The IAFOR
Academic Review
Volume 1 | Issue 8

Collected
Essays on
Sustainable
Development &the Environment

ISSN: 2188-9570

THE IAFOR ACADEMIC REVIEW

3

CONTENTS

31

18

1.

into Business and2007-2009

Editorial Committee

Technical Strategy

By Peter Yang

Introduction

By Julie Winnard, Andy50.

By Michael Liam Kedzlie

Adcroft, Jacquetta Lee andAn Assessment

3.

David Skippof Productive andEnvironmental

31.

Environmental Efficiencies

Sustainability Drivers: A

The Internationalof Japanese Industries

Study On Malaysian Palm

Normative Socialization

By Mika Goto, Akihiro

Oil Industryof Japan: Securing the

Otsuka, Toshiyuki Sueyoshi

By Alison McKay, Chee

Global Tuna Fishing

Guan Choong, Syed Anuwar Industry
Syed Ariffin

By Eileen Kae Abrio Relao

18 .

40.

Finding Balanced

The Real Cause for the

Synergies - Putting

US Subprime, Financial,

Resilient Sustainability

Economic Crises inTHE IAFOR ACADEMIC REVIEW

40

50
Editorial Committee

Rev. Professor Stuart PickenIAFOR Chairman
Dr. Joe Haldane IAFOR President & CEO
Mr. Michael Liam Kedzlie IAFOR Research and Policy Manager

The IAFOR
Academic
Review

Advisory Board

Volume 1 – Issue 8 – Nov 2015

Development Agency

EditorMichael Liam Kedzlie

Lowell Sheppard, Asia Pacific Director, HOPE International
Mohamed Salaheen, Director, The United Nations World Food
Programme, Japan & Korea
Professor Johannes Moenius, William R. and S. Sue Johnson
Endowed Chair of Spatial Economic Analysis and Regional
Planning, The University of Redlands School of Business, USA
Dr. Alexandru I. Petrisor, (URBAN=INCERC), Romania
Front cover image
Flickr Creative Commons/zipzooka

Production
Rachel Dyer
Published by The International
Academic Forum (IAFOR),Japan
IAFOR Publications ©
Copyright 2015
ISSN: 2188-9570 (online)
www.iafor.org
Sakae 1-16-26-201, Nakaward, Aichi, Japan 460-0008

“FROM THE EDITOR

Editorial Committee Introduction

Welcome to Issue 8 Volume 1 of The IAFOR Academic Review. One of the central missions of The International
Academic Forum (IAFOR) is to provide avenues for academics and researchers to be international, interculturaland interdisciplinary. One of the ways in which we do this is through our in-house publication Eye Magazine,
our various conference proceedings, our journals, and now beginning in 2015, are our special editions of the The
IAFOR International Academic Review. In this edition we, the editorial committee, bring together a selection of themost interesting contributions from our conferences with respect to the discussion of Sustainable Development
and the Environment. Sustainability Development is ultimately about the interplay between people and ecologies
by helping to meet the world’s growing resource needs economically, culturally, socially and environmentally inthe most responsible way possible. The papers selected by the editorial committee for this special edition certainlyreflect the international, intercultural and interdisciplinary approach that lies at the heart of both IAFOR and theglobal goals of sustainable development and the environments we work and live in.
Sincerely,
Michael Liam Kedzlie
Editormkedzlie@iafor.org

Contributors
Choong Chee Guan graduated his Ph.D. from the School of Mechanical Engineering, University of Leeds, UK
in 2012. He gained his Bachelor of Science honour degree in Mechanical Engineering (majoring in ElectroMechanical Engineering) from the University Technology of Malaysia (UTM) in 1997. His Ph.D. thesis work
was on “Sustainability in the Malaysian Palm Oil Industry” and his current research interest is in the fieldof designing sustainable industrial system. Syed Anuwar Syed Ariffin is a Finance Manager at Petronas, theMalaysia Oil & Energy company based in Kuala Lumpur. He was educated at London South Bank University.
Alison McKay is a Chartered Engineer and a Fellow of the Institution of Mechanical Engineers. She joined
the School of Mechanical Engineering at the University of Leeds in 1984 as a research engineer, gaining her
Ph.D. in 1996. She led the launch of the university’s multidisciplinary undergraduate programme in Product
Design. She is a founding member of the Leeds Socio-Technical Centre (with colleagues in the Leeds University
Business School) and the Leeds Ageing, Leisure and Design group (with colleagues in Performance, Visual Arts
and Communication).
Julie Winnard is an industrial doctorate Research Engineer at the Centre for Environmental Strategy, Universityof Surrey, United Kingdom, studying the integration of sustainability into engineering and business strategy.
She is an experienced Chartered Mechanical Design Engineer and Project Manager, specialising previously in
product innovation & design, and development activities from strategy planning onwards. Working mainly in theautomotive industry with Lucas Industries, Ford and Visteon, but also in clean-tech start-up and undergroundrail infrastructure renewal, she has an abiding interest in the practical and effective applications of sustainability
within industry and business, and has tested the results of her research in other sectors. She is also active indeveloping and supporting the engineering profession: recently helping to found a new professional association
to develop and spread sustainability engineering knowledge and skills, the Global Association for Transition
Engineering (GATE). Andy Adcroft is the Deputy Head of the Surrey Business School, and MBA Programme
Director at University of Surrey. Professor Adcroft is currently collecting data for a year-long study into how
motivations to learn and learning strategies change over time in relation to academic performance. Jacquetta
Lee joined the Centre for Environmental Strategy at the University of Surrey in January 2003, as a Research
Fellow, developing, co-ordinating and undertaking a two-year research project funded by Leverhulme Trust on“The Role of Media in Decision Making – Influencing Environmental Attitudes and Behaviours Through Soap

4 | The IAFOR Academic Review Eighth Edition

FROM THE EDITOR

Operas”. Prior to joining CES, Jacquetta worked at Rolls-Royce as a principle technologist in the environmental
strategy team, undertaking LCA studies of key products, and developing and implementing DfE guidelines
and strategy for the company. She has also worked as a site design engineer in China, as one member of a teamoverseeing the construction and fit out of a new five star hotel. David Skipp is part of the management teamat the Department of Sustainability Planning, Ford Motor Company Ltd, Laindon, UK and works to assist hisorganisation to fully integrate sustainability issues into the core business structures and processes, rather thanmanage them separately, as most other commercial organisations still continue to do.
Eileen Kae Relao is an emerging academic who was born in Quezon City, Philippines. She graduated cum laude
from University of the Philippines where she majored in BA Speech Communication, with her undergraduate
thesis being recognised as one of the best theses of 2011. Eileen has been with the Department of Communications
since 2012, teaching undergraduate communication courses. She has at the same time been pursuing a master’s
degree in International Studies through the University of the Philippines Department of Political Science.
Peter Yang was formerly a researcher in international economics in China who wrote on its economic reform
policies and strategies. Currently, he is an associate professor at the Case Western Reserve University, USA
and teaches courses on Global Studies and Sustainable Studies among other courses. His research focuses oncomparative studies of major economies’ government policies on sustainable development.
Hugh Byrd is a registered architect, in both New Zealand and the UK, who practices, teaches and researches
issues of sustainability in the built environment. Since obtaining a Ph.D. in 1981 he has been involved in bothacademic and commercial research including work for universities, government bodies and private companies
in the UK, Malaysia and New Zealand. His research encompasses the future forms of buildings and cities
in response to energy depletion and climate change. He has published articles and books on environmental
modelling, healthy homes, environmental rating tools, renewable energy, urban form and energy policy in bothtemperate and tropical countries. After teaching and researching at several universities in the UK, Hugh became
Professor at the Universiti Sains Malaysia, before moving on to the School of Architecture at the University of
Auckland. Recently Hugh has taken up the Professorial Chair at Lincoln University (UK).
Mika Goto is a Senior Research Economist at Central Research Institute of Electric Power Industry (CRIEPI)
where she is engaged in a wide range of projects including performance assessment and empirical analysis ofindustrial organisation based on methodologies of applied econometrics and mathematical programming. Mika’s
research interests include analysis of factors that influence firms’ performance such as regulatory reform of energy
industries, R&D policy and management. She has published in Energy Economics, Energy Policy, European
Journal of Operational Research, Decision Support Systems and Omega. She has a Ph.D. in Economics from
Nagoya University in Japan. Akihiro Otsuka, also from the Central Research Institute of Electric Power Industry,
Japan is a Research Economist. Dr. Otsuka gained his Ph.D. from Okayama University, Japan in 2005 and isa previous winner of The Martin Beckmann RSAI Annual Award in 2011, for his research paper “Industrial
agglomeration effects in Japan: Productive efficiency, market access, and public fiscal transfer”. Toshiyuki
Sueyoshi from the New Mexico Institute of Mining & Technology joined their Management Department inMarch, 2002. Prior to New Mexico Tech he was a Professor with the Science University of Tokyo, before moving
to Ohio State University, where in ten years he achieved the rank of Chaired Full Professor. He has also written
several books, and has recently published a Japanese text concerning management science applications in the
public sector – a work that will soon appear in English. Dr. Sueyoshi has gained international recognition for his
work in public policy applications of mathematical programming techniques. Toshiyuki holds a Ph.D. from the
University of Texas at Austin.

The IAFOR Academic Review Eighth Edition | 5

Environmental Sustainability Drivers:
A Study On Malaysian Palm Oil Industry
By Alison McKay
University of Leeds, United Kingdom

Choong, Chee Guan & Syed Amear, Syed Ariffin
Polytechnic of Ungku Omar, Malaysia
Abstract
Industrial practitioners and policy makers in the Malaysian palm oil industry are now focusing on understanding thefactors that influence sustainability of palm oil supply chain network involving the fundamental principle of triple bottom
line of social, environmental, and economic performance impacts of supply chain network design. In order to achievesustainable products, an interpretive structural modelling approach method was used to better understand the drivers
related to environmental sustainability reporting in the supply chain network related to the Malaysian palm oil industry.
This paper has identified nine (9) environmental sustainability drivers and the relationships between them. The findings
from the environmental sustainability reporting drivers of this study can be furthered use to explore the potential impactsof supply chain network design on sustainability using the Malaysian palm oil industry as a reference. The novelty of thisresearch is that it identifies the significance of environmental sustainability reporting based on the analyzed drivers andprovides evaluation of environmental sustainability criteria’s. This paper has provided a structural model of environmental
sustainability and its associated method was developed by using the interpretive structural modelling model to determine
the potential drivers in environmental sustainability reporting.

  

  

	
  
The IAFOR Academic Review – Issue 83

1

Introduction

With the rapidly growing world population, the demand for palm oil is increasing. Among the 17 world major oils andfats, palm oil has made impressive and sustained growth in the global market. In 2008, palm oil accounted for 54% of
the world’s production of oils and fats; it is projected that palm oil will become the leading oil in the world around year
2016 [14]. Malaysia is the world’s second largest producer and exporter of palm oil after Indonesia; in 2007 it produced
about 15.8 million tons of palm oil. In year 2020, production is forecast to increase to 18.5 million tons. Key challenges
to the palm oil industry include misconceptions on palm oil sustainability and awareness of its potential in the global
vegetable oil market, consumer demands for certification of products and processes and the competitiveness on the triple
bottom line performances as uncertainties to the supply network.
Sustainability of palm oil is important if this versatile crop is to become the leading vegetable oil in the world. This
multipurpose vegetable oil needs to be cultivated to ensure sustainable development from the environmental, social andeconomic aspects. With the world’s population expected to increase to 8 billion in 2028, palm oil has the potential to be
the source of fats and vegetable oil to feed the people around the globe [2, 3]. As high demand of cheap and quality
vegetable oil is needed to feed the world’s growing population, building a tool to improve the performance of sustainabilityof the palm oil supply chain network involving real-time data is necessary in order to achieve sustainable production. In
this context, all parties involved with palm oil like plantation owners, financial institutions and banks, manufacturers ofpalm oil products and governments play an active role to realise this win-win situation for all. Hence, the time has comefor all parties to co-operate and realise a sustainable production and development of palm oil. Ideas and efforts will
become futile if all parties do not take an active and responsible role towards this aim as sustainable development of palm
oil requires collaboration and initiative among the stakeholders.
Sustainability is also particularly important when it comes to the production of food, especially commodities that are
widely used by the global food industry. The need to produce palm oil sustainably has led to the establishment of theRound Table on Sustainable Palm Oil [16]. This roundtable is a platform to reach mutual understanding at theinternational level among various palm oil stakeholders namely; oil palm growers, palm oil processors/traders, consumer
goods manufacturers, retailers, investment organizations, social or development Non-Governmental Organizations andenvironmental or nature conservation Non-Governmental Organizations. This understanding would be translated into
common actions towards achieving sustainability of palm oil production and used in its entire supply chain. The Round
Table on Sustainable Palm Oil has progressed towards formulating a set of principles and criteria for sustainableproduction, but has yet to implement a scheme to enable sustainably produced palm oil to be certified with fulltraceability. It is not easy to implement such an ambitious scheme, since maintaining the chain of custody for traceability
purposes will be difficult and expensive. The importance of studying these environmental, social and economic issues,
such as land conversions, productivity and environmental problems were also addressed by Sustainable Agriculture
Initiative Platform and Sustainable Food Lab in Short Guide to Sustainable Agriculture documents [17, 18]. This isparticularly important with the increased awareness of the environmental, social and economic issues as one of the key
factors which influence consumer’s perception towards sustainability in markets such as Europe.
1.1 Sustainability SWOT Analysis of the Malaysia Palm Oil Industry
SWOT analysis is an important support tool for decision-making, and is commonly used as a means to systematicallyanalyse an organisation’s internal and external environments [7, 10]. By identifying its strengths, weaknesses,
opportunities, and threats, the organisation can build strategies upon its strengths, eliminate its weaknesses, and exploit
its opportunities or use them to counter the threats. Strengths, weaknesses, opportunities and threats of the Malaysianpalm oil industry in its present state from the SWOT analysis are presented in Figure 1.
The preliminary study of SWOT analysis was done to build understanding of the supply network in the Malaysia palm
oil industry sector by carrying out semi-structured interviews. The objective was to review the literatures from academic
and industrial viewpoints on the development of palm oil industry in Malaysia and categorise the findings into strengths,
weaknesses, opportunities and threats and as well as in the form of semi-structured interviews. From the inputs of theseinterviews, data and information related to the palm oil industry corresponding to the research topic in Malaysia can beused for a better understanding of the supply network sustainability issues.

