Ng Christine B.
Deriving Competitive Advantage from Environmental Regulations
Ng Christine B.,
Massachusetts Institute of Technology
Abstract
Stringent environmental regulations can be a source of competitive advantage for firms with advanced technologies, superior management, or cost efficiencies. A firm may make the strategic choice to introduce a more costly yet environmentally higher-performing technology in anticipation of future environmental regulation, which will add value to its investment. Such a first-mover firm can actively influence environmental regulation because government regulators use evidence of the technical and cost feasibility of existing or developing technologies to set future standards. Instead of opposing or waiting passively for the next set of standards, first-mover firms compete based on their demonstration of higher environmental performance, while the public benefits from higher environmental quality.
This paper presents two cases from the heavily regulated auto and fuel industries, where first-mover firms introduced cleaner technologies – diesel particulate filters and ultra-low sulfur diesel fuel – ahead of environmental requirements. Documentary research and semi-structured interviews indicate that firm characteristics, industrial structure, industry associations, NGO and public awareness, and regulatory receptiveness have significant impact on first-mover behavior and regulatory influence.
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