Environmental Responsibility in Chinese Biopharmaceutical Companies - This paper presents a new perspective that calls for an integration of corporate environmental responsibility into the business st

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Environmental Responsibility in Chinese Biopharmaceutical Companies
This paper presents a new perspective that calls for an integration of corporate environmental responsibility into the business strategy of biopharmaceutical companies.


BioPharm International
Volume 27, Issue 8, pp. 30-34

Corporate environmental responsibility (CER) is now on the corporate and political agenda in China. The objective of this study is to determine the relevance of environmental aspects for biopharmaceutical companies in China. This paper presents a new perspective that calls for an integration of CER into the business strategy as a source of competitive advantages in biopharmaceutical companies. The authors also introduce an internalresponsibility system (IRS) to meet environmental responsibilities.

In recent years, environmental problems have received much attention both in society as well as the business world. Corporate environmental responsibility (CER) has become a significant issue for every enterprise, and is particularly pertinent for the management of biopharmaceutical companies, which must focus on supporting the requirements of the organization in this area. China has the highest yearly increasing rate of net value of biopharmaceuticals in the world from 2000 to 2010 (1). The number of biopharmaceutical patent applications has been increasing continuously, from seven applications in 1991 to 1588 in 2008 (2). Between 2008 to 2012, the biopharmaceutical sector had the second highest number of patents in China (3). According to the National Bureau of Statistics, in 2012, the biopharmaceutical industry recorded a total profit of 23.013 billion yuan, an increase of 11.34% compared to the previous year (4). The number of above-scale enterprises was 753, with an industrial output value of 178.133 billion yuan, and sales income of 177.543 billion yuan, an increase of 17.15% compared to 2011 (4). The Chinese biopharmaceutical market was the second largest biopharmaceutical market in the world in 2013 (5).

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Awareness of the presence of biopharmaceuticals in the environment, coupled with some evidence of effects, suggests that precautionary management action to reduce the release of biopharmaceuticals into the environment should be considered. Biopharmaceuticals are not yet the focus of environmental research and risk management. While findings show that some of these compounds are metabolized in the human body and/or are biodegradable in sewage treatment (6), structurally related compounds, such as plasmids, have been found in the environment. Furthermore, it is known that the protein structures of prions are highly stable in sewage treatment (7). In Yangtze River Delta, an industrial biopharmaceutical region in China, many companies built their facilities near the wetlands around the city. The sewage produced polluted the wetlands ecosystem, causing serious harm to the ecological balance of the region. In January 2010, Zhejiang Apeloa Kangyu Bio-Pharmaceutical, a biopharmaceutical company in the area, was fined US$322,200 for pollution violations (8); the sewage of the company’s facility flowing into the Dongyang River was found to cause cancer in the villagers (9).

The relevance of addressing social responsibility in the biotechnology sector is justified with the following considerations (10):

  • The rapid expansion of the biotechnology sector and its unknown potential to contribute to sustainable development
  • The need for precaution because of the dynamic nature of living organisms and their potential impacts
  • The potential threat posed by biotechnological applications and products, fear of the public, and the lack of information available so far.

This article discusses the authors’ research including methodology and results analysis.

Related work and motivation
Related work. Since the 1990s, there has been a proliferation of research exploring the positive relationship between firm competitiveness and a proactive environmental and sustainability strategy. Jeffrey York proposed a business paradigm that allows and enables the integration of environmental ethics into business decisions while creating a competitive advantage through the use of an ethical framework based on classical American pragmatism (11). Turban and Greening suggested that CER may provide a competitive advantage to firms by attracting a larger pool of candidates (12). Globally, there is an increasing body of research literature examining environmental practices in the business strategy context. Studies tend to cluster around several key themes, which include: relationship with stakeholders (13, 14); political movements (15); partnerships (16); and corporation ideologies and values (17, 18). Nevertheless, despite the discussion in the literature regarding the interaction between CSR and business strategy, the efforts of these authors do not fill all the theoretical and practical gaps.

Motivation. The object of this study is to explore and analyze the influence of environmental pressure, competitive advantage and management commitment on the environmental orientation, and strategy development among the surveyed firms in the Yangtze River Delta and Bohai Rim of China. In this paper, the following questions will be addressed:

  • What are the potential barriers to extending environmental responsibility of Chinese domestic biopharmaceutical companies?
  • How does one assess the ability of biopharmaceutical companies to create a competitive advantage by adopting environmental good practice?
  • How do biopharmaceutical companies integrate CER into their daily operational management?