  

  

	
  
The IAFOR Academic Review – Issue 8

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Strengths
Weaknesses-The Malaysian palm oil industry is considered the second-Poor performance of plantation segments.
largest in the world after Indonesia.
-Changes in the weather patterns worldwide can-The Malaysian palm oil industry is greatly supported by its affect Malaysia’s palm oil plantation andlocal government.
production.
-Palm oil itself is a resource that is used for the productionof diverse products (part of agricultural diversifications).
-Geographical diversifications.
Opportunities
Threats-The support of the country’s government and agencies to-Shortage of labour is one of the main threats of
the industry in research findings.
the palm oil industry in Malaysia.
-Increasing demand of biofuels derived from palm oil and-The palm oil industry in Malaysia faces other otherbiomass from plantations which can be used as
significantly growing competition with otheralternatives to fossil fuels such as diesel. [Palm oil gives
foreign producers.
high yields at low prices and is likely to be important in-The country is also experiencing lower land meeting
biofuel demand].
availability for future expansion for palm oil
plantation.
Figure 1: SWOT Analysis for Malaysia palm oil industry [11,12,13]
1.2 ISO Standards
A range of standards have been developed in the last two decades to enable sustainable development [4]. ISO 14000
standards create a systematic approach for reducing the impact on the environment due to the activities of an organization[5]. ISO 14000 standards include the ISO 14020 series for environmental labelling, ISO 14040 for Life Cycle
Assessment, ISO 14064 for Green House Gases, as a few given examples. ISO 19011 provides guidelines for auditing
quality and environmental management systems [6]. Figure 2 showed the examples of identified environmental
sustainability drivers of life cycle stages which can be used for the proposed environmental sustainability reporting of thepalm oil industry.

Raw
Material

Product
Manufacturing

Transportation

●

●

●

●

●

●

Environmental Sustainability
Drivers
1)Environmental
Management
2)Life Cycle Assessment3)Green Labelling●4)GHG Emissions●5)Climate Change●

6)Energy Efficiency●

7)Renewable Resources8)Water, Soil & Air
Quality9)Waste Management●

Product Use

Product
After Use

●

●

●

●
●

●

●
●

●

●

●

●

●

●

●
●

Figure 2: Examples of identified environmental sustainability drivers of life cycle stages(i)Environmental Management
A number of palm oil mills and palm oil refineries in Malaysia have achieved certification to this ISO standard ofenvironmental management. The standard requires organizations to assess their environmental impacts and develop an
environmental policy to address them. The two specific requirements of relevance are:
•   the policy includes a commitment to comply with relevant environmental legislation and regulations; and•   the policy includes a commitment to prevention of pollution.

  

  

	
  
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5Environmental management is an auditable standard that provides a framework for organizations to implement theirenvironmental policies and can be verified by third party certification.
(ii)Life Cycle Assessment
In the ISO 14000 family of standards, the ISO 14040 standard provides the framework and guidance for conducting life
cycle assessment (LCA). This is the “cradle-to-grave” approach for assessing the environmental profile and performanceof a product from sourcing of raw materials to its final disposal after the useful life of the product. Application of thismethodology to the palm oil industry would provide an assessment of the potential environmental impacts of all inputs
and outputs throughout the production chain from the planting of the palm oil seed to the consumption of the final
processed product.
(iii)
Green Labelling
Green labelling refers to a scheme which awards green label to environmental friendly products. These are products thathave less environmental impacts. The purpose of labelling these products is to help consumers to identify and purchasethose products that are environmentally friendly. Strong demand from the consumers for environmental labelling
products will encourage more manufacturers to adopt environmental friendly policies.
(iv)
Greenhouse Gas Emissions
Carbon conservation aspects need to be addressed and greenhouse gas balance and land use competition should also be
included in the design of sustainable industrial systems for the palm oil industry. Additional principles should be
developed for palm oil sustainability, to cover aspects related to carbon balance and preservation of carbon stocks. As
reducing greenhouse gas emissions is a prominent goal for sustainable development policies, certain levels of greenhousegas reductions based on a life cycle assessment should be developed.
(v)
Climate Change
Forest conversion by plantation companies contributes to climate change. Emission of carbon dioxide known as thegreenhouse gas is a cause of global warming and climatic change. The rainforests which are cleared to make place forpalm oil plantations are storing huge amounts of carbon. Massive amounts of carbon are released straight into theatmosphere but the land’s ability to take up carbon dioxide is also diminished with these land conversions.
(vi)
Energy Efficiency
Increasing energy efficiency will help to reduce the impact of energy consumption on climate change by replacing nonrenewable energy with alternative renewable and low impact energy sources.
(vii)
Renewable Resources
The efficient use of renewable resources should be targeted since the use of non-renewable resources, such as fossil fuel,is not sustainable in the long term. Greenhouse gases and polluting gaseous emissions must be minimised.
(viii)
Water, Soil and Air Quality
During planting, several measures must be taken to prevent soil degradation and conserve soil fertility in order tominimise soil erosion and fertilizer loss. The soil is highly susceptible to erosion during the land preparation stage
preceding planting palm oil trees are unique in a way that they have higher leaf area index that allows them to have better
photosynthetic efficiency to produce more oxygen to the air and absorb more carbon dioxide from the atmosphere. Water
quality around palm oil plantations and processing mills must be carefully handled to avoid from the impacts of using
banned herbicides and pesticides for the use to control weeds and pests. Oily sludge of palm oil mill effluent from palm
oil processing mills must be treated before being discharged into water systems to avoid water supply contamination.
(ix) Waste Management
All waste must be handled, stored and disposed off correctly to avoid pollution to minimize the amount of waste
produced, thus reducing environmental cost and ensuring that legislative requirements are met.
2

Materials and Methods

Interpretive structural modelling was first proposed by Warfield [22]. Interpretive structural modelling referredhenceforth as ISM, is aid for modelling relational structure among the number of parameters. While dealing with large
number of attributes, it gets complicated to relate them with reference to the final goal. Interpretive structural modelling
can help in interpreting the decision maker’s judgment about relation among the parameters. It extracts a structured
model out of pool of parameters to simplify decision making process.

  

  

	
  
The IAFOR Academic Review – Issue 8

6

The major steps involved in using interpretive structural modelling are as follows:(i)

Identification of parameters
The relevant parameters to be considered in final analysis are listed in Figure 2.

(ii)

Structural self interaction matrix
Depending on the situation and parameters, a contextual relation is chosen and compared with every otherparameter to decide presence and direction of chosen relationship. This generates self interaction matrix.

(iii)

Reachability matrix
From the self interaction matrix, the relational indicators are converted in to binary digits 0 and 1 to get a squarematrix, called reachability matrix. Simple transitivity check is done as, if parameter A relates to B and B relates
C then A relates to C. This helps in extracting a consistent model from the set of parameters. Summations of
row indicate driving power of the parameters and summations of column indicate dependence. Higher
dependence rank and lower driver rank indicates dependent parameters, whereas lower dependence rank andhigher driver rank indicate independent parameters. Lower dependence and driver rank indicate autonomousparameter, whereas higher dependence and driver rank indicate linked parameters.

(iv)

Level partition
From reachability matrix, for each parameter, reachability set and antecedent sets are derived. Reachability set
contains parameter itself and other parameters to which it may reach. Antecedent set contains parameter itself
and other parameters, which may reach to it. Depending on intersection of these sets, the parameters are
partitioned in hierarchical levels.

(v)

Construction of interpretive structural modelling
From the partitioned set of parameters and reachability matrix, structured model is derived, indicating
parameters in each level and arrows indicating direction of relationship present. Such a graphic representationof model is called diagraph.
The various steps involved in interpretive structural modelling methodology are shown in the flowchart in Figure 3
modified from Kannan et. al [8].

  

  

	
  
The IAFOR Academic Review – Issue 8

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Figure 3: Flowchart of interpretive structural modelling methodology

  

  

	
  
The IAFOR Academic Review – Issue 88

3Results and Discussion

3.1 Structural self-interaction matrix
The first step is to analyze the contextual relationship of type “leads to”. That is one Environmental Sustainability leads
to another. Based on this contextual relationship, a structural self-interaction matrix is developed. In this research, 3experts, from the research based industries were consulted in identifying the nature of contextual relationship among theenvironmental sustainability drivers.
Following, four symbols are used to denote the direction of relationship between the Environmental Sustainability
Drivers (I and J):•  V: Environmental Sustainability Drivers of I will help to achieve Environmental
Sustainability Drivers of J
Environmental Sustainability
Drivers of I
Water, Soil and Air Quality
Renewable Resources

Will help to achieve

Energy Efficiency

Environmental Sustainability
Drivers of J
Climate Change
Green LabellingLife Cycle Assessment
GHG Emissions
Life Cycle Assessment
Environmental Management

Water, soil and air quality (without pollution) determine agricultural sustainability [1, 19] and environmental quality [20]and have impacts on environmental pollution, degradation and depletion of natural and non-renewable resources [21].
Applying renewable resources will minimise pollution and by using green labelling and life cycle assessment will help toprovide qualitative and quantitative information regarding consumption of material. Energy use is a major source ofemissions, thus achieving energy efficiency is important to control greenhouse gas emissions, assessing life cycle andmanaging the environment.
•  A: Environmental Sustainability Drivers of J will be achieved by Environmental
Sustainability Drivers of I
Environmental Sustainability
Drivers of J
Renewable Resources
Climate Change

Will be achieved

Green Labelling

Environmental Sustainability
Drivers of I
Climate ChangeLife Cycle Assessment
Environmental Management
Environmental Management

Concerns about degradation of natural resources and climate change have triggered the need for preventive measures ofenvironmental protection. Promotion of renewable resources and green labelling will be achieved by implementing life
cycle assessment and environmental management systems. These will help to reduce the greenhouse effect.

•  X: Environmental Sustainability Drivers of I and J will help to achieve each otherEnvironmental Sustainability
Drivers of I
Waste Management

  Will help to achieveeach other

  

	
  
The IAFOR Academic Review – Issue 8

9Environmental Sustainability
Drivers of J
Water, Soil and Air Quality
Renewable Resources
Energy Efficiency
Green LabellingLife Cycle Assessment
Environmental Management

Water, Soil and Air Quality

Renewable Resources
GHG Emissions
Life Cycle Assessment
Environmental Management
Energy Efficiency
Environmental Management
Climate Change
GHG Emissions
Green LabelingLife Cycle Assessment
Environmental Management
Life Cycle Assessment
Environmental Management

Renewable Resources
Energy Efficiency
Climate Change
GHG Emissions

Green LabellingLife Cycle Assessment

The development of an Environmental Management System (EMS) includes rational land use planning, water
management, energy management (promotion of renewable energy sources, promotion of clean and energy efficienttechnologies), waste management (minimization, recovery, reuse, recycle, etc.) and life cycle assessment.
•  O: Environmental Sustainability Drivers of I and J are unrelated
Environmental Sustainability
Drivers of I
Waste Management

Unrelated toEnvironmental Sustainability
Drivers of J
Climate Change
GHG Emissions
Energy Efficiency
Green Labelling
GHG Emissions
Green Labelling
Green Labelling

Water, Soil and Air Quality
Renewable Resources
Energy Efficiency
Climate Change

Waste management is regarded to re-use, recycle, repair, life extension, incineration (with or without energy recovery),landfill and composting and is unrelated to climate change and GHG emissions. Water, soil and air quality are referredto unpolluted and emissions which can lead to erosion, climate change and ozone depletion. They are not related toenergy efficiency and green labelling. Renewable resources are non-depletable resources which can be used in a cleaner
and more efficient technologies manner and non-related to GHG emissions. Energy efficiency and climate change are
not related to green labelling.
Based on expert’s responses, the structural self-interaction matrix is constructed as shown in Table 1.

Table 1: Structural self-interaction matrix for Environmental Sustainability
Environmental Sustainability
1.Environmental Management
2.Life Cycle Assessment
3.Green Labeling
4.GHG Emissions
5.Climate Change
6.Energy Efficiency
7.Renewable Resources
8.Water, Soil and Air Quality
9.Waste Management

  

9
X
X
X
O
O
X
X
X
-

8
X
X
O
X
V
O
X
-

  

	
  
The IAFOR Academic Review – Issue 8

10

7
X
V
V
O
A
X
-

6
V
V
O
V
X
-

5
A
A
O
X
-

4
X
X
X
-

3
A
X
-

2
X
-

1
-

3.2 Reachability matrix
The structural self-interaction matrix for environmental sustainability is transformed into a binary matrix, called theinitial reachability matrix by substituting V, A, X, O by 1 and 0 as per the case. The rules for the substitution of 1s and0s are as follows:•   If the (i, j) entry in the SSIM is V, then the (i, j) entry in the reachability matrix becomes 1 and the (j, i) entry
becomes 0.
•   If the (i, j) entry in the SSIM is A, then the (i, j) entry in the reachability matrix becomes 0 and the (j, i) entry
becomes 1.
•   If the (i, j) entry in the SSIM is X, then the (i, j) entry in the reachability matrix becomes 1 and the (j, i) entry also
becomes 1.
•   If the (i, j) entry in the SSIM is O, then the (i, j) entry in the reachability matrix becomes 0 and the (j, i) entry also
becomes 0.
Then its transitivity is checked (which means if Environmental Sustainability of i leads to Environmental Sustainabilityof j and Environmental Sustainability of j leads to Environmental Sustainability of i, then Environmental Sustainabilityof i should lead to Environmental Sustainability of j) and the final reachability matrix as shown in Table 2 is obtained.
In this table, the driving power and dependence of each Environmental Sustainability’s are also shown. The driving powerof a particular Environmental Sustainability is the total number of Environmental Sustainability (including itself) which
it may help to achieve. The dependence is the total number of Environmental Sustainability which may help achieving
it.
Table 2: Final reachability matrix
Environmental Sustainability
Drivers
1.Environmental Management
2.Life Cycle Assessment
3.Green Labelling
4.GHG Emissions
5.Climate Change
6.Energy Efficiency
7.Renewable Resources
8.Water, Soil and Air Quality
9.Waste Management
Dependence Power

