminant validity. For

sufficient reliability, Cronbach’s alpha should exceed the generally accepted threshold of .7 for

all constructs.

(Insert Tables 2-3 about here.)

4.4 Structural Model

This study used structural equation modeling (SEM) to estimate the relationships between the

latent constructs simultaneously. The model was tested based on a covariance matrix

implemented using LISREL 8.33 (Joreskog and Sorbom, 1996). As shown in Table 4, the

results for the fit indices indicate a reasonable fit (Hu and Bentler, 1999; Browne and Cudek,

1993).

(Insert Table 4 about here.)

17
 5. Results and Discussion

As shown in Figure 2, GSCM had direct positive relationships with structural social capital

(path coefficient=.70 and t=7.83) and relational social capital (path coefficient=.58 and t=7.18).

Both structural and relational social capital had a significant effect on the environmental

performance of the supplier (path coefficient=.22 and t=2.59 and path coefficient=.45 and

t=5.36, respectively). Relational social capital was positively associated with operational

performance (path coefficient=.37 and t=4.63) while structural social capital did not have a
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significant effect on the operational performance of the supplier. Lastly, environmental

performance had significant effects on operational performance (path coefficient=.46 and

t=5.29). Noteworthy is that GSCM had a significant indirect effect on supplier operational

performance along structural and relational social capital between the buyer and supplier

relationships (Table 5).

(Insert Figure 2 about here.)

5.1 Research Implications

The results provide strong support for the argument that GSCM can increase social capital of

the supply chain (H1; Figure 2). As a reciprocal program between supply chain partners,

GSCM focuses on frequent communication and shared goals and deepens mutual

understanding as well as motivates the buyer’s direct involvement and collaboration. Such

reciprocal practices such as information and knowledge sharing and social interaction ties are

known as prerequisites for structural social capital (Lawson et al., 2008; Inkpen and Tsang,

2005). GSCM plays an important role in fostering mutual trust, respect and reciprocity of the

supply chain partners. These are essential elements of relational social capital (Nahapiet and

Ghosal, 1998; Inkpen and Tsang, 2005). Collectively, the results of this study strongly support

18
 the notion that structural social capital (e.g., social interaction ties) and relational social capital

(e.g., mutual trust and commitment) can be much easily accumulated through GSCM practices

between supply chain partners. Suppliers tend not to welcome buyers’ stringent environmental

requirements (e.g., Lee et al., 2014). However, the results indicate that suppliers might

willingly accept buyers’ tougher requirements for environmental performance because they

considered this as a signal of a long-term partnership, which increasing social capital. As a

result, GSCM is believed to foster better mutual understanding and an open channel of
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communication regarding to environmental issues, and therefore minimizes potential conflicts

and increase the strength of relationships (i.e., social capital) (Wu and Ragatz, 2010).

The results empirically verify a significant positive effect of social capital on environmental

performance (H2; Figure 2). To date, a few studies have explored how social capital influences

environmental performance in the supply chain. This study provides evidence that social capital

including information sharing, frequent interactions, collaborative problem solving, mutual

trust and respect, and partnership-oriented relationship improves the environmental

performance of the supply chain. Suppliers, in particular small- and medium sized suppliers,

are usually suffering from lack of information, resources, knowledge, and know-how to address

emerging environmental issues in their products and operations (Parmigiani et al., 2011; Lee

and Klassen, 2008). Both structural and relational social capital are likely to facilitate

environmental knowledge transfer and environmental investment (Cheng et al., 2008), thereby

fostering the environmental capability of the supply chain. This positive relationship between

social capital and environmental performance is much in line with supply chain theories such

as supplier development (e.g., Krause et al., 2007) that argue the positive effects of social

capital on knowledge transfer and performance.

The results provide evidence supporting a positive relationship between relational social

19
 capital and operational performance (H3b; Figure 2), which is very consistent with previous

studies and social capital theory in the supply chain (Carey et al., 2011; Lawson et al., 2008).

However, support was not found for the positive and direct effect of structural social capital on

operational performance (H3a; Figure 2). The reason behind this result may be twofold: First,

the effect of relational social capital on operational performance was predominant that the

effect of structural social capital was not shown to be significant. Second, structural and

relational social capital might influence each other. This study did not consider the relationship
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between two dimensions of social capital in the research model; however, some of previous

studies examined a mediating role of relational social capital between structural social capital

and operational performance. In this relationship, structural social capital was not shown to

have a direct and significant effect on operational performance (Carey et al., 2011).