Methodology
During the spring of 2010 and again in 2014, the environmental responsibility items were administered to two independently selected random samples of one large and one medium-sized city as part of more broadly focused public opinion surveys on ecological civilization. The first sample comprised 67 respondents and the second included 182 respondents. These respondents represented 64% and 73%, respectively, of those originally designated by the random sampling procedure.

The second survey was sent to a random sample of 182 different Chinese biopharmaceutical companies in the Yangtze River Delta and Bohai Rim. Data collection was carried out between February and April 2014. The survey was mainly qualitative and involved e-mails and telephone interviews, which mostly consisted of a set of open-ended questions, including characterizations of the organizations’ business activities, for which respondents could choose multiple categories.

Results
Based on the 2014 survey results, 16 businesses (see Table I) said that management was the greatest barrier due to limited staff, and that their organization did not have a specific department devoted to CER issues. Only four businesses expressed a desire for more information and knowledge on legal regulations; three businesses felt that understanding the relevant legislation in China or how environmental issues affect them was difficult and time consuming. Some owners pointed to a lack of information dissemination about updated regulations by the Chinese government. It was noted that 105 businesses (79%) identified finance as the greatest barrier to implementing environmental practices. The most common obstacle mentioned by all Chinese biopharmaceutical companies was the cost of implementing environmental practices.

Table I: Potential barriers, n = 133, 2014 respondents  

Barriers

Number and frequency

Financial

105 (79%)

Management

16 (12%)

Time

3 (2%)

Legislation

4 (3%)

Knowledge

4 (3%)

Cultural

1 (1%)

 

The results in Table II show that biopharmaceutical companies in the Yangtze River Delta economic region and Bohai Rim invest little resources in environmental issues. More than 60% of participants deemed that the cost of having a high level of corporate environmental responsibility is less than offset by the increased benefits in employee morale and productivity, which suggested that most of the surveyed Chinese biopharmaceutical companies did not see the financial benefits of these investments. Results for 2014 had not changed compared to the 2010 survey.

Table II: Results from 2010 and 2014 survey on the estimated expenditure on environmental issues as a percentage of profit.

Perception

Percent (2010)

Percent (2014)

0

40%

39%

<0.1%

21%

19%

0.1-0.5%

26%

31%

0.5%-1%

9%

6%

1%-5%

0%

2%

>5%

0%

0%

No opinion

4%

3%

 

Compared with the 2010 survey, the 2014 survey showed a slight increase of 4% in the number of awareness of corporate environmental strategies. Most participants (93%) shared the view that environmental responsibility strategies are associated with competitive advantages (see Table III). More than 90% of participants believed CER practices may enhance the company’s reputation, and that green manufacturing practices are the basic trends. Organizations that fully integrate CER principles into their operations may become more innovative, productive, and competitive.

Table III: Corporate environmental responsibility (CER) as a competitive advantage, results from 2010 and 2014 survey.

Perception

Percent (2010)

Percent (2014)

Strongly agree

21%

34%

Agree

68%

59%

Disagree

2%

3%

Strongly disagree

2%

1%

No opinion

7%

3%

 

Discussion
As revealed by the survey results, most biopharmaceutical companies in the Yangtze River Delta and Bohai Rim of China do not devote attention to the implications of CER and practices in relation to their business strategy. According to Porter and Reinhardt (19), integrating environmental responsibility into business strategy is becoming a strategic opportunity for companies. The Harvard Business School strategy model has always included social responsibility as a main element of strategy formulation (20). Husted and Salazar state that CER strategies resolve the existing tension between environmental objectives and profitability, as society and shareholders expect both and the results should be positive (21). Thus, it is important for companies to take into account the strategic actions of environmental responsibility. As a result, the number of companies embracing the concept of environmental sustainability into their business strategy and developing environmental strategies is growing (22).

CER contributes to competitiveness by enhancing the long-term sustainability of businesses; however, CER requires long-term thinking and vision from business managers. In the authors’ view, the integration of CER into the company strategy could be established through an internal responsibility system (IRS).

The IRS is a system in which every department is responsible for the effects of their activities and the impact on the environment. Each department is, therefore, expected to actively participate in environmental protection. The IRS can be understood in greater depth as a dynamic system for creative improvements and problem-solving of CER rather than a static list of responsibilities. Suggested approaches to implementing IRS are discussed in the following.