1

2

3

4

5

6

7

8

9

1
1
1
1
1
0
1
1
1
8

1
1
1
1
1
0
0
1
1
7

0
1
1
1
0
0
0
0
1
4

1
1
1
1
1
0
0
1
0
6

0
0
0
1
1
1
1
0
0
4

1
1
0
1
1
1
1
0
1
7

1
1
1
0
0
1
1
1
1
7

1
1
0
1
1
0
1
1
1
7

1
1
1
0
0
1
1
1
1
7

Driving
Power
7
8
6
7
6
4
6
6
7

3.3 Level partitions
From the final reachability matrix, the reachability set and antecedent set for each ES is found. The reachability set
includes Environmental Sustainability itself and others, which it may help to achieve similarly the antecedent set consistsof Environmental Sustainability itself and the other Environmental Sustainability’s which help in achieving it. Then, theintersection of these sets is derived for all Environmental Sustainability’s. The Environmental Sustainability for which
the reachability and intersection sets are same is the top-level Environmental Sustainability in the interpretive structuralmodelling hierarchy.
Table 3: Iteration i
Environmental Sustainability
Drivers
1.Environmental Management
2.Life Cycle Assessment
3.Green Labeling
4.GHG Emissions
5.Climate Change
6.Energy Efficiency
7.Renewable Resources

  Reachability Set

Antecedent Set

Intersection Set

Level

1,2,4,6,7,8,9
1,2,3,4,6,7,8,9
1,2,3,4,7,9
1,2,3,4,5,6,8
1,2,4,5,6,8
5,6,7,9
5,6,7,8,9

1,2,3,4,5,7,8,9
1,2,3,4,5,8,9
2,3,4,9
1,2,3,4,5,8
4,5,6,7
1,2,4,5,6,7,9
1,2,3,6,7,8,9

1,2,4,7,8,9
1,2,3,4,8,9
2,3,4,92,3,4,5,8
4,5,6
5,6,7,9
6,7,8,9

I

  

	
  
The IAFOR Academic Review – Issue 8118.Water, Soil and Air Quality
9.Waste Management

1,2,4,7,8,9
1,2,3,6,7,8,9

1,2,4,5,7,8,9
1,2,3,6,7,8,9

1,2,4,7,8,9
1,2,3,6,7,8,9I

The top-level Environmental Sustainability in the hierarchy would not help achieve any other Environmental
Sustainability above its own level. Once the top-level ES is identified, it is separated out from the other Environmental
Sustainability’s (Table 3). Then, the same process is repeated to find out the Environmental Sustainability’s in the nextlevel. This process is continued until the Environmental Sustainability of each level is found. Results for the iteration
process are summarized in Table 4. The resulting levels help in building the digraph and the final model.

Iteration
ii
ii
iii
iii
iv
iv
v

ES’s
2
3
7
9
4
5
6

Reachability Set
2,3,4,6,7,9
2,3,4,7,9
5,6,7,9
6,7,9
4,5,6
4,5,6
6

Table 4: Iteration ii-v
Antecedent Set
2,3,4,5,9
2,3,4,9
6,7,9
6,7,9
4,5
4,5,6
6

Intersection Set
2,3,4,92,3,4,9
6,7,9
6,7,9
4,5
4,5
6

Level
II
II
III
III
IV
IV
V

3.4 Building the ISM model
From the final reachability matrix (Table 2), the structural model is generated. If there is a relationship between theEnvironmental Sustainability’s I and J, this is shown by an arrow which points from I to J. This graph is called a directed
graph, or digraph. After removing the transitivities the digraph is finally converted into the interpretive structuralmodelling-based model (Figure 4).

  

  

	
  
The IAFOR Academic Review – Issue 8

12Figure 4: Structural model of Environmental Sustainability Drivers
Several interesting findings for the implementation of environmental sustainability arise from the application ofinterpretive structural modelling approach. The findings offered new considerations regarding the successful
implementation of sustainability reporting. In this analysis, the dependence power and driver power of the variables areanalyzed. On the basis of the above study, the drivers were classified into four sectors. The four sectors are autonomous,dependent, linkage, and driver/independent (refer to Figure 5). In the final reachability matrix, shown in Table 3, thedriving power and dependence of each of the drivers are calculated. The drivers that have weak driver power and weak
dependence will fall in Sector I and are called autonomous drivers. Drivers that have weak driver power, but strong
dependence power will fall in Sector II and are called dependent drivers. Drivers that have both strong driver power anddependence power will fall in Sector III and are called linkage drivers. These drivers are unstable due to the fact that any
action on these drivers will affect the others, and may also have a feedback effects on themselves. Drivers that have strong
driver power but weak dependence power will fall in Sector IV and are called independent drivers [9].

Sector I:
Sector II:
Sector III:
Sector IV:

Autonomous Driver
Dependent Driver
Linkage Driver
Independent Driver

3.5 Predicting the palm oil products life cycle to improve sustainability reporting

Process flows in the supply chain
Figure 6: Environmental sustainability reporting drivers in the Malaysian palm oil industry

  

  

	
  
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13

The drivers involved in the environmental sustainability reporting for Malaysian palm oil industry case study poseconsiderable challenges. Decision makers must be aware of the relative importance of the various drivers and thetechniques for implementing them. Highlighting the 9 types of drivers, an interpretive structural modelling-based model
was developed and the interactions between these drivers were analyzed. From Figure 4, it is evident that energy efficiency
is the significant driver to reduce and eliminate product environmental impact, which is in tern critical to achieving thesustainability certification between suppliers in the supply chain network. Life cycle assessment, green labelling,
renewable resources, waste management, GHG emissions and climate change are placed at an intermediate level of theinterpretive structural modelling-based model. Environmental management and water, soil and air quality are at the top
level of the interpretive structural modelling-based model hierarchy.
From the driving power and dependence diagram shown in Figure 5, it is evident that there is no driver that has weak
dependence and weak driving power, so there are no drivers that map to Sector I. Next, the energy efficiency driver isfound to have weak driving power and strong dependence power so it maps to Sector II. In this case, implementation ofenvironmental management, life cycle analysis, GHG emissions, renewable resources, water, soil and air quality and waste
management are found to have strong driving power and strong dependence power so they map to Sector III. These
drivers are unstable due to the fact that any change occurring to them will affect other drivers and may be affected througha feedback mechanism [15]. Lastly, the green labelling and climate change drivers possess strong driving power and weak
dependence power so they map to Sector IV. The above model is based on the interpretive structural modelling
methodology, which has its own limitations. For example there will be subjective bias of the person who is judging thedrivers, as the relations among the drivers always depends on that person’s knowledge and familiarity with the industry.
Issues of product sustainability are being undertaken in supply chain network by using simulation analysis andsubsequently to ascertain a novel approach to outline a guideline of their product life cycle. It is intended that the standardof environmental sustainability reporting can utilize these drivers (shown in Figure 6) as part of a useful guideline to aid
decision-making. The novelty of this research is that it identifies the significance of environmental sustainability reporting
based on the analyzed drivers and provides evaluation of environmental sustainability criteria’s. This paper has provided
a structural model of environmental sustainability and its associated method was developed by using the interpretive
structural modelling model to determine the potential drivers in environmental sustainability reporting. The developedmodel can be used in the design life cycle of a product whether it is viable to be reused, remanufactured or recycled andsubsequently to improve its sustainability. Indicators and units examples of the environmental sustainability indicators
and units of life cycle stages related to the Malaysian palm oil industry were shown in Table 5.
Table 5: Examples of environmental sustainability drivers’ indicators and units of life cycle stages of the Malaysian palm
oil industry________________________________________________________________________________________
Environmental Sustainability
Indicators
Units
Drivers
1) Environmental Management
Compliancy to the Environmental Management Standards
Number or %2) Life Cycle Assessment
A specific entire product life cycle from the environmental
Number or %point of view3) Green Labelling
Labels on products indicating carbon footprints, water andNumber or %energy use, resource consumption and health impacts
4) GHG Emissions
Emissions in total
CO2
equivalent5) Climate Change
Contribution to global warming
kg/yr or t/yr
CO2equivalent
6) Energy Efficiency
Energy used in total
TJ/yr7) Renewable Resources
Rate of renewable resources (relative to total world/regional %reserves)
8) Water, Soil and Air Quality
For water
Amount of water usedm3/yr
For soilAmount of soil usedha/yr
For air
Amount of air pollutionskg/yr or t/yr
9) Waste Management
Amount of solid waste (hazardous or non-hazardous)
kg/yr or t/yr__________________________________________________________________________________________

  

  

	
  
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4

Conclusion

In order to achieve sustainable products, an interpretive structural modelling approach was conducted to better
understand the drivers related to environmental sustainability reporting in the supply network chain related to the
Malaysian palm oil industry. This paper has identified nine (9) environmental sustainability drivers and the relationships
between them. The findings from the environmental sustainability reporting drivers of this study can be furthered use to
explore the potential impacts of supply chain network design on sustainability using the Malaysian palm oil industry as areference.
The decision makers related to the Malaysian palm oil industry will be directly benefited from the outcome of thisresearch, as this would help them in prioritizing decision-making efforts on various issues. The strongest driver in thedecision-making process of this industry is energy efficiency. By increasing energy efficiency will help to reduce theimpact of energy consumption on climate change. This is perhaps the reason why issue relating to energy efficiency is in
the level of the strongest driver. This issue has triggered the next level of issues, which includes greenhouse gas emissions
and climate change. As climate change is primarily affected by the greenhouse gas emissions, replacing non-renewableenergy with alternative renewable and low impact energy sources can help to increase energy efficiency. The next level ofissues as shown in the interpretive structural modelling-based model in Figure 4 covers the issues related to renewable
resources and waste management. This level of issues is primarily at the cradle-to-grave life cycle, where efficient use ofrenewable resources and successful implementation of waste management will ensure long term sustainability
achievement. In the next level of issues, life cycle assessment and green labelling are applicable to provide an assessmentof the potential environmental impacts of all inputs and outputs throughout the production chain and to produce
environmental friendly products. The final issues are the environmental management and water, soil and air quality which
are important to access environmental impacts and to prevent contamination.
As for further research, simulation analysis can be carried out to determine the influence effect of these drivers had on
the performance of the network. From the performance analysis, focus can be better made on the sensitivity of triple
bottom line to factors of uncertainties of the supply chain network in order to understand the potential risks ofsustainability in palm oil supply chain network and could be diagnosed for better sustainability development indicators.
Acknowledgment
A semi-structured questionnaire was designed to collect information related to the palm oil industry corresponding to
the research topics in Malaysia. The authors wish to thank three interviewed respondents, (1) Mr. Ramli Abdullah,
Senior Research Officer and (2) Ms. Dayang Nazrima Shahari, Head of Estate Section, from the Malaysia Palm Oil
Board and (3) Mdm. Hasnah Mohd Zin, Environmental Technology Research Centre for their valuable information’s.

  

  

	
  
The IAFOR Academic Review – Issue 8

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References[1] Acton, D.F., Gregorich, L.J. (1995). The health of our soils: toward sustainable agriculture in Canada. Agri-food
Canada, Ottawa.
[2] Basiron Y. (2006). Sustainable palm oil production in Malaysia. Symposium on Sustainable Development, London.
Online:www.mpoc.org.my/download/envo/POS%2020Sustainable%20Palm%20Oil%20Production%20in%20Malaysia.pdf[3] Basiron, Y. (2009). Malaysian Palm Oil: Commitment Towards Food Security and Sustainability. Global Oil andFats Forum (5-6 October 2009).
[4] ISO, 2006a. ISO 14040 International Standard. Environmental Management – Life Cycle Assessment – Principles
and Framework. International Organisation for Standardization, Geneva, Switzerland.
[5] ISO 14000. Environmental management systems – Requirements with guidance for use. International Organisationfor Standardization, Geneva, Switzerland. 1992.
[6] ISO 19011. Guidelines for quality and/or environmental management systems auditing. International Organisationfor Standardization, Geneva, Switzerland. 2002.
[7] Kangas J., Kurtila M., Kajanus M, & Kangas A. (2003). Evaluating the management strategies of a forestland estatethe S-O-S approach. Journal of Environmental Management No. 69, 349–358.
[8] Kannan G, Pokharel S, Sasikumar P. (2009). A hybrid approach using ISM and fuzzy TOP-SIS for the selection ofreverse logistics provider. Resources, Conservation and RecyclingNo. 54, 28–36.
[9] Kannan G, Haq NA. (2007). Analysis of interactions of criteria and sub-criteria for the selection of supplier in thebuilt-in-order supply chain environment. International Journal of Production Research, No. 45, 1-22.
[10] Kotler, P. (1988). Marketing Management: Analysis, Planning, Implementation and Control. Prentice-Hall, New
Jersey.
[11] Malaysian Palm Oil Board (MPOB). (2009). Roadmap for the Malaysian Palm Oil Industry 2009-2020. Selangor,
Malaysia.
[12] Malaysian Palm Oil Council (MPOC). (2007). World’s Oils and Fats Production Share.
Online: www.mpoc.org.my/slides.asp[13] Malaysian Palm Oil Board (MPOB). (2007). Overview of the Malaysia oil palm industry.
Online: econ.mpob.gov.my/economy/overview07.htm[14] Oil World. (2009).
Online: http://www.oilworld.biz/app.php[15] Qureshi MN, Kumar D, Kumar P. (2008). An integrated model to identify and classify the key criteria and theirrole in the assessment of 3PL services providers. Asia Pacific Journal of Marketing and Logistics Vol. 20(2), 227-49.
[16] RSPO. (2005). Roundtable on sustainable palm oil. Online: www.sustainable-palmoil.org[17] Sustainable Agriculture Initiatiave. Agriculture Standards Benchmark Study.
Online:www.saiplatform.org/site_files/uploads/documenten/ SAI_rev2_ final_(BenchmarkingReport)TEASER.pdf[18] Sustainable Agriculture Initiative Platform and Sustainable Food Lab. Short Guide to Sustainable Agriculture.
Online: www.saiplatform.org/site_files/uploads/documenten/short_guide_to_sa_-_final[1].pdf

  

  

	
  
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Agriculture No. 7, 2–3.
[20] Pierzynski, G.M., Sims, J.T., Vance, G.F. (1994). Soils and Environmental Quality. Lewis Publishers, CRC Press,
Boca Raton, FL.
[21] Power, J.F. (1996). Requirements for a sustainable agriculture for the next generation. In: Nath, B., et al. (Eds.)
Proceedings of the International Conference on Environmental Pollution, Vol. 1. University of London, UK, 92–98.
[22] Warfield, J. (1973). Societal Systems: Planning, Policy and Complexity. John Wiley & Sons, Inc., New York, NY.