Support was found for Hypothesis 4, the positive and direct relationship between

environmental and operational performance (Figure 2). This result is very consistent with the

findings of previous studies acknowledging a win-win scenario between environmental and

economic benefits in the supply chain (Zhu and Sarkis, 2004). Collectively, it is a noteworthy

is that GSCM increases the supplier operational performance through social capital as well as

through environmental performance. This study found a strong support for the role of social

capital in mediating GSCM to supplier operational performance (Table 5).

The results highlight the importance of social capital that as a mediating role in increasing

the supplier’s environmental and operational performance. Social capital provides a better

understanding about how GSCM practices can contribute to higher environmental and

operational performance of the supplier. Noteworthy is that relational social capital plays a

more critical mediating role between GSCM and the supplier performance compared to

structural social capital (Table 5). The total effects of relational social capital on environmental

20
 performance (0.45) and operational performance (0.47) are larger than those of structural social

capital (0.22 and 0.07, respectively).

(Insert Table 5 about here.)

5.2 Practical Implications

The results of a series of rigorous tests also provide important guidelines for managers of

suppliers as well as buyers who wish to foster stronger operational performance as well as

environmental performance throughout the supply chain.

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First, the results suggest that GSCM can enhance social capital accumulation among supply

chain partners, and thus increase environmental and operational performance. Managers should

recognize the positive effects of GSCM on communication, mutual understanding, goal

congruence, shared philosophies, and benefit sharing as a source of collaborative advantage

(Cao and Zhang, 2011; Tuten and Urban, 2001). GSCM eventually brings all supply chin

partners benefits. Noteworthy is that each GSCM practice has an impact on social capital

accumulation at different levels. Table 6 illustrates that collaboration-based GSCM practices

have more significant effects on social capital than monitoring-based GSCM practices.

Providing environmental information and assistance and joint greener product development

(GSCM05, GSCM06 and GSCM07, respectively) are shown to be more significantly

associated with structural social capital than monitoring-based practices such as environmental

performance evaluation and the requirements of EMS implementation and environmental-

friendlier product. With regard to relational social capital, a GSCM practice to provide

suppliers with relevant environmental information (GSCM05) has the greatest effect. The

results provide an important implication that firms need to focus more on support and

collaboration when attempting to enhance social capital with their suppliers.

21
 (Insert Table 6 about here.)

Second, integrating environmental issues into supplier development practices is advisable.

Supplier development is generally understood as any activity initiated by a buyer to improve

the capability or performance of its suppliers (Krause et al., 2007; 1998). GSCM practices also

aim to foster the supplier’s environmental capability. The research model of this study suggests

little difference between GSCM and supplier development because both of them employ formal

and transparent supply/supplier selection processes, audits, and engage in support and
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collaborative activities. GSCM practices do not build on an entirely new set of skills.

Therefore, GSCM could be easily and quickly implemented when it is integrated into supplier

development program. This parallel also implies that efforts to foster greener SCM practices

should enhance firms’ capability for continuous improvements in the supply chain (Sharma and

Vrendenburg, 1998; Hamprecht et al., 2005).

Lastly, the results support a win-win scenario between environmental and operational

benefits in the supply chain (Zhu and Sarkis, 2004; Carter et al., 2000). Suppliers’ efforts to

increase environmental performance may facilitate their organizational learning, which in turn

should enhance their operational performance. As purchased materials and components today

account for the largest share of total company expenditure, firms increasingly rely on their

suppliers for gaining and sustaining competitiveness. Firms also look to their supply partners to

provide goods that ensure environmental performance as well as quality, cost, and delivery

performance of their products. Demand for higher environmental and operational performance

to suppliers tends to be transferred along an upstream supply chain, which initiates

improvements and innovations. Similarly, improved environmental and operational

performance at any echelon of a supply chain moves along a downstream supply chain.

Collectively, the positive performance outcomes that accrue for the buyer or supplier as a result

22
 of social capital accumulation diffuse throughout to benefit the entire supply chain.

6. Conclusion

This study provides a better understanding of GSCM and its effects on environmental and

operational performance with a perspective of social capital accumulation in the supply chain.

