Environmental Costs to Competitive Advantages - Research Paper Example

Environmental costs to competitive advantages Environmental costs to competitive advantages Introduction The role of the environmental management is changing, and it is turning out to be A vibrant network in the industry. As of now, there is a shift from its reaction to crises to solving problems to comply with regulations. Reliable sources point out that the following stage of environmental management will go beyond the compliance to encompass costs and competitive advantage (Hitchens, 2002). Competitive advantage reads as an advantage held by a company over its competitors which allows it to generate more income, realize increased sales or margins, and even retain more clients compared to its competition. In the environmental management framework, there can be a number of competitive advantages (Esty & Winston, 2009). They include a company’s cost structure, customer, support, distribution network, and product offerings. This paper will discuss the shifting role of environmental management using the environmental costs to competitive advantage as the scope of the paper’s focus. Background Environmentalists regard environmental costs as one of the vital accounting information that necessitates the ability of management to handle its productivity and administrative decisions in order to achieve evaluation and performance of its work appropriately (Esty & Winston, 2009). In places where environmental costs are part of the major entrances applied by companies to enhance their capability to compete, chances of reducing costs, increasing competitiveness, and increasing profitability are high (Sharairi & Awawdeh, 2011). These situations are only achievable when a company focuses much on ways of serving customers from the economic, health, and social perspective linked to the set goals. Particularly, the application of financial accounting and maintenance of financial statements is substantial for companies in general as it improves the aspect of acquiring the appropriate data and information for company activities (Hitchens, 2002). In order to get the relevant data which is capable of keeping accountable environmental costs that suit the management of the environment, companies must employ various methods that can provide this relevant information (Esty & Winston, 2009). However, literature reviews indicate that most companies are failing to achieve competitive advantage over their rivals in the market mainly because of lacking the essential tools for environmental management costs. This issue is causing such companies whole lots of financial losses, market advantage, and inability to comply with the set environmental rules and regulations (Hitchens, 2002). Without a doubt, there is a need to have pragmatic ways of addressing such issues in order to have these companies engage in better environmental practices, renowned ways of keeping compatible environmental cost records, and gain competitive advantage in the market (Sharairi & Awawdeh, 2011). Methods The research aimed at identifying the influence of environmental costs over the competitive advantage of companies in general but decided to consider, particularly, the pharmaceutical firms in Jordan (Esty & Winston, 2009). By the use of interviews, the study considered identifying the impact of all the prevention operational costs on the competitive advantage carried in pharmaceutical companies in Jordan. With questionnaires, the research aimed at identifying the effect the measurement and inventory activities costs have over the company’s competitive advantage (Sharairi & Awawdeh, 2011). Using qualitative and quantitative system of analysis, the study identified the impact of control activities costs over the competitive advantage of the surveyed pharmaceutical companies in this city. Finally, the research introduced the use of filming, note taking, and recording methods in identifying the effect environmental failures have over the pharmaceutical companies in Jordan (Hitchens, 2002). Results and discussion After the study, the researchers documented their results and analyzed each item with reference to the overall concept of environmental management (Sharairi & Awawdeh, 2011). It came out that in the case of the pharmaceuticals companies in Jordan, in addition to documented evidence, environmental costs are simply the physical sacrifices borne by any company in order for it to be compatible with the set standards of that govern environmental laws (Esty & Winston, 2009). Environmental costs are also the costs incurred during reduction or stoppage of emission of unwanted or harmful substances in the air. According to the outcomes recorded in some questionnaires, environmental management incorporates other costs also associated with the course of minimizing environmental harmful effects on employees and the enterprise as a whole (Hitchens, 2002). The research results classified environmental expenditures into several categories. First, there are operating and usual costs in environmental management costs. These costs relate directly to the products and include the costs of buying raw materials, operating equipment, training, energy, and labor costs (Esty & Winston, 2009). Traditionally, a company bears these costs using the loading rates. Secondly, there are the hidden regulatory costs. In a simple language, these are the government expenditures and they encompass