  

  

  

	
  
The IAFOR Academic Review – Issue 8

17Finding Balanced Synergies –Putting Resilient Sustainability into Businessand Technical Strategy

By Julie Winnard and Jacquetta Lee, Centre for Environmental Strategy, University ofSurrey, UK
Andy Adcrof, Surrey Business School, University of Surrey, United Kingdom
David Skipp, Ford Motor Company Ltd., United Kingdom
Abstract
Whilst some pioneer businesses have integrated sustainability into their fundamental strategic decisions
this can be a difficult task. Our recent review indicates a blend of both sustainability and resilience isneeded, to ensure the reliable synergy of reduced impacts and improved performance which make upsustainable business. This is supported by recent evidence that organisations which do implement such
Resilient Sustainability flourish compared to their peers, by benefiting from better risk awareness andavoidance, reduced costs, maintained access to investment, flexible solutions and improved ability to
exploit opportunities. However, not much detailed help is available for less well-resourced firms on
how to implement such an integration and access those benefits.
The paper reports on the development and testing of a new generic flexible approach to decisionsupport which aims to integrate sustainability and resilience into strategic processes. It is based ontechniques from complex systems engineering and influenced by best business practice such as Porterand Kramer’s Creating Shared Value. This allows decision-makers and their teams to approach

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commercial and technology strategy formation in a new structured way, to identify gaps in theirknowledge and create more resilient options which better balance people, planet and profit.
The research uses case studies to test the approach, within Ford Motor Company and otherorganisational strategy contexts. The paper summarises the findings to date, including user feedback
and evidence for how the approach can deliver increased capability for managing risks and uncertainties
and thus improve an organisation’s strategic performance.
1.0 Introduction
Sustainability is increasingly a strategic issue for companies (Haanaes et al., 2012) and those which are
more sustainable perform better than competitors (Eccles et al., 2012). They also need resilient
strategies to maintain this performance in turbulent business conditions (Hamel and Välikangas, 2003,
Bhamra et al., 2011, Taleb, 2008). Blending both qualities when making decisions is difficult yet
guidance for how to do this- or even half of the task- has been almost non-existent (Bocken et al.,2013, Winnard et al., 2014). Even where executives acknowledge the strategic importance ofsustainability issues for their organisations, many are not yet addressing these (Kiron et al., 2013).
Companies also cannot afford to develop every feasible single technology, business model or productoption and must choose between alternatives, often at an early stage of their strategy. Therefore a new
approach is needed to make the integration of sustainability and resilience into these choices moreconsistent and easier (Winnard et al., 2014).
1.1 Developing the new decision-support process
The first step was to define sustainability and resilience. It is possible to define sustainability forbusinesses, based on reducing their negative and improving their positive social, environmental andeconomic impacts and prioritising those actions which restore various forms of capital (ibid.).
Definitions for strategic business resilience vary; possibly because it appears to consist of three mainelements. Combining these gives a definition covering the capacity to continue functioning whensuffering a disruption of some kind; further capacity to recover from disruption, and adaptive capacity
for developing new abilities and resources, preferably in anticipation of problems (ibid.). The synergy
between resilience and sustainability is not much explored but is best expressed by Walker et al. (2002)
who suggests resilience should be developed in order to deliver sustainability reliably.
1.2 How this new approach benefits companies
The new blended approach was named SuReSDS™ (for Sustainable Resilient Strategic DecisionSupport). In every-day business terms its purpose is to facilitate companies in managing forms ofstrategic and other risk better, which arise as a result of unknowns. This can be shown in the form of a
“Rumsfeld” grid as in Figure 1 describing different kinds of uncertainty and risk, named for Rumsfeld’s
famous speech (Pullum, 2003, Steyn, 2003).

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19Fig. 1- Effects of SuReSDS™ on risk from unknowns“Unknown Knowns” represents data which may be available to other organisations but not your own,
for example if you are not using sustainability expertise to inform corporate strategy. “Known
Unknowns” indicates chaotic random elements of the business context about which there is some
information, but low certainty; for example the size and timing of commodity price fluctuations. By
expanding the organisation’s capability to manage these two areas, its resilience to disruptions is
improved; its sustainability risks are reduced, opportunities exploited better, and surprises have less ofan impact on business performance. Although little or no data exists about events in the “Unknown
Unknowns” area, the capability to handle these is also improved. The organisation becomes morecapable in the other areas; therefore it becomes more resilient to the effects of some types of
uncertainty and risk which also occur in this fourth category whether or not they can be anticipated.
1.3 SuReSDS process flow
Developed during research hosted by a manufacturing company (Ford Motor Company Ltd), theapproach blends the sustainable business ethos of Creating Shared Value (Porter and Kramer, 2011)
with strategy creation and comparison techniques from Transition Engineering (Krumdieck, 2013). In
addition system-functionality techniques adopted from Robustness Design engineering (FMC, 2011)
look rigorously at how each choice improves both sustainability and resilience. The ultimate aim is to
identify the most appropriate strategy option(s) for users to adopt across a range of possible future
conditions, by considering a broad range of sustainability performance criteria, alongside effects of thestrategies on resilience related to risks and opportunities. The main stages are shown in Figure 2.

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Fig. 2– SuReSDS™ process (inside dotted line) inserted into a typical Deming-style strategic decisioncycle (adapted from Arveson, 1998)
The process flow for the new approach was developed using a pilot case study, into a more detailed setof steps which could be communicated to company staff. These are shown in overview in Figure 3. Theintervention point for this project, at which the new process could effectively be inserted withincompany activities, was identified using semi-structured interviews and meeting observations. This
point was the use of strategic studies, in which teams of engineers, specialists and managers prepare
information and recommendations for decision-makers at higher levels. This information is used in
iterative, multi-level and multi-function decision-making loops to alter or create strategies at Ford,
which may concern technologies, products and services or even business models.
2.0 Testing the new process
Next a process instruction manual and some simple training examples were created. Further casestudies inside Ford were used to test its validity in real situations and to investigate whether it could
provide the desired beneficial effects for its users. As many of Ford’s strategic decisions are on future
products which are commercially sensitive, and this limits the ability to publish the research results,
further organisations were approached for case studies. These consisted of a nearby (non-automotive)
Small to Medium-sized Enterprise (SME) manufacturer, and a non-educational department of the
University.
Managers and their teams were chosen for participation in the research who said their teams alreadyencountered issues associated with environmental or social impacts of their organisation’s activity or
products, and who therefore had an interest in integrating these issues within their work. Interviews
recorded their existing approaches to strategic studies and strategic decision-making, before training
the teams in the new process using a facilitated workshop.

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Fig. 3– The 8 steps of the SuReSDS™ process flow
The teams then applied the SuReSDS™ approach to a real-world strategic study they were working
on, facilitated and observed by the researcher. After either a complete pass of the process steps, or as
many as could be accommodated in the available time, feedback was sought using a short questionnaireand further interviews.
3.0 Case study results
The case study samples which have been completed and analysed so far have ranged from early
product-service concepts, through business plans and technology roadmaps, to capital-asset planning
strategy processes. The original pilot case study at Ford provided confirmation that the approach was
logically valid within quantitative studies, by reproducing results from a previous study, before
exploring which extra insights might be gained from using SuReSDS™. As a result of theaforementioned confidentiality concerns, this paper illustrates the results primarily using an early casesample where SuReSDS™ was used at the SME.

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223.1 Butyl Products Ltd case study
Butyl Products Ltd is a medium-sized UK manufacturer serving several sectors. Amongst these they
make aid and development equipment for charities, governments and other organisations, focussing on
kits for water-related needs such as sanitation and hygiene. The study concerned the business case for,and design of, a new product, which the company wished to offer in response to an unmet hygiene
need for end-users identified by customers at a recent sector workshop. This case sample was also apilot study in that this was the first time the approach was utilised by ordinary business people outside
the research project.
There were two elements to the case study design:•
Checking that SuReSDS™ would reproduce similar results during its process, to an original
qualitative analysis; to show whether as an analysis approach it is logically valid.
•
Testing whether SuReSDS™ produced extra information and insights. This investigatedwhether it enabled users to integrate resilient sustainability into their strategic choices as intended, andwhether it produced extra benefits to justify the effort required to use it.
3.1.1 Methodology for applying SuReSDS™
The new approach was applied to existing strategic information from a current product and businessmodel study, by the researcher and a specialist from the SME together. An initial analysis wasproduced, and the results compared to the existing study. The analysis was then extended using
SuReSDS™ to look at product function, sustainability, and resilience to issues in the field. This
analysis was conceptual (for a new product-service idea) and therefore qualitative rather thanquantitative. The specialist was interviewed afterwards to see how useful the experience of using
SuReSDS™ had been. They were asked whether it had made the decision process easier and whether it
had influenced the choice of strategy, or improved business performance.
3.1.2 Scope phase
The case is explained here in terms of the process steps of the new approach. The first phase isintended to clearly define the purpose of the strategic study, and to set the boundaries of the businessmodel, product or service, or technology to which it is being applied (that is, the system which thestrategic decision is seeking to change). It seeks to reframe the study in terms of sustainability and/or
resilience issues or opportunities, to check that use of SuReSDS™ is appropriate and necessary.
The design problem to which the process was applied at Butyl Products Ltd relates to menstrual
hygiene in aid camps and development projects all over the world. Butyl’s clients had identified a“wicked problem” in that young women in developing nations can experience problems managing theirmenses discreetly, frequently staying away from school and other public activities for up to a third ofeach month. This means they fall behind and often drop out of general education and development
projects. This matters because it undermines the social and economic development these projects aremeant to support; both generally and for individual females.
Hygiene kits for aid and development treat menstrual hygiene as less important than survival and tend
to contain either nothing, simple cloths, or at best Western-style adhesive disposable paper pads. These
lead to several issues:•  •  A complete absence of menstrual hygiene supplies does nothing to alleviate the related issues
for women and girls receiving kits.
Cloths are washable so re-useable and cheap but do not work very well as they are not secureand do not stop leaks. Kits may also lack instructions and cloths may not be laundered or canend up being used for other things.

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23

•  

•  

•  

Stick-on disposable pads attach to underwear during use and function well; except for cultures
which do not wear underpants. Here even if underwear is also supplied, this and the pads are
rarely used.
Even where they are used, the disposable pads create hygiene and waste problems when
disposed of after use, and users must be resupplied with new pads at further cost and logisticaldifficulty. When the camp closes or development project finishes, there may not be a further
supply of items and project benefits may be lost.
Finally there is a common set of issues; lack of hygiene education and lack of suitablematerials, or unhygienic use arising from any of these kit options means women and girls
using various unsuitable materials and methods to manage their menses. The resulting poor
hygiene is thought by Non-Governmental Organisations (NGOs) to account for a significant
proportion of female infections and diseases in some countries.

The company’s clients at the sector workshop identified from this that they needed:
•  
•  
•  

A new design of menstrual hygiene kit which works in all cultures but also functions wellgenerally
To be combined with hygiene education
And which is also low-cost enough to be used everywhere, to avoid complexity and related
costs in NGO distribution and supply chains.

The NGOs and other sector organisations would supply the education side but needed their suppliers
to come up with solutions for the physical items. From this Butyl had identified a potential solution
but wanted to check if their intuition that it was the best suitable design solution was correct. They alsoneeded to investigate the business case to see if the required investment in prototypes and businessdevelopment was justified.
Working with the relevant specialist at Butyl, the case study was identified as seeking to primarily solvea cultural resilience design issue. This was that the best available solution for menstrual hygiene kits,stick-on pads, does not work in some cultures and so this undermines the function of the kit and otheraid or development project effectiveness. The design is of a Product-Service System (PSS) in that thepads are providing the service of discreet menstrual hygiene management. This service can be thoughtof as the “function” of the PSS, which currently has social (cultural and also various hygiene) issues.
The wish of the client NGOs was that these issues should be solved whilst improving (or at least not
worsening) the environmental (mainly disposal) and economic (user purchase and/or donor cost)
impacts of the system. Therefore the study was confirmed as containing both resilience andsustainability concerns, and so being suitable for applying SuReSDS™.
3.1.3 Create Options phase
If the organisation does not already have strategy or system design options in mind, at this stage some
initial options should be created using the simple results from the scope phase. To assess any such
option it is necessary to find something to compare it with; either the existing situation without the
new design/strategy if it is new, or some existing variant if it is an improvement. The results of otherphases of the analysis process can also trigger ideas for more changes leading to further improved
function or reduced negative impacts, creating new versions of existing options. In this way
SuReSDS™ has been designed from the start as an iterative process.
In this case study the company had identified a solution using a combination of design elements fromexisting products. They had one design concept which they could supply to customers, and so in orderto analyse its benefits it was decided to compare it with the best available external option. The new
design was a washable re-useable set of fabric pads combined with an elastic belt, storage bags andlaundry soap. The pads were absorbent but shaped and had a waterproof layer (taking the best elementsof the paper pads to provide a good basic functionality), and the elastic belt had loops and clips tosecure the pads without underwear (borrowing from another older type of paper pad). The use of
tough, stain-proof but soft and absorbent fabrics plus storage bags and soap allowed clean and soiled
pads to be kept separate, and soiled ones washed for reuse, many times.

