Linking Green Innovation to Firm Success: Cost Leadership’s Mediating Role in Vietnam

Abstract

Although most previous studies proposed a positive relationship between green innovation and firm performance, the mechanisms of different types of competitive advantages in the above relationship have not been examined. The aim of the study is to examine the relationship between green innovation and firm performance with the participation of cost leadership competitive advantage as the role of a mediator. The study used structural equation model employing partial least squares method (PLS-SEM) to examine the hypotheses. Data was collected using a questionnaire via a survey. Results based on information provided by 121 middle and senior managers of firms that engage in manufacturing in Vietnam were analyzed using SmartPLS 3 software. The results indicate that both dimensions of green innovation including green product innovation and green process innovation improve performance of manufacturers in Vietnam. Further, cost leadership competitive advantage fully mediates the relationship between green process innovation and firm performance but does not act as a mediator in the relationship between green product innovation and firm performance. The study?s findings confirm the positive influence of green innovation on firm performance. Moreover, the study emphasizes the diversity of competitive advantages in the role of mediating the relationship between green innovation and firm performance. The study supports the importance of green innovation in enhancing performance. Also, the findings help manufacturers in selecting which type of green innovation suits best with low-cost strategies and serves as value-creating tools. Specifically, manufacturers can prevent costly pollution and improve productivity, achieve economies of scale, thus attaining increased cost efficiency through green process innovation. The study first distinguished types of competitive advantages, then focused on and attempted to address the value-capturing mechanism in which green innovation serves as a means of value creation via cost leadership competitive advantage. The study provides a plausible explanation for the contradictory findings of previous studies on the relationship between green innovation and firm performance. Moreover, in an effort to examine the relationships between environmental activities and their consequences in emerging markets where related researches are scarce, this research was operated in Vietnam, an emerging country that is a manufacturing hub.