expenditures incurred through governmental regulations. These environmental expenditures are a bit many since they also include examination, training, testing, permission, reports, media, and monitoring (Sharairi & Awawdeh, 2011). Companies use the ABC model (activity basis) to transfer these expenses to products depending on the operations that led to the existence of such expenses. Additionally, research observations revealed that in environmental management costs, there are the contingent liability costs. These expenses comprise fines and sanctions and do not occur anyhow. A company must fall victim of non-compliance with the governmental laws and/or governmental regulations. It also includes any financial settlements and legal allegations emanating from the destruction of property and, in addition, corrective actions as well as environment related cases (Esty & Winston, 2009). Systemically, companies do not estimate these expenses but ask specialists to do that for them; hence, companies are never in a position to underestimate or ignore the presence of these costs as neglect or indemnity can land them into big fines. Apart from those, there are also the less tangible costs. In environmental studies, less tangible costs describe those expenses that result from consumer response to terminate or reduce environmental pollution (Sharairi & Awawdeh, 2011). Companies are able to do so by producing products that are environmentally friendly which also have the capacity to facilitate greater company savings in cost and can increase revenues or reduce the company’s level of expenditure, particularly through consumer saturation process. The competitive advantage concept From the results and discussions above, it is clear that environmental costs are very crucial in managing the environment, and it is necessary for every company to follow the stipulated environmental management guidelines in order to remain sustainably free from pollution (Sharairi & Awawdeh, 2011). Therefore, whether in service or commodity, businesses are changing their way of functioning due to the introduction of faster mechanisms such as computers, which can perform the same work but at faster speed and accuracy, as opposed to traditional manual prospects (Esty & Winston, 2009). Specifically, time factor, efficiency, and accuracy accorded by computers to companies that use them are the competitive advantage that they have over the others. Pertinently, form the above research findings, competitive advantage is a group of distinguished factors such as particular properties owned by an organization which distinguishes it from other firms that do not have them and gives the organization higher profitable outcomes, compared to the other organizations operating within the same line of business (Hitchens, 2002). Conclusions The results obtained from the analysis of the provided data have shown that the environmental costs had a huge impact on the aspects of competitive advantage in the surveyed pharmaceutical companies in Jordan. Those variables, which were independent, had an impact on the competitive advantage and were in a descending order with regard to the high impacts (Esty & Winston, 2009). They were as follows: the costs incurred in the measurement and inventory activities expressed the greatest impact scheduled on the competitive advantage of Jordan pharmaceutical companies. Second in the grid were the environmental failure costs activities while the control costs activities had a lesser impact on the competitive advantage of the pharmaceutical companies in Jordan (Sharairi & Awawdeh, 2011). Nevertheless, after a thorough examination of the matter, it came out that the cost of prevention activities had no any impact on the competitive advantage of the pharmaceutical companies in Jordan. Recommendations Through findings of the research, the study has made a number of recommendations, which include the following: companies should adopt the costs of prevention and precaution activities in order to ensure a competitive advantage that do not apply such activities within other companies. In addition, decision makers in these companies should educate as well as refine the abilities and capabilities of workers who happen to have direct contact with the environmental pollution (Sharairi & Awawdeh, 2011). They should also do so by carrying out educational workshops and sessions. The research also recommends drug or pharmaceutical companies in Jordan as well as others in different cities to deal with organizations or parties that preserve the environment, construct purification, and filter equipments that help in prevention of environmental contamination (Esty & Winston, 2009). Finally, it is also recommendable that in order to strengthen the functioning of drug companies in Jordan, companies need to become socially responsible and serve the community environmentally wise. References Esty, D. & Winston, A. (2009). Green to gold: How smart companies use environmental strategy to innovate, create value, and build competitive advantage. Hoboken, N.J: Wiley. Hitchens, D. (2002). Environmental regulation and competitive advantage: A study of packaging waste in the European supply chain. Cheltenham: Edward Elgar. Sharairi, J. & Awawdeh, W. (2011). The Impact of Environmental Costs on the Competitive Advantage of Pharmaceutical Companies in Jordan. Retrieved 1 Nov. 2012 from: http://www.eurojournals.com/MEFE_15_05.pdf Read More