IRS in the marketing department
Environmental responsibility means more to a company’s marketing department. The marketing department may lead the CER strategy of the company. Establishing a corporation’s IRS in the marketing department is an excellent opportunity to obtain a marketing edge and provoke substantial profits to the corporation. The marketing department’s environment development activities differ from other departments in that it is the one department that is usually closest to the customer. In concert with IRS methodologies, the IRS in the marketing department takes information and evaluates it, and then investigates potential product improvement and development opportunities in relation to regulatory requirements.

Creating an environmental affairs team within the present marketing department may be considered. It should focus on environmental events as well as the design and implementation of marketing strategies where environmental considerations are of primary importance. It should be consulted about its promotional practices for related issues affecting the environment, which should be emphasized in product and customer decisions in relation to regulatory requirements. The company’s environmental strengths should be used as a competitive advantage. The IRS would further serve in an advisory capacity to all other departments on environmental issues.

IRS in the manufacturing department
Hoffman states that environmental and green attempts in manufacturing should move from being an environmental management approach to an environmental strategy (23). This approach will create a win-win situation by which manufacturers can improve their environmental performance while achieving economic gains (23). The first stages of installing an IRS usually begin in the manufacturing department. More importantly, the statistical process control taught by IRS methodologies is crucial to developing superior processes. Once statistical process control is established and processes are controlled, monitoring and improving them represents an outstanding IRS opportunity in the manufacturing department. There are numerous areas of significant value that can propel productivity and profits upward.

The chief goals of the IRS in the manufacturing department include: evaluating manufacturing managers on long-range manufacturing plans and programs for keeping the firms’ activities in tune with those environmental trends; implementing environmental management accounting; and establishing a sustainable manufacturing service that uses recycling resources and reduces usage of resources.

IRS in the engineering department
The engineering department has the most dynamic IRS opportunity of all the departments because it tends to be at the hub of new product development and corresponding manufacturing processes. The chief goals of the IRS in the engineering department are as follows: to improve manufacturing processes, systems, and safety with environmentally-friendly technologies; to identify environmentally-friendly practice and assist in their evaluation; to follow green and sustainable pharmacy practices; and to work closely with the other departments to assist in developing their environmental concepts.

IRS in the human resources department
The human resources (HR) department has an opportunity to step up and fill the CER leadership void. The role of HR in IRS, which includes recruitment, retention, morale, productivity, recognition, and rewards as well as innovation, are major components of a CER strategy. HR is also the hub of employee training and recognition, both of which are critically important components of a company IRS program. Nearly two thirds of United States HR professionals are directly involved in corporate social responsibility (CSR) activities, according to a 2007 study by the Society for Human Resource Management (24). However, only 13% of HR professionals were mainly responsible for creating CSR strategy, and 23% were charged with implementing the strategy (24).

Conclusion
An increasing number of studies, both in the practitioner and academic press, show that firms are becoming more conscientious of the effects of their socially responsible behavior. The prolonged advantage of corporate environmental responsibility ensures sustainable economic advantage and should be a long-term objective of any biopharmaceutical company. The competitive advantage that stems from environmental responsibility can be seen through the direct influence of its resources, creating an improvement aggregate value and better economic performance provided by environmental responsibility aligned with corporate strategy. In the context of a sustainable economy, developing an IRS is crucial to an organization’s environmental responsibility strategy because it provides measures and instruments to make complex CER processes more visible and manageable.

Future work could explore a larger data of reports from biopharmaceutical companies. One direction for further research can be on how the IRS should be adapted to support the deployment of different types of environmental strategies in a biopharmaceutical company. Interesting issues that deserve further attention include studies on external responsibility system, the role of businesses in relation to the demands of shareholders within the context of CER, relationship between the CER and patients’ buying behavior, and the patients’ cognitive dimension of the behavior of CER, which is an important basis for effective corporate market segmentation.

Acknowledgment
This research was supported by the National Social Science Foundation of China (Project No. 07AJL013) and Major Project of Open Fund of Center for Resources and Environmental Economics Research, China University of Geosciences (Wuhan) (Project No. 2009A008).

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About the Authors
Li Wei is a lecturer, liweivy@gmail.com, and Yu Ruixiang is a professor of economics, rxyu@cug.edu.cn, both at School of Economy and Management, China University of Geosciences, Wuhan, China, 430074.

Peer-reviewed
Article submitted: Jan. 28, 2014.
Article accepted: Jul. 8, 2014.

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