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Other existing hygiene products such as tampons, washable internal cups or clip-on washable pads,
were considered but rejected due to one or more of the following issues:
•  
•  
•  

Products which are inserted are not acceptable within all cultures
Inserted products also pose a larger hygiene risk whether or not they can be washed and reused
Clip-on pads even if washable still need underwear to work

Additionally, some suppliers reviewed or approached to explore sourcing parts of the new design
were either uninterested, too small or deemed unreliable commercially.
This left one design and the need to set up a new supply chain to deliver it. The best existing design towhich it could be compared was the adhesive disposable paper pads. These have absorbent paper layerswith a waterproof backing, adhesive, and packaging. Although the study was conceptual there wassufficient information now available to progress with an analysis. One intention of SuReSDS™ is toallow this type of qualitative analysis which can highlight where further quantitative information isneeded.
3.1.4 Identify Stakeholders and Value Flows phase
To compare the different PSSs meaningfully a common basis was needed- a Unit of Analysis similar tothat used in Life Cycle Analysis (Baumann and Tillman, 2004). This unit was identified as supplies for
one woman for one year- also implying that one new re-useable kit must last for at least this long. The
paper pads would have to include 13 sets of 12 to 20 pads for one year. In order to analyse theeffectiveness of the new option against this requirement and the external best-existing system, it was
next necessary to identify which people and entities (stakeholders) are significantly affected positively
and negatively by the system (in this case the menstrual pads PSS) and its functions or malfunctions.
This phase applies Creating Shared Value principles (CSV, Porter and Kramer, 2011). This seekssolutions to social and environmental problems or opportunities to exploit in these areas, to gain
competitive advantage by producing more sustainable strategies, products and services. This analysis
was developed as a map of stakeholders to identify the flows of different types of value (including socialand environmental, positive and negative) between them. The different stakeholders are viewed as
belonging primarily to one of the Triple Bottom Line (TBL) categories (Elkington, 2004) of society,economy or environment; according to the main impact the system has on them. E.g., consumers arepart of the economy but they hand over their economic capital (money) in order to receive a social
service or product and therefore would be placed in the “society” group. The environment (local and/or
global) does not in itself own money, but resources are extracted from it, and waste and pollution
returned to it, as a result of the lifecycle of economic goods and services. Organisations may represent it
as proxies, by passing laws, exacting fines and sanctions or applying societal pressure.
Due to the need to consider the lifecycle impacts of the PSS designs, it was decided that only direct
and significant effects of the system could be included on the value flow diagram to avoid
overcomplicating it. Effects on areas of the environment such as air pollution do feed back into
negative health impacts on all of society; these have to be borne in mind when considering the analysis
but are indirect. Both options were analysed, then compared using the value flow map shown in Figure
4. The two designs are shown photographically in Figure 5.
By considering the flows of value the system causes or enables, it is possible to come up with systemdesigns which reduce negative impacts and improve positive ones. Effectively these are looking for
more sustainable solutions by better balancing the TBL outcomes or looking for innovative synergies
which benefit all areas where possible. In Figure 4 the arrows show flows of value between thestakeholders most significantly affected. The symbols show the estimated relative effect of the new
design compared to the old. A + or ++ indicates a smaller or larger increase in the magnitude of a flow,
and so on, whilst the symbols are colour coded to indicate whether this is considered a good or bad
thing from the viewpoint of sustainability. +/- indicates an unclear outcome needing more work toquantify.

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Fig. 4- Value flow map for menstrual hygiene kit comparison

Fig. 5- existing design (left, disposable sticky pads) and new design (right, washable fabric pads andbelt)
It was later found that this judgement on the changes may vary according to whose viewpoint is
adopted- the NGO, the supplier or the user may have a different view of economic impacts inparticular, for example. One party may view them as a burdensome cost and another see them as
valuable income. The assessment of social and environmental impacts so far has not been as likely tochange with changing viewpoints. The diagram in Figure 3 is drawn from the viewpoint of Butyl
Products, as the organisation conducting the analysis.
In this exercise a number of advantages were confirmed for the new design in reducing the major socialand some environmental issues. However it also highlighted trade-offs in impacts. The new kit is likely

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26

to be more resource-intensive per pad, using fabric, and uses soap and water to clean them; but it alsouses far fewer pads in a year and very few are disposed of to the local environment or waste system.
When the pads are used in aid camps they would need to be provided in tandem with washing facilities
and water. Their appropriateness and associated water impact in development projects is more difficult
to assess and will depend on water scarcity and other projects occurring in parallel. This is more amatter for the NGOs to consider but indicates that choices made using SuReSDS™ can be contextdependent. More quantitative information on the lifecycle impacts from each design and the changes in
specific impact types, possibly in location-specific analyses would be needed to assess whether the new
design represents a general improvement in environmental terms.
Other outcomes were that it is not clear whether NGOs such as charities sit in the “society” or“economy” group of stakeholders. In this case study the differing assessment of strategy effects on
certain value flows was not an issue so long as the organisations (in this case both the client NGO andsupplier Butyl) seek to balance the benefits and downsides to themselves and other stakeholders; andprovided that all the significant stakeholders are included in the analysis. After all, Shared Value
proposes exactly this balancing act for companies to become more sustainable (Porter and Kramer,2011).
3.1.5 Evaluate Options Against Scenarios phase
The PSS function could now be considered in more detail to assess how its resilience can be improved.
This phase uses a simplified Parameter Diagram borrowed from Taguchi’s robustness engineering(Karna and Sahai, 2012, FMC, 2011). Using the value flow diagram as the context for the PSS,
different elements of its functional design, its input and outputs were identified. This also allowed
consideration of feedback effects between different aspects of the system, and which parts of the systemdesign were truly able to be altered by the organisation (Butyl).
It was now possible to define both resilience and sustainability more specifically using the Parameter
Diagram. Sustainability is effectively measured within it by the ratio between all of the beneficial
impacts of the outputs of the system’s function (the desirable outputs in Figure 5) and all of their
negative impacts (undesirable outputs). This could be expressed using a mix of all the TBL types of value
or checked by selecting only items which the strategies affect differently. All of the value flows from theprevious phase appear in the diagram as one or other type of output. As before, no definite
measurements for these value flows existed and only the likely effect of different strategies on thesevalue flows could be considered.
Similarly resilience is the ability of the system to maintain this level of sustainability when disturbed by
one of its inputs. This might be a signal (something the system is designed to respond to) or a noise(something it should ignore). The simplest form of resilience measure is therefore how much theoutput performance changes in response to an input changing- another ratio representing short term or
innate resilience. Over the longer term the system may also recover and adapt which allows for othermeasures of resilience.
In this case the resilience of interest was the immediate ability of different cultures to use the hygiene
kit pads. The populated Parameter Diagram is shown in Figure 5. As before the new and existing
designs were compared, and the flows marked with +/- symbols using the same logic.

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27

Fig. 6- System Parameter Diagram analysing function of new menstrual hygiene kit

By looking at how local culture might affect users of the pad, the resilience of the new design could bechecked against these. This was effectively forming very simple scenarios of future use in the field. The
main signals were the presence or not of underwear, and the new design was confirmed to work better
than the old one. However other noise factors were also identified such as the size and shape of users or
the intensity of flow they must manage, and these led to some improvements in the physical design andtherefore function of the new PSS. The possible need for an ethical supply chain was also highlighted
as a potential demand of customer NGOs. This last is probably not a concern for the users but does
concern Butyl as the supplier. Figure 6 is also drawn from their perspective.
Once the strategic alternatives have been analysed, users should check that their strategies do improve
the performance of the product, service or business model as needed. If not, the SuReSDS process
prompts them to return to the hunt for better options. The exception is if the existing strategy isalready the best available one.
3.1.6 Choose Option phase
Butyl Products Ltd did not have many strategic options to select between- their decision was whether
to develop their design and enter a new part of their market, or not. Therefore a full comparison grid
was not created. When comparing multiple strategies companies would normally use a comparison
matrix adapted from Transition Engineering (Krumdieck, 2013, pp 722-728) or a version of theirnormal format for strategic comparisons, to select their best option.
The specialist at Butyl reported that they individually found the new approach enabled a methodical
approach to a complex set of issues. It gave them confidence that they had found the best PSS design,and provided missing information to help them make a strong business case. The staff at the SME
generally felt that the exercise was worth the effort and used the extra information to help specify
product criteria (e.g. target costs and technical performance) develop prototypes, identify suitablesuppliers and approach potential customers.

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4.0 Discussion of results
SuReSDS™ reproduced a description of social and environmental issues surrounding the current
product, and modelled conceptually how a new product-service system (PSS) might address these. It
also allowed a more detailed exploration of how the compared designs affect different stakeholders, andwhere the new version could improve both sustainability and resilience of the PSS. Additionally somepossible negative impacts and context-specific aspects were discovered that required more investigation,
to quantify any trade-offs. This allowed the advantages and disadvantages of the new design to be
included in a business case and a strategy decision. Finally this study produced clear real-world impacts,
assisting in the development of a new more resilient and socially sustainable product.
In terms of Figure 1 the case study succeeded in integrating sustainability and resilience thinking into
organisational strategy to manage risks from both negative impacts and uncertainties. This allowed
Butyl to make a strong case to customers, resulting in expressions of customer interest; which
demonstrates some immediate benefits to the company.
4.1 Other case study results
Two subsequent studies at Ford looked at innovative product designs using trained participants
facilitated by the researcher. These showed that the approach is transferrable by training, whilst users
again reported that they were better able to tackle sustainability and resilience-related strategy tasks
using SuReSDS™. The information derived was used directly within their real-world projects andhighlighted a number of extra opportunities and risks which they were then able to exploit orameliorate. Further case study samples are planned at Ford, University of Surrey and the SME withtrained participants, facilitated and observed by the researcher.
5.0 Conclusions
SuReSDS™ appears to deliver the intended immediate benefits to decision-makers. It has affected
some of the choices made in this and other case studies, by identifying new opportunities or risks andproviding a methodical comparison of strategic options. If these results are supported by the other casestudies the implication is that the approach is suitable for use in both large and small suppliers of PSSs,
and possibly other types of organisation. One limitation however is that companies may need to importor develop sustainability and resilience expertise to be able to continue to use the approach.
Resilient Sustainability as deliverable by SuReSDS™ should therefore provide a competitive advantage
to its users by allowing them to integrate sustainability into their strategy more easily and reliably than
before. It allows them to look for better synergies between their economic gain and the social andenvironmental value they deliver to stakeholders. However SuReSDS™ has been designed fororganisations which were not previously able to do this; different industries may be better or worse
equipped than automotive giants and small manufacturers. It also assumes that the organisations using
it wish to integrate sustainability into their decisions; any tool can of course be subverted by a different
purpose than that intended. The suitability of SuReSDS™ for other sectors and more firms is one
future area for research, together with exploring larger sample sizes.

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References
Arveson, P. 1998. The Deming Cycle [Online]. Cary, NC, USA: The Balanced Scorecard Institute:
Strategy Management Group. Available:
http://www.balancedscorecard.org/thedemingcycle/tabid/112/default.aspx [Accessed 29th
Aug 2013].
Baumann, H. & Tillman, A. 2004. The Hitch Hiker's guide to LCA, Lund, Sweden, Studentlitteratur.
Bhamra, R., Dani, S. & Burnard, K. 2011. Resilience: The concept, a literature review and future
directions. International Journal of Production Research, 49, 5375-5393.
Bocken, N., Short, S., Rana, P. & Evans, S. 2013. A value mapping tool for sustainable businessmodelling. Corporate Governance, 13, 482-497.
Eccles, R. G., Ioannou, I. & Serafeim, G. 2012. The impact of a corporate culture of sustainability on
corporate behavior and performance. National Bureau of Economic Research.
Elkington, J. 2004. Enter the Triple Bottom Line. In: Henriques, A. & Richardson, J. (eds.) The Triple
Bottom Line: Does It All Add Up? 1st ed. London, UK: Earthscan.
FMC 2011. FMEA Handbook (with Robustness Linkages) Version 4.2, Detroit, Michigan, USA, Ford
Motor Company.
Haanaes, K., Reeves, M., Von Streng Velken, I., Audretsch, M., Kiron, D. & Kruschwitz, N. 2012.
Sustainability Reaches a Tipping Point. MIT Sloan Management Review Research Reports.
North Hollywood, California, USA: MIT (Massachusets Institute of Technology) Sloan
Management Review and BCG (Boston Consulting Group).
Hamel, G. & Välikangas, L. 2003. The Quest for Resilience. (cover story). Harvard Business Review,81, 52-63.
Karna, S. K. & SAHAI, R. 2012. An Overview on Taguchi Method. International Journal ofEngineering and Mathematical Sciences, 1, 11-18.
Kiron, D., Kruschwitz, N., Rubel, H., Reeves, M. & Fuisz-Kehrbach, S.-K. 2013. Sustainability's
Next Frontier. In: Review, M. S. M. (ed.) Annual global survey. Boston, MA, USA: MIT
Sloan Management Review and the Boston Consulting Group.
Krumdieck, S. 2013. Transition Engineering. In: Kreith (EDITOR), F. & Krumdieck (CO-Editor),S. (eds.) Principles of Sustainable Energy Systems. Second ed. Boca Raton, FL, USA: CRC
Press (Taylor & Francis Group).
Porter, M. E. & Kramer, M. R. 2011. Creating Shared Value. Harvard Business Review, 89, 62-77.
Pullum, G. K. 2003. No Foot in Mouth [Online]. University of Pennsylvania, USA. Available:
http://itre.cis.upenn.edu/~myl/languagelog/archives/000182.html [Accessed 2013].
Steyn, M. 2003. Rummy speaks the truth, not gobbeldygook. Daily Telegraph (online) [Online].
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Taleb, N. N. 2008. The black swan: the impact of the highly improbable, London, UK, Penguin Books
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Peterson, G. D. & Pritchard, R. 2002. Resilience Management in Social-ecological Systems: a
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Winnard, J., Adcroft, A., Lee, J. & Skipp, D. 2014. Surviving or Flourishing? Integrating BusinessResilience and Sustainability (accepted, expected June vol. 3). Journal of Strategy andManagement.
Opening image credit: Flicr Creative Commons/Victo Zubakin

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The International Normative Socialization of Japan:
Securing the Global Tuna Fishing Industry

By Eileen Kae Abrio Relao
University of the Philippines Diliman
In March 2010, the United Nations Convention on International Trade in Endangered Species of Wild Fauna
and Flora (CITES) which is an international agreement between governments aiming to preserve wild animals
and plants engaged in international trade submitted a formal proposal seeking to ban international trade of thereportedly endangered Atlantic bluefin tuna and to have it included in the UN’s list of endangered species.
Although supported by the United States and Europe, this proposal was opposed chiefly, but not solely, byJapan which consumed 80% of the world’s bluefin tuna catch from the Mediterranean and of the world’s freshchilled yellowfin tuna supply. The votes having been cast in a secret ballot, the proposed ban did not prosper
with 72 states disagreeing, 43 affirming, and 14 abstaining. However, in August 2013, the Japanese government
expressed its intent to lead the worldwide effort of promoting the natural reproduction and recovery of the tuna
species, stating that the state would reduce its tuna catches to mature ones by 15%. This paper would look into
probable reasons behind the said normative change and, at the same time, explore the events which might havecaused the continuous decrease in tuna catches and persistent hike in tuna prices in Japan. “Capture” (wild) and“aquaculture” (farmed) are the two types of fish production; note that only the former type was considered inthis paper.

