The impact of supply chain finance on green product innovation

Purpose – Sustainability tensions arise when there exists a dilemma between sustainable requirements from the focal firm’s sustainable supply chain management (SSCM) systems and financial constraints within the structural complexity of the supply network. Moreover, the focal firm and its suppliers usually have a low level of goal congruence regarding sustainable development because the focal firm tends to have more willingness and capabilities to develop sustainability. Recent research advocates that enterprises should connect supply chain finance (SCF) with sustainable development to balance economic, environmental, and social benefits instead of pursuing solely economic benefits. Furthermore, the concept of "design-for-environment" has emerged as a groundbreaking idea in manufacturing supply chains (SCs), to incorporate and integrate environmental factors into product design at an early stage. Despite the growing awareness of considering SCF instruments as an innovative practice to motivate suppliers to participate in building green product supply chains in the industrial world, little is known about how SCF impact green product innovation (GPI) from the perspective of supply chain relationships in academia. Consequently, this paper aims to adopt social exchange theory as the theoretical lens to explore the distinct effects of SCF on GPI through three dimensions of supply chain justice (SCJ) namely, procedural justice (PJ), distributive justice (DJ) and interactional justice (IJ) involved in supplier management and development strategies. It posits the direct impacts of SCF on GPI and the mediated impact of three dimensions of supply chain justice - procedural, distributive, and interactional on the relationship between SCF and GPI performance on the supply chain level.
Design/methodology/approach – The paper is based on the embedded case study of the supply networks of Chinese pharmaceutical manufacturing companies. The embedded cases focus on Chinese medicine, medical devices, and packaging supply networks. The paper reports multiple case studies of the SCF adoption, GPI development and supply chain justice embedded in sustainability-oriented supplier management or development strategies, each case based on semi-structured interviews from focal firms and their suppliers in different departments (e.g., procurement, finance, and R&D) and supported by secondary data.
Findings – SCF can positively impact three dimensions of SCJ (PJ, DJ and IJ) by influencing the fairness and transparency of sustainability-related decision-making processes such as fair criteria in supplier selection or evaluation, equitable distribution of benefits and risks regarding GPI and high-quality interpersonal communication and openness between the focal firm and its supply networks. Additionally, SCF has a positive indirect effect on GPI through three dimensions of SCJ (PJ, DJ and IJ). The study reveals that when suppliers perceive fairness, transparency, and equal treatment in financial arrangements, they are more likely to be incentivised to actively participate in GPI initiatives. It may demonstrate that considering suppliers' sustainability performance, aligning with PJ, promoting DJ in terms of equitable rewards and incentives, and incorporating IJ principles, such as open communication, respect, and trust, into supplier management and development strategies leads to the identification and engagement of suppliers who are more likely to contribute to GPI. This can also lead to a stronger partnership between buyers and suppliers, enabling them to work together towards GPI and SSCM practices. The adoption of SCF may result in a higher level of supplier buy-in and long-term dedication to SSCM practices.
Relevance/contribution – This study fulfils the need for comprehensive research on SCF mechanisms and SSCM literature. It contributes to the implementation of SCF mechanisms and deepens the understanding of SCF and GPI by considering SCJ in supply chain relationships. It also makes theoretical contributions to the SCF research field by demonstrating this distinct mediating mechanism (supply chain justice) regarding the relationship between SCF implementation and GPI based on social exchange theory. Moreover, it advances the theoretical understanding of SCJ by examining its application in the context of supplier management and development strategies. It can provide insights into how SCJ operate within these strategies and their influence on GPI outcomes. In terms of managerial implications, it proposed companies should launch SCF that not only improves the GPI of direct suppliers but also increases the potential of reaching broader supply network actors. In addition, managers should consider the adoption of SCF alongside the supply chain justice embedded in supplier management and development systems to develop GPI across the supply network. Moreover, managers should develop GPI and encourage suppliers to get involved in GPI by considering supply chain justice rather than simply being driven by institutional pressures such as using coercive power. By considering SCJ principles, organizations can leverage SCF to identify, evaluate, and develop suppliers who are aligned with sustainability goals, promote fairness, transparency and openness in the SCF provision process, and encourage sustainable practices.