This paper is one of the few studies that consider social capital theory in GSCM. By doing this,

this study provides theoretical underpinning for furthering the GSCM literature. The results
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highlight the critical role of GSCM and the mediating and amplifying role of social capital in

increasing the environmental and operational performance of the entire supply chain beyond

the dyad. First, GSCM contributes to the accumulation of social capital in the supply chain.

Second, social capital improves the environmental and operational performance of the supply

chain. Third, GSCM has positive relationships with supply chain performance through social

capital accumulation. Relational social capital, in particular, plays a more important pivoting

role between GSCM and supply chain performance. The findings of this paper provide useful

guidance for supply chain managers considering how to design and manage their supply chains

in order to enhance environmental and operational capabilities of the entire supply chain.

Despite the academic and practical contributions of this study abovementioned, this study

has some limitations. Some directions for future research are suggested. First, this study relied

exclusively on self-reported data. Future work should increase the generalizability of this

study’s findings by using less biased data. For instance, future research should consider

multiple respondents from each participating firm. Second, this study considered only the

environmental issues in the supply chain. Sustainability or corporate social responsibility issues

including social and environmental dimensions in the supply chain need to be addressed in the

future studies. Third, the results of this study may be generalizable to firms in emerging

23
 economies such as China, Vietnam and Indonesia. However, the extent and strength of

particular relationships may vary across countries, and contextual differences may matter.

Future research should investigate how institutional differences influence the relationships

among GSCM, social capital, and environmental and operational performance. The studies also

should be conducted across various industrial sectors such as construction, power, and textile

where few studies are available. To provide a rich description of the findings of this study,

research-motivated case studies will be encouraged.

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 Appendix 1: Questionnaire Items
Construct Item Code Items Reference

GSCM To what extent do you agree or disagree with

each of the following statements (1=not at all,
4=moderately, and 7=very much)?
During the last two years, our major
customer…
GSCM01 assessed our environmental performance Giovanni(2012)a;
through a formal and green procurement Klassen and Vachon
process. (2006)a
GSCM02 demanded us to establish an environmental Klassen and Vachon
management systems. (2006)a; Zhu et
al.,(2008)a; Green et
al.(2012)a
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GSCM03 conducted environmental audits on a regular Zhu et al.(2008)a;

basis. Green et al.(2012)a
GSCM04 demanded us to develop environmental- Lee and Klassen
friendlier products (2008)b
GSCM05 provided us with relevant and helpful Lee and Klassen
information on how to comply with its (2008)b
environmental requirements.
GSCM06 provided us with technical, managerial, and Lee and Klassen
financial assistance to address environmental (2008)b
issues.
GSCM07 and our firm jointly developed environmental- Giovanni(2012)b;
conscious products. Klassen and Vachon
(2006; 2008)b
Structural Capital
To which extent do you agree or disagree with
each of the following statements (1=not at all,
4=moderately, and 7=very much)?
Our major customer and our firm…
SCapital01 are sharing relevant and timely information. Krause et al.(2007)a
SCapital02 are interacting in a frequent and intensive Villena et al.(2011)a;
manner. Lawson et al.(2008)a
SCapital03 are solving problems jointly. Carey et al.(2011)a;
SCapital04 are sharing and transferring knowledge and Krause et al.(2007)a;
know-how each other.
Relational Capital
To which extent do you agree or disagree with
each of the following statements (1=not at all,
4=moderately, and 7=very much)?
RCapital01 Our major customer and our firm trust each Carey et al.(2011)a;
other. Villena et al.(2011)a;
RCapital02 Our firm has a family-like relationship with our Lawson et
major customer. al.(2008)a; Kale et
RCapital03 Our major customer and our firm respect each al. (2000)a
other.
RCapital04 Our major customer considers us as a long- Chen et al.(2004)a

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 term partner.
Environmental Performance
For each of the items listed below, how does
your firm compare with primary competitors?
(1=far worse than competitors, 4=about the
same as competitors, and 7=far better than
competitors)
Eperf01 Environmental performance of products Chen (2008)b; Lee
and Klassen (2008)b
Eperf02 Environmental-friendlier product development Chen (2008)b; Lee
and Klassen (2008)b
Eperf03 Consumption of raw materials Chen (2008)b
Eperf04 Consumption of energy Giovanni (2012)a
Eperf05 Disposal of solid waste ; Green et al.(2012)a;
Eperf06 Emission of pollutants (e.g., SOx, NOx, and Paulraj, 2011a; Zhu
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CO2) et al.(2008)a