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31Possible Concurrence
According to Burchill et al. (2005), Habermas’s communicative action theory proposes that one of the functionsof international conventions is to facilitate deliberations where the state can explain and support its behavior.
These deliberations help manage conflict and thereafter arrive at a resolution which reflects the interests of allconcerned states. At the 2010 United Nations convention, Japan refused to adopt the proposed ban arguingthat, contrary to the report submitted by CITES, the tuna species were not endangered and that theInternational Commission for the Conservation of Atlantic Tunas (ICCAT), and not CITES, should bemanaging the conservation measures on Atlantic bluefin tuna catches. ICCAT is an inter-governmental
regulatory body that oversees the world’s annual tuna catch.
Burchill et al. (2005), echoing Risse, affirmed that social institutions (international organizations) acquire higher
legitimacy by holding international conventions. However, as Griffths et al. (2009) described, using Reus-Smit’sview on the discursive nature of social institutions, only when the state recognizes the social institution as fairand just, and its proposed rules as ethical and moral, that the said social institution can successfully legitimize
and implement new norms and rules. In this case, Japan, given its perception of CITES’ identity, did not deemCITES as the authority that should be managing the Atlantic bluefin tuna, thereby disregarding the proposal.
As stated by Griffiths, Roach, and Solomon (2009), the state’s consent necessary in the social institution’s act oflegitimizing new norms and rules can only be given if the said state can relate to the moral efficacy of the
proposed norms and rules. In this case, it was probable that the domestic normative behavior compelled acontinuing consciousness that Japan should maintain its custom of serving tuna recipes. This signalled to theJapanese state that it could not meet the terms of the proposal, hence the refusal to grant its consent.
A New Identity
Three years after declining the conservation measures proposed by CITES, the Japanese Fisheries Agency(Suisancho), the body responsible for the state’s public and private fishing industries, expressed its desire to leadthe international community in promoting the conservation of tuna species. The initial step undertaken by theJapanese government was to reduce its tuna catches to mature ones by 15%. On the other hand, the National
Marine Fisheries Service of the United States responsible for regulating the state’s offshore fishing declared that
the United States would cut its tuna catches by 25%. Since 75% of the Pacific bluefin tuna catches wereconsumed by Japan, and the United States was one of the major bluefin tuna catchers, these proposed
conservation measures could then contribute to the recuperation of the endangered tuna species.
Constructivism proposes that state identity and interest are constantly changing; and the state acts or behavesdepending on its identity and interest. As Weber (2009) argued, the state’s identity is “contentious,” “unstable,”and “conflictual.” Wendt, cited in Weber (2009), argued that the state constructs its identity in conformity withthe relationships it has with other states; the constructed state identity then defines the state interest. If the state
identity is not constant, then neither are the state interest and state behavior. Particularly, social constructivism
looks at “the construction and regulative influence of international norms” (Griffiths et al., 2009, p. 134). In thiscase, Japan decided to take on a new state identity: from being the leading tuna catcher and consumer towanting to be the leading state in promoting conservation measures on the endangered tuna species. Thischange in identity could have been brought about by the persistent protests by international tuna fisheries
management organizations such as the Western and Central Pacific Fisheries Commission (WCPFC) and
CITES, conservation groups such as Greenpeace International and World Wildlife Fund (WWF), and otherfishing states like the United States and the United Kingdom, to limit its tuna catches. Japan, acting on its
newly formed interest to conserve the depleting tuna stocks, had adopted conservation measures limiting its tuna
catches.
A Perception of Civilization
As previously stated, international tuna fisheries management organizations, together with conservation groups,
had been lobbying Japan to limit its tuna catches and participate in the total banning of the endangered tuna
species from the international trade. This, among other possible reasons (infra), influenced Japan in finallylimiting its tuna catches and aiming for the recovery of the depleting tuna stocks.

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As Hobson (2003) asserted, implying Finnemore’s first level of the international structure – the normative
structure, various international norms constitute the normative structure of the international society; theseinternational norms which are always perceived to be appropriate and benevolent influence or socialize the stateto act in accordance with behavioral patterns which are consequently perceived appropriate. When the statebehaves properly by complying with international norms, it is then to be perceived as civilized.
Hobson (2003) further interpreted Finnemore’s second level of the international structure as “surface structure”
which involves international non-state actors and international organizations. These international organizations
are “norm carriers” and in so being take the responsibility of informing or reminding the state how to behave
appropriately. In this case, Japan had finally given in to the protests of the international organizations as regards
the conservation of the tuna species by limiting its tuna catches and in so doing redeemed itself as a civilizedstate. The United States’ statement that it would also limit its tuna catches, even beyond what Japan had set foritself, emphasized its being civilized as well; or perhaps it was trying to tell the international community that it
was more civilized than Japan.
Burchill (2005) implied that since the civilized state has the tendency to feel superior to its neighboring states, it
can find concluding negotiations or agreements with other states easier and more attainable. In this case, Japanmight have felt superior to other states as regards tuna fishing and management, hence its proposal to lead all
the other states in conserving tuna species. Moreover, though Japan’s economic profit from its tuna industry
would decrease and its custom of consuming tuna species would weaken as it implemented its conservation
measures, its identity as the leading state in the global tuna industry and as a civilized state would be reinforced.
Consequently, Japan would be perceived by other states as important and influential in concluding agreements
and implementing conservation measures concerning tuna fishing. This perception of Japan by other states
would entitle the former to forward its interests more conveniently through the agreements it would enter into.
This, however, would not mean disregarding the interests of other states.
Paradigm Shift
Interpreting Bull’s perspective on maintaining “order among all mankind” belonging to a “multicultural societyof states,” Burchill (2005) also supposed that the state, whenever possible, should always seize opportunities that
can improve the international society. Japan’s decision to finally comply with international norms as regards tunafishing, and thereby implement its own conservation measures, would be important to improving theinternational society. As Goldstein (1999) affirmed, fishing states should cooperate to prevent depletion of fishstocks in international waters. The state’s failure to cooperate does result in reducing the catches of all fishingstates.
Hobson (2003) recalled that in 1945, a remarkable normative change was undertaken by Japan which also
contributed to improving the international society. With respect to its foreign policy stance or external security
posture, Japan undertook a major paradigm shift from being militaristic and imperialistic to being pacifist. Since
then, Japan focused on strengthening its economic sector, making the state technologically and economicallyadvanced. These two normative changes (becoming pacifist and aiming to be the leading tuna conservator)
contributed to the worldwide effort of making the international society orderly and emphasized Japan’s being
civilized. Considering that Japan’s decision to be pacifist eventually resulted in positive political and economicalconsequences on the state, its decision to comply with the international norms as regards tuna fishing might also
likely bring in the same on the state in the long run.
Japan’s decision to finally comply with international norms as regards tuna fishing also supported Hobson’sinterpretations of Finnemore’s claims: (1) “international forces can shape national policy” or specifically thatinternational organizations can lead the state to constructing policies guided by international norms of behavior,(2) the international norms of behavior adopted by the state “might either fail to enhance the power of aparticular actor, or might even go against the actor’s power-interests,” and (3) “society not anarchy, is the sourceof constraining and permissive effects” (Hobson, 2003, pp. 151-153). In this case, the international tuna
fisheries management organizations and conservation groups (international forces) influenced Japan to construct
and implement conservation measures (national policy) on the endangered tuna species. These newly
constructed conservation measures would certainly lessen Japan’s tuna catches, affecting the state’s economic
profit from the tuna fishing industry and disturbing its custom of consuming tuna recipes. In other words, thenewly constructed national policy of Japan as regards the conservation of the tuna species would diminish its

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economic power or hamper its power-interests. Japan’s decision to conform to the norms established by theinternational society as regards tuna fishing would bring about immediate effects - economic and cultural
constraints - on the state.
An Alternative
In November 2012, the Scottish Development International and the Scotland Food and Drink instigated a
trade mission in Japan. Echoing the Scottish government’s claim, Richard Lochhead, Scotland’s Rural Affairs
Secretary, confirmed that salmon was becoming the favored choice for sushi in Japan, replacing tuna. He addedthat Scottish seafood, particularly salmon, had an exceptional ability to attract the Japanese consumer. As
further pointed out by Scott Landsburgh, a chief executive of Scottish Salmon Producers’ Organization, Japanwas becoming known as Scotland’s major salmon importer and was consistently displaying great potential as
such. It was thus possible that Japan decided in August 2013 to lead the international effort of conserving tuna
species and conform to international norms as regards tuna fishing because it was confident that it could
nevertheless sustain its custom of consuming sushi and sashimi with another type of specie that was salmon.
This particular booming economic relationship between Japan and Scotland would benefit both states: thecultural and economic value of consuming sushi and sashimi by the former would be sustained while the value of
salmon exports of the latter would dramatically increase, bringing in huge economic opportunity to the state.
As stated earlier, there could also be other reasons or events which might have influenced Japan to commit to,and even lead, the worldwide effort to recover tuna stocks. Japan is globally recognized as the leading tuna
catcher and consumer. If, as asserted by D’Anieri (2012), states possessing advanced weapons systems can secure
their identity as advanced states, then Japan which uses the biggest and most advanced tuna catching fleets for
its tuna fishing operations can secure its identity as the leading state in the tuna fishing industry. It is also widely
known that the Japanese were the ones to introduce sushi and sashimi to the rest of the world. It is then to thebest interests of Japan to value its tuna fishing industry and maintain the said custom. To pursue the saidinterests, the tuna fishing activities of Japan are not just limited to the use of boats, or ships, or fleets; it also uses
spotter planes. Given that it needs to satisfy the huge demand for tuna and that it has to operate through its
advanced fishing technologies, one can just imagine how much fuel Japan needs to sustain its tuna fishingactivities.

The Ripple Effect
In June 2008, Japan decided to suspend tuna fishing operations for the next two months due to the increasing
cost of fuel triggered by the political chaos in oil-producing countries. This suspension was likewise
implemented by China, South Korea, and Taiwan. The chief oil for fishing fleets is called the A fuel. The tablebelow shows how the cost of the said fuel surged from 2003 to 2008.

Shimbun, Yomiuri. "Rising fuel costs cut down tuna fishing." The Spokesman-Review. June 29, 2008.
Espejo (2008) reported that Japan initially planned to halt the operations of 20% of its 20,000 tuna catchingvessels; however, the said plan was only implemented on 1% or 233 of these tuna catching vessels in August, amonth later than the schedule. The said suspension contributed to the international effort of recovering stocks
populations of the endangered, highly valued marine resources. Since there was a decrease in tuna catches, Japan
resorted to raising the prices of bigeye and yellowfin tuna. With the huge demand on tuna, Japan also had to

The IAFOR Academic Review – Issue 834multiply import. Espejo (2008) further asserted that the Philippines from which Japan was a major importerradically increased its prices of yellowfin tuna.
A Will for a Way
Other factors could have also influenced Japan’s decision to suspend tuna fishing, or at least lessen tuna catches.
As reported by Foster (2013), although the proposal of CITES in March 2010 which was to ban international
trade of Atlantic bluefin tuna was rejected, the said organization was able to successfully impose quotas on tuna
catches for conservation purposes. Noting the efficiency of the adopted conservation measure, Masanori
Miyahara, the deputy director-general of the Japanese Fisheries Agency, stated that there had been more than aquarter of reduction of juvenile catches. In 2011, Japan also complied with the conservation measures adopted
by the WCPFC by limiting its tuna fishing vessels operating on the high seas. The WCPFC ensures the longterm conservation and management of highly-migratory fish stocks in the Western and Central Pacific Ocean –the region which produces 50% of the global tuna catch on an annual basis.
Tainted Waters
In March 2011, when tsunami and earthquake struck Japan, the Fukushima Dai-Ichi nuclear plant situatednortheast of Tokyo and operated by Tokyo Electric Power Co. Inc. (TEPCO) was significantly devastated,becoming the world’s worst nuclear accident following the Chernobyl disaster which happened at the Chernobyl
Nuclear Power Plant in Ukraine on April 26, 1986. Radioactive particles and radiation leaks had been reported
to be polluting North Asia, streaming into the Pacific Ocean. As reported by Pesek (2013), radioactive elements
were subsequently found in bluefin tuna, causing the public to be suspicious of food safety and quality, thus
limiting catches of the said tuna specie.
In Demand
No one can deny that hon-maguro, or the business of catching bluefin tuna in Japan, is indeed a very rewarding
industry. As mentioned earlier, though Japan conducts its own tuna fishing operations, it still finds the need toimport from other countries such as the Philippines. Tuna products in the Philippines are categorized into four
quality grades:

In 2012, a kilo of sashimi grade tuna sold at the General Santos City Fishing Port Complex cost US$10;
however, when the same was exported to and sold in Japan, it cost US$1,160. According to Espejo (2012), there
was even an auction held in Tokyo where tuna cost US$2,480 per kilo. Harvey (2013) asserted that in January
2013, a bluefin tuna was sold at an auction in Japan for more than US$10,000, followed by a report a week after
stating that the bluefin tuna stocks in the Northern Pacific Ocean had declined by more than 96%. Also, Foster(2013) affirmed that in February 2013, a mature bluefin tuna was sold at US$22,000 at Tokyo’s Tsukiji fish
market. While these incidents could prove the continued demand for tuna despite its near extinction, they could
also emphasize the domestic cultural value of tuna in Japan. Foster (2013) added that in the same period,
Masayuki Komatsu, a former senior official of the Japanese Fisheries Agency, affirmed that Japan, being
concerned about profit and culture, could not fulfil its international responsibility to conscientiously conserve
tuna species – the endangered bluefin tuna could still be seen on sushi bars’ menu. Mr. Komatsu further revealed
that the government itself, through the help of media, withheld the information regarding the depletion of tuna
species and thus denied public awareness thereof.
Both tuna suppliers and consumers can barely explain how tuna prices have soared that much. As previously
mentioned however, the catch limits imposed by CITES, the two-year ban on tuna fishing on PacificCommons 1 and 2 imposed by the WCPFC, and the increase in oil prices induced tuna suppliers to impose

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35

towering prices. We may also speculate that the increase in tuna prices is an effect of the increasing global
demand for tuna, triggered by the changing diets of individuals most of whom are Chinese who now preferfresh-chilled tuna, and by the inconsideration or ignorance of sushi bars with respect to tuna depletion.
On the Brink
The consistent drop in tuna catches signifies the alarming condition of tuna species; different conservationist
groups and international conventions held by international organizations have been asserting that tuna species
are nearly extinct. The forthcoming extinction of tuna species may be strongly attributed to the use of industrial
fishing techniques such as fishing down and pelagic longline fishing, consumer behavior, poor implementationof conservation measures, overfishing, and global warming.
According to the National Geographic article entitled “Overfishing,” as early as 2003, industrial fishing had
already decreased the population of large ocean fish to 10% of their unscathed population. Fishing down is oneof the industrial fishing techniques being practiced today which damages the seabed and destroys the balance ofthe biological system of the seas. Pelagic longline fishing is specifically designed to catch swordfish andyellowfin tuna; fishermen deploy onto the open seas long strings of baited hooks supported by buoys. Dolphins,
turtles, and bluefin tuna are usually some of the bycatch of the said fishing method. The increasing bluefin tuna
bycatch has caused the National Oceanic and Atmospheric Administration (NOAA) to restrict fishermen fromloading the said tuna species, dead or alive, on their catching vessels. The NOAA disclosed that in 2012,
because of pelagic longline fishing, 239.5 metric tons or about a quarter of the annual catch of the United States
was a bycatch of bluefin tuna, indicating a 70% increase from that of the previous year.
According to Satran (2013), illegal fishing and bycatch are two of the main threats to the conservation measures
adopted by international tuna fisheries management organizations such as CITES and the WCPFC.
Overfishing is the state of catching marine resources, consuming them before they can even reproduce. It had
caused the incessant drop of catch volume of mature yellowfin tuna: 33, 369 metric tons in 2007 to 9, 061.13
metric tons in 2011. According to marine scientists, it was in 1989 when the world’s annual fish catch reached
90 million tons and since that time, the fish stocks have never recovered and even further declined.
According to Hood (2010), Tudela of WWF Spain stated, “Japan has the key, and the means to convince
fishing countries to accept the necessary conservation measures.” Lubchenco of the US National Oceanic andAtmospheric Administration confirmed Japan’s influence on the present challenges of the international
community concerning the conservation of the endangered tuna species saying, “Japan has an absolutely criticalrole to play.” In August 2013, as Japan finally disclosed to the international community its interest to conserve
the endangered tuna species, granted that it would efficiently implement the conservation measures it hadconstructed and act upon the role it had claimed to execute, positive and favorable changes concerning theconservation of valued tuna species would not be far behind.