Operational Performance
For each of the items listed below, how does
your firm compare with primary competitors?
(1=far worse than competitors, 4=about the
same as competitors, and 7=far better than
competitors)
Operf01 Product quality Krause et al.(2007)a;
Operf02 On-time delivery Ward et al.(1998)a
Operf03 Production costs
Operf04 Ability to change output volume
Operf05 Time to develop new products
Operf06 Total productivity
Operf07 Perceived customer satisfaction
Note: a; adapted and modified from the reference, b; developed based on the arguments of the
reference

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 Table 1 Summary of Responses
Industry Machinery Electrical Telecomm Chemical Total
and and unications (Mean)
Materials Electronics
Sample Size 335 281 134 100 850
Respondents 77 106 22 43 248
Sales (in million
USD) 19.3 12.5 21.3 16.1 17.3
No. of Employees 93 68 103 67 83

Table 2 Constructs’ Reliability and Validity

Item Loading AVE Composite Cronbach-
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Construct
reliability alpha
Green Supply GSCM01 .80 .65 .93 .93
Chain Management GSCM02 .81
(GSCM) GSCM03 .78
GSCM04 .86
GSCM05 .89
GSCM06 .77
GSCM07 .71
Structural Capital SCapital01 .74 .64 .87 .87
SCapital02 .83
SCapital03 .78
SCapital04 .83
Relational Capital RCapital01 .87 .73 .91 .91
RCapital02 .82
RCapital03 .89
RCapital04 .82
Environmental Eperf01 .80 .61 .90 .90
Performance Eperf02 .81
Eperf03 .71
Eperf04 .79
Eperf05 .79
Eperf06 .79
Operational Operf01 .86 .61 .91 .91
Performance Operf02 .85
Operf03 .65
Operf04 .82
Operf05 .65
Operf06 .75
Operf07 .83

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 Table 3 Correlation Matrix
Mean S.D. 1 2 3 4 5
1. GSCM 4.75 1.36 (.65)
2. Structural capital 5.01 1.28 .57** (.64)
3. Relational capital 5.02 1.23 .50** .62** (.73)
4. Environmental performance 4.62 1.03 .48** .43** .55** (.61)
5. Operational performance 5.34 0.91 .29** .39** .57** .63** (.61)
Notes: The lower half of the matrix shows estimated correlations between latent variables, and
figures along the diagonal in brackets indicate the AVE.
*
: p <.05, **: p<.01.
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Table 4 Fit of the Structural Model

Fit Indices χ2 χ2/d.f. RMSEA GFI IFI NNFI CFI SRMR
Desirable or Marginal Range ≤3.0 ≤.08 ≥.80 >.90 ≥.90 ≥.90 ≤.08
Measurement Model 616.72 1.86 .067 .81 .93 .92 .93 .063
Structural Model 623.12 1.87 .067 .81 .92 .90 .92 .080

Table 5 Comparison of the Effects of Structural and Relational Capital on Performance

Environmental performance Operational performance
Direct Indirect Total Direct Indirect Total
Structural capital 0.22 - 0.22 -0.03 0.10 0.07
Relational capital 0.45 - 0.45 0.37 0.10 0.47

Table 6 Correlations between GSCM practices and Social Capital

GSCM practice Structural capital Relational capital
Monitoring-based GSCM
GSCM01 Environmental performance evaluation of 0.40 0.43
the supplier
GSCM02 EMS requirement 0.41 0.42
GSCM03 Environmental audit 0.44 0.39
GSCM04 Environmental-friendlier product 0.45 0.44

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 requirement
Collaboration- based GSCM
GSCM05 Providing environmental information 0.53 0.50
GSCM06 Providing environmental assistance 0.57 0.44
GSCM07 Joint development of environmental- 0.55 0.32
conscious products

H2a Supplier’s
Structural
Environmental
H1a Social Capital
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Performance
H3a
Green SCM H4
(GSCM)
H2b
H1b Supplier’s
Relational
Operational
Social Capital H3b Performance

Figure 1. Research Model

Social Capital 0.22* Environmental

0.70** (Structural) Performance
-0.03
Green SCM
0.46**
(GSCM)
0.45**
0.58** Social Capital Operational
(Relational) 0.37** Performance

Figure 2. Standardized Parameter Estimates for Structural Model

*
: p <.05, **: p<.01.

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