The IAFOR Academic Review – Issue 836References:

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Espejo, E. (2008, September 5). Japan suspends tuna fishing. Retrieved August 21, 2013, from AsianCorrespondent: http://asiancorrespondent.com/7256/japan-suspends-tuna-fishing/
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Espejo, E. (2012, August 12). Tuna Capital of the Philippines: More than just a tag line. Retrieved August 17,
2013, from Asian Correspondent: http://asiancorrespondent.com/87493/tuna-captial-of-thephilippines-more-than-just-a-tag-line/

The IAFOR Academic Review – Issue 837Espejo, E. (2013, January 17). A Wrecked Tuna Fleet Searches for Answers. Retrieved August 20, 2013, from Asia
Sentinel:
http://www.asiasentinel.com/index.php?option=com_content&task=view&id=5117&Itemid=232
Foster, M. (2013, February 28). Japan's Bluefin Tuna Is Disappearing, But Few Chefs Fear Shortage. Retrieved
August 20, 2013, from The Huffington Post: http://www.huffingtonpost.com/2013/02/28/bluefintuna-disappearing-japan_n_2779577.html
Goldstein, J. (1999). International Relations. USA: Longman.
Griffiths, M. (2007). International Relations Theory for the Twenty-First Century. Abingdon, Oxon: Routledge.
Griffiths, M., Roach, S., & Solomon, S. (2009). Fifty Key Thinkers in International Relations . Abingdon, Oxon:
Routledge.
Harvey, F. (2013, January 9). Overfishing causes Pacific bluefin tuna numbers to drop 96%. Retrieved August 20,
2013, from The Guardian: http://www.theguardian.com/environment/2013/jan/09/overfishingpacific-bluefin-tuna
Heimbuch, J. (2010, February 22). Japan Will Ignore Ban on Bluefin Tuna, Says The Fish Isn't That Endangered.
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Hood, M. (2010, November 19). Japan takes lead in Atlantic bluefin tuna battle. Retrieved November 28, 2013,
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Japan sushi hopes for salmon producers. (2012, November 12). Retrieved October 6, 2013, from BBC:http://www.bbc.co.uk/news/uk-scotland-scotland-business-20299488
Jolly, D. (2010, February 19). Japan Plans to Ignore Any Ban on Bluefin Tuna. Retrieved August 2, 2013, from
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Oil price hikes take toll on tuna players. (2011, March 8). Retrieved August 2, 2013, from SunStar Davao:
http://www.sunstar.com.ph/davao/local-news/2011/03/08/oil-price-hikes-take-toll-tuna-players143747
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The IAFOR Academic Review – Issue 8

38

Ruitenberg, R. (2013, June 19). World Fish Prices Climb to Record on Demand for Salmon and Tuna. Retrieved
August 20, 2013, from Bloomberg: http://www.bloomberg.com/news/2013-06-19/world-fish-pricesclimb-to-record-on-demand-for-salmon-and-tuna.html
Salim, L. (2008, September 9). Foreign Vessels Supply Tuna to General Santos City. Retrieved September 20,
2013, from SeafoodSource.com: http://www.seafoodsource.com/newsarticledetail.aspx?id=683
Sarmiento, B. (2012, February 1 ). High fuel price, fishing ban reduce 2011 tuna output. Retrieved September 20,
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Satran, J. (2013, January 10). Pacific Bluefin Tuna Overfishing Has Led To 96 Percent Population Reduction, Study
Says.
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Satran, J. (2013, 19 June). This Fishing Method Is Wiping Out The Bluefin Tuna Population. Retrieved August 20,
2013, from The Huffington Post: http://www.huffingtonpost.com/2013/06/19/bluefin-tunapopulation_n_3468240.html
Shimbun, Y. (2008, June 29). Rising fuel costs cut down tuna fishing. Retrieved August 21, 2013, from The
Spokesman-Review:
http://www.spokesman.com/stories/2008/jun/29/rising-fuel-costs-cut-downtuna-fishing/Stop eating Pacific bluefin tuna. (2013, August 26). Retrieved September 18, 2013, from The Japan Times:
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The Rise and Possible Fall of the Philippines' Tuna Capital . (2012, August 14). Retrieved August 17, 2013, fromThe Rights and Wrongs: http://www.rightsandwrongs.co.uk/asia/philippines/16114-asia-philippinesoverfishing-and-the-tuna-capital
Walsh, B. (2013, January 11). The Pacific Bluefin Tuna is Going, Going... Retrieved August 20, 2013, from Time:http://science.time.com/2013/01/11/the-pacific-bluefin-tuna-is-almost-gone/
Weber, C. (2009). International Relations Theory A Critical Introduction. New York: Routledge.
Opening image credit: Flickr Creative Commons/Jay Bergesen	
  The IAFOR Academic Review – Issue 8

39

The Real Cause for the US Subprime,
Financial, Economic Crises in 2007-2009

By Peter Yang
Case Western Reserve University, United States
Abstract
This paper is devoted to investigate the real cause of the US subprime, financial, economic crises. It will
first review related literature, and then examine a number of key economic factors related to oil production
and consumption. The resulting insight will help answer the question on the impacts of ARRA because theknowledge of the fundamental cause of these crises will help determine what the most effective solutions to
the economic recovery should be and examine if ARRA succeeded to deliver these solutions.

Introduction
Since the 2008 global economic crisis, economic and financial theorists and practitioners have widely
discussed and acknowledged the lax economic and financial regulations and legislations as structuralproblems of the existing US and global economy that allowed mounting economic and financial risks to beoverlooked and to have directly triggered the global financial and economic crisis. However, studies onsome of more fundamental issues, such as rising energy prices and climate change, their relationship to the

The IAFOR Academic Review – Issue 8

40carbon-based global economy’s consumption of fossil fuels, especially of oil, and their relationship to theglobal financial and economic crisis, were scarce and largely ignored.
This study will examine the US economy’s dependence on the consumption of carbon-based energy
sources, especially oil. It will also investigate several related key indicators, including energy consumption
per unit of GDP for selected economies, world GDP, world energy consumption, world oil price, and US
delinquency rate.

Literature Review
There was a consensus that the collapse of the housing market triggered the 2007 US financial crisis. Major
factors identified as leading to the boom and bust of the housing market included subprime lending,government regulation in expanding home ownership through mortgage subsidies for impoverishedborrowers, monetary policy in the United States and Europe, corporate pay structures, credit-default swaps,
banks’ leverage, lax financial deregulation, etc. (Acharya, Philippon, Richardson, and Roubini 2009; Bordo
2009; Caballero and Krishnamurthy 2009; Reinhart and Rogoff 2008; Acharya and Richardson 2010;
Caballero, 2010; Mian and Sufi 2010; Mayer 2011).
However, studies exploring the relationships between the rising oil prices and the housing and financial
crisis in 2008 were scarce and largely ignored. These studies explored the issue from two main perspectives,with one focusing on the causes of the housing boom and the other focusing on what caused the collapse of
the housing market.
One of the popular explanations of the housing boom between 1996 and 2006, in which real housing pricesrose by 53 percent, was easy credit in the form of low real interest rates, high loan-to-value levels andpermissive mortgage approvals. If this explanation were valid, then the financial crisis could be consideredless a systemic or structural problem of the US and world economy. Improved monetary and financial
mechanisms would be capable of preventing this kind of irrational housing bubble in the future. However,
if easy credit was not the primary culprit of the housing bubble, then more research is necessary toinvestigate what actually caused housing first to boom and bubble and then to collapse and burst to trigger
the financial crisis.
Glaeser et al. disputed the low interest rate and easy credit explanations. Their study reexamined the
housing prices and found that the predicted impact of interest rates on housing prices is much lower oncethe standard user cost model of housing prices is generalized to include mean-reverting interest rates,
mobility, prepayment, elastic housing supply, and credit-constrained home buyers. This theoretical impact
of interest rates on prices was found in line with their empirical estimates. Based on this study, the authors
concluded that low real interest rate can explain only 20 percent of the price increase of the housing boom.
The study did neither find convincing evidence that changes in approval rates or loan-to-value levels could
explain the bulk of the housing boom. The authors pointed out the need of “better corrections for theendogeneity of borrowers’ decisions to apply for mortgages” (Glaeser, et al., 2010).
Other studies focus on what caused the housing bubble to burst. Carr and Beese (2008) found a moderatecorrelation between the rise in interest rates and the rise in oil prices between 2004 and 2007, which led tohome foreclosures between 2005 and 2008. Theramus (2009) found that volatility in the oil prices caused
the financial crisis in 2008. Hamilton (2009) reviewed several approaches (Blanchard and Gali, 2007;
Edelstein and Kilian, 2007; Blinder and Rudd, 2009) to estimating the impact of oil price shocks on theeconomy, including some methods that had previously shown an economic decline following previous oil
price shocks.
Hamilton further explored similarities and differences between the run-up of oil prices in 2007–08 and theearlier oil price shocks. He found that different from previous oil price shocks, which had been primarily
caused by physical disruptions of supply, the price run-up of 2007–08 was caused by “strong demand
confronting stagnating world production” (Hamilton, 2009). His observation seemed to concur with the

	
  
	
  
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41

view of a growing number of studies that world oil production has reached its peak (Campbell and
Laherrère, 1998; Almeida and Silva, 2009; Höök et al., 2009; Shafiee and Topal, 2009; Zhao et al., 2009).
At the same time, he observed that despite the different causes of soaring oil prices, the 2007–08 oil shock
had the same economic depressing consequences as the previous oil shocks, for the economy in general andfor consumption spending and purchases of domestic automobiles in particular, which caused home market
crash, severe financial and economic crises, and economic recession. He concluded that the increase in oil
prices in the period of 2007 through 2008 had made a “material contribution” to the subsequent US
financial crisis (Hamilton, 2009).
Sexton et al. also found in their recent empirical study that high gas prices caused the US housing bubble toburst (2012). Their study went beyond the mainstream economists’ view that blamed the US housing
collapse in 2007 for inducing a financial crisis that spread to the entire economy and causing a severe andprolonged economic downturn.
The authors investigated the role of skyrocketing gas prices and a dramatic gas price shock in triggering the
housing market collapse. They did this by developing a model of housing demand that integrates theAlonso-Muth urban model and the Poterba model of housing investment. The Alonso-Muth urban model
showed that, in equilibrium, suburban residents are compensated for increased commuting costs by lower
land prices. The Poterba model was used to simulate the likely effects of gas prices on house prices.
The authors showed how low gas prices had first fueled the housing boom along with low interest rate, easy
access to credit, and new mortgage products, which made suburban housing affordable to high leveraged
and long work commuting homebuyers who were otherwise low credit worthy because of low incomes.
The study showed how the persistently rising and subsequently skyrocketing gas prices, which doubled
between 2005 and 2008, then increased the costs of commuting between suburban homes and workplacesin city centers and the costs of distant, commuting-based suburban living, and forced the vulnerable
homeowners to abandon their commuting lifestyle. The authors concluded that suddenly rising commuting
costs lowered the values of distant homes away from the city centers and made them undesirable, andcaused rising foreclosure rates.
This view was echoed by Anderson (2009) who argued that the recent financial crisis was largely caused by
the long-term problem of the current world economy lacking a sustainable path of development. He based
his findings on the theory of “limits to growth” – expressed principally through rises in the price of oil andother commodities – created a crisis for the global financial system, which essentially assumes an indefinite
economic growth. These findings supported an increasing public recognition of and increased calls for theneed for sustainable development (Strange and Bayley, 2008), a development pattern that “meets the needsof the present without compromising the ability of future generations to meet their own needs” or meets“the needs of the present while contributing to the future generations’ needs” (Needham, 2011).

Examinations and Results
Drawing on the existing studies that link the recent financial crisis to the conflict between the US-led world
economy’s oil dependence and the recent changes in the world oil market, this study will examine therelationship between the recent economic and financial crises and the problems of the US economy.
To pin point more exactly the impact of oil price surges on the United States and other developed
economies, the study investigated these economies’ respective oil dependence (Fig. 1) from two
perspectives—the one concerning the oil consumption as a share of the respective economy’s total primaryconsumption and the other concerning the correlations of the growth of the world economy and the growthof the world oil consumption.

	
  
	
  
The IAFOR Academic Review – Issue 8

42

60%

50%

Oil	
  Dependance	
  by	
  Country:
Share	  of	
  Oil	
   Consumption	
  in	
  Total	  Primary	  Energy	  Consumption
Japan

40%

USA
EU-­‐27	
  excl.	
  30%Germany

20%

China
10%

Source:	  Enerdata, Global	
  0%Fig. 1 Oil Dependence of Major Economies (Data Source: Enerdata, 2011)
The results of the investigation showed both a promising trend of reduced oil dependence and a concerning
reality of high oil dependence of the major developed economies. On the one hand, the major developed
economies’ oil dependence experienced a notable reduction, with a 14 percent decrease from 51 percent in1990 to 37 percent in 2010 in Japan, and a three percent decreased respectively in the United States,
Germany and other EU-27 countries in the same period. On the other hand, the developed economies still
displayed significant oil dependence between 31-37 percent. While the reduced oil dependence was inducedby high oil prices and the gradual advancement of renewable energy, the persistently high oil dependence of
the United States and other major developed economies made them particularly vulnerable in the face ofvolatile oil markets and rising oil prices.
A sectorial analysis of the US oil dependence revealed an even depressing picture. While the economy-wide
oil dependence in the United States was only around 35 percent in 2010, the oil dependence inmanufacturing and transportation were much higher: 43 percent and 96 percent respectively. While theoverall high oil dependence explained well why US economy was especially vulnerable to soaring oil prices,
the extremely high oil dependences of the key economic sectors manufacturing and transportation in the
United States made it self-explanatory why the oil price hikes in 2007-2008 damaged, as Train andWinston (2008) observed, these economic sectors most severely.
The examination of the long-term oil production and oil consumption relation revealed an interesting twofactor trend. On the one hand, the world oil demand has been steadily increased from approx. 1500
megatons in 1965 to approx. 4000 megatons in 2011, a 167 percent increase. On the other hand, while theoil production was able to offer a sustained supply surplus over the oil consumption in the long period from1965 to 2000, this surplus turned into a frequent supply shortfall since then. This two-factor trend
indicated the difficulty the world oil production had to meet the increasing world oil consumption, which
explained well the continuously rising oil prices (Fig. 2).

	
  
	
  
The IAFOR Academic Review – Issue 8434500.0
4000.0Oil:	
  Growing	
  Demand,	
  Increasing	  Supply	  Shortfall

3500.0Oil Shortfall
Oil Surplus

3000.02500.02000.01000.0500.0Million	
  Tons1500.0

1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011

0.0
Total	  World	  Oil	
  Production

Total	  World	  Oil	
  Consumption

Fig. 2 Rising Oil Demand: From Supply Surplus to Supply Shortfall (Data Source: BP, 2012)
The composition examination of the world oil consumption showed two interesting observations. First, theoil consumption of the major developed economies such as the United States, the EU, and Japan still
constitutes a major share of the world oil consumption. Second, the increase of the oil demand did notcome from these major developed economies, but came rather from other countries, especially from therapidly developing countries such as China and India (Fig. 3).
Considering the size of population and the further developing needs in these developing economies, theirdemand for oil represented On the one hand a strategic approach to energy consumption because of oil’s
less environmental and ecological impact than that of the major energy source in these countries—coal.
However, this increased oil demand called for an inevitable oil supply shortfall and rising oil prices in theface of insufficient oil production since the turn of the new millennium. The correlation coefficient of .46
between the oil supply shortfall and the rising oil prices in the period between 2002 and 2011 showed thatthe rising oil prices in this period were closely related to the short supply in the world oil markets.

	
  
	
  
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44

Oil	
  Consumption	
  by	
  Country
4500.03500.0India

3000.0Japan

2500.0China

2000.01500.0EU

1000.0

USA

500.0

Rest
2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1994

)

0.0
1996

t
o
n
s

4000.0

1995

(
M
i
l
l
i
o
n

Fig. 3 Oil Consumption of Major Economies (Data Source: BP, BP Statistical Review of World Energy
2012)
The investigation of the correlations of the growth of the world economy and the growth of the world oil
consumption revealed that the current world economy was highly oil dependent. The growth in the world
GDP and the change in the world oil consumption showed a high correlation (.79). The world economy’shigh oil dependence informed us that, in the absence of other significant alternative energy sources, the any
GDP growth would further intensify the world economy’s oil demand and oil consumption. However, theUS economy had an even higher oil dependence of .85, much higher than other major economies, whichindicated that the world biggest economy was also the world’s most oil dependent major economy in thelast 20 years (Fig. 4).

0.90
0.80

Oil	
  Dependence:	
  Correlation	
   Coefficient	
  between	
   GPD	  and	
  Oil	
  Consumption	
  (1991-­‐2011)	
  
0.85
0.79

0.70

0.59

0.60
0.50
0.40
0.30

0.20

0.20

0.10

0.10
0.00
World

USA

Japan

Germany

China

Fig. 4 Oil Dependence Measured by Correlation between GPD and Oil Consumption in 1991-2011(Data Sources: World Bank, 2012; IMF, 2012; BP, 2012)

	
  
	
  
The IAFOR Academic Review – Issue 8

45Based on this basic investigation of the oil production and oil consumption in recent years, this study
compiled and analyzed data related to the growth in the world GDP, the world oil consumption, theincrease in world oil price index, first mortgage default index; and decline in the US auto sales.
Fig. 5 shows the dynamic impact of skyrocketing oil price since 2002 the US economy in general and on
the US first mortgage delinquency rates and the US auto sales in particular before, during, and after the US
economic crisis. As a long term trend, rising oil prices already caused the mortgage default rate to rise
sharply before the 2007 US financial crisis. In this period, the US auto sales also felt the strong downward
pressure caused by the oil price rises and kept a gradual downward trend from 2004, several years before theeconomic crisis.

Fig. 5 Oil Price, US Mortgage Default, US Auto Sales, and US Economic Crisis (Data Sources: BP,
2012; S&P/Experian, 2012; Autodata, 2012)
During the US economic crisis, both the surge in the US mortgage delinquency rates and the drop in the
US auto sales were intensified, which constituted a sharp contrast to the rigid oil price hike. The continued
skyrocketing oil price lasted for a month, despite the strong market signal of a dramatic economic
downturn, until it reached its record high and plunged into a free fall to the 2004 price level.
The rigid oil price hike at the beginning of the economic crisis contributed to forcing the mortgage default
rate to surge to a record high and the US auto sales to drop to a record low during the economic crisis. This
insensitive upward movement in the oil prices can be read as its “overreaction” to the oil supply shortfall
caused by the growing oil-dependent world economy. The continued surge in oil prices even during theearly months of the economic crisis was paralleled, with a delay, by the continued surge in US delinquency
rate. This observation confirms the findings of Carr and Beese (2008) and the assumption made byAnderson (2009) and Hamilton (2009) that there is a positive relationship between the rises in the oil priceand the financial crisis.
Although the mortgage delinquency flood did not reverse its rising trend and the US auto sales did notreverse its plunge until the economic crises was over, the oil price started already to rise again before theeconomic crisis was over.
Conclusions

	
  
	
  
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46

This study investigated the relationship between the rising oil prices and the economic crisis in the UnitedStates. The investigation found a substantial relationship of the US economy’s high oil dependence as its
structural weakness and economic and financial vulnerability and the rising oil prices since 2004 andskyrocketing oil price hikes in 2007 as the primary culprit of the 2007 US financial crisis and thesubsequent US and global economic crisis and the long-term financial constraint of the oil-dependent US
and global economy.
The findings of this study suggest the need of the transition from the carbon-based economy to a greener
and more sustainable economy and the need to develop and implement a comprehensive green economictransformative strategy. Such a transformation can play a significant role in proactively dealing with thefinancial constraint of the future economic growth, and allow the US and global economy to grow in an
economically and financially more sustainable and healthy manner.
Certainly, the recent financial crisis was immediately triggered by the mortgage crunch as a result of thesubprime lending and related “shoddy” subprime lending practices. However, one should not ignore theeconomic factors that caused the housing bubble and subsequently the housing bust on the one hand, andthe fatal impact of oil price surge on housing market in particular and on the overly oil dependent US
economy in general. In other words, we must see what caused the mortgage crunch to trigger the financial
crisis. As the expansion of the world GDP and the increase in oil demand and oil supply shortfall fueled oil
price hikes, the skyrocketing oil prices, in turn, put significant strain on US living, manufacturing, andtransportation in terms of rising costs (World Bank, 2012), related job markets (rising unemployment rate),and financial markets (subprime market bust).
To be sure, the drastic drop in oil prices during the financial and economic crisis was only a temporary
phenomenon as a result of substantially reduced energy demand in response to the contracted size of thewasteful and inefficient carbon economy. Now that the existing carbon-based economy returns to “businessas usual,” the hard financial constraint, as we now are witnessing, has started haunting the economy again
and causing the economic recovery to take place at a painfully slow pace. As matter of the fact, the resurged
high gas prices are constraining the US economic recovery in general and the recovery of the US oildependent sectors such as manufacturing and transportation, as well as housing markets in particular. The
latter is especially true for distant houses that are associated with high commuting costs.
If the current still relatively “low” oil prices were mistaken as a turning point from the long-term oilconstraint and rising oil prices, the US economy could sadly miss the opportunity of switching over to agreener sustainable economy based on increased renewable energy generation and reduced oil dependence.
To sum up, in addition to the US mortgage crunch as the direct trigger of the 2008 global economic crisis,
this study found the rising oil prices as the main culprit of the US mortgage, financial, and economic crises
in 2007-2008. In addition, the study found the carbon-based, oil-dependent energy structure of the US
economy, especially its key economic sectors manufacturing and transportation, as the one of the main
reasons for the severity of the US mortgage, financial, and economic crises caused by the skyrocketing oil
prices and the difficulty of the US economic recovery.
Based on these findings, this study concludes that without a green transformation that significantly
improves the efficiency of fuel consumption and the carbon-based, oil-dependent energy structure of the
US economy and the other major economies, the US led global economy will not be able to avoid thefundamental contributing factors of the recent economic crisis and frequent future economic crises it will befacing: soaring energy prices, pollution and climate change, and the global financial mess. As Pavan
Sukdhev pointed out, the carbon-based “economic models of the 20th century are now hitting the limits ofwhat is possible” (UNEP, 2008).

	
  
	
  
The IAFOR Academic Review – Issue 847

References
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Acharya, V., and Richardson, M. (2010): What Caused the Financial Crisischap. How Securitization
Concentrated Risk in the Financial Sector. University of Pennsylvania Press: Philadelphia.
Almeida, P.; Silva, P. (2009) “The peak of oil production Timings and market recognition,” Energy Policy
37(4):1267–1276.
American Recovery and Reinvestment Act of 2009 (ARRA, 2009), Public Law 111-5, H.R. 1, S. 1.
Anderson, Victor (2009) “Economic growth and economic crisis,” International Journal of Green Economics
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Blanchard, Olivier J. and Gali, Jordi (2007) “The Macroeconomic Effects of Oil Price Shocks: Why are the2000s so Different from the 1970s?” MIT Department of Economics Working Study 07–21. August
18.
Blinder, Alan and Jeremy Rudd (2009) “Oil shocks redux,” VoxEU.org, 13 January 2009.
Bordo, M. (2009): “The Crisis of 2007: The Same Old Story Only the Players have Changed,”
Globalization and Systemic Risk, 6, 39.
Caballero, R. (2010): “The ‘Other’ Imbalance and the Financial Crisis,” Working Paper 15636, National
Bureau of Economic Research, Cambridge, MA.
Caballero, R. and Krishnamurthy, A. (2009) “Global Imbalances and Financial Fragility,” NBER Working
Paper 14688, January.
Campbell, C. and Laherrère, J. (1998) “The end of cheap oil,” Scientific American 278(3):78–83.
Carr, F.M. and Beese, J.A. (2008) “How rising oil prices caused home foreclosures from 2005–2008,”
Proceedings of the Allied Academies 15(2):70–73.
Edelstein, Paul and Kilian, Lutz. (2007) “Retail Energy Prices and Consumer Expenditures,” CEPR
Discussion Study 6255, April.
Glaeser, Edward L.; Gottlieb, Joshua D.; and Gyourko, Joseph. “Can Cheap Credit Explain The Housing
Boom?” National Bureau of Economic Research (NBER) Working Paper Series, July 2010.
Hamilton, James D. (2009) “Causes and Consequences of the Oil Shock of 2007–08,” NBER Working
Study 15002, May.
Höök, M.; Hirsch, R. and Aleklett, K. (2009) “Giant oil field decline rates and their influence on world oil
production,” Energy Policy 37(6):2262–2272.
International Monetary Fund (IMF). (2012) International Financial Statistics, 2011.
Mayer, C. (2011): “Housing Bubbles: A Survey,” Annual Review of Economics, 3(1), 559–577.
Mian, A., and A. Sufi (2010): “The Great Recession: Lessons from Microeconomic Data,” American
Economic Review, 100(2), 1–10.
Autodata. (2012). Motor Intelligence, http://www.motorintelligence.com/
Reinhart, C., and K. Rogoff (2008): “Is the 2007 US Sub-Prime Financial Crisis So Different? An
International Historical Comparison,” The American Economic Review, 98(2), 339–344.
S&P/Experian. (2012) First Mortgage Default Index. In: S&P/Experian Consumer Credit Default
Composite Indexes.
Sexton, Steven; Wu, JunJie; and Zilberman, David. “How High Gas Prices Triggered the Housing Crisis:
Theory and Empirical Evidence.” UC Center for Energy and Environmental Economics Working
Paper Series, February 2012.
Shafiee, S. and Topal, E. (2009) “When will fossil fuel reserves be diminished?” Energy Policy 37(1):181–
189.
Theramus. (2009) “Was Volatility in the Price of Oil a Cause of the 2008 Financial Crisis?” The Oil Drum,
December 8.
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automakers,” International Economic Review 48(4):1469–1496.
United Nation Environment Programme (UNEP). (2008) “Global green new deal – environmentallyfocused investment historic opportunity for 21st century prosperity and job generation,”
London/Nairobi, October 22.
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The IAFOR Academic Review – Issue 848

Zhao, L.; Feng, L. and Hall, C. (2009) “Is peakoilism coming?” Energy Policy 37(6):2136–2138.

Opening image credit: Flickr Creative Commons/Donald Stahl

	
  
	
  
The IAFOR Academic Review – Issue 849

An Assessment of the Productive andEnvironmental Efficiencies of Japanese Industries

By Mika Goto, Central Research Institute of Electric Power Industry, Japan
Akihiro Otsuka, Central Research Institute of Electric Power Industry, Japan
Toshiyuki Sueyoshi, New Mexico Institute of Mining & Technology, USA
Abstract
The global warming and climate change becomes a major policy issue in the world. To partly deal withthe climate change issue from economics and business concerns, this study proposes a use of Data
Envelopment Analysis (DEA) as a methodology for unified (operational and environmental) assessments.
The proposed DEA approach has been long serving as an important methodology to evaluate the

The IAFOR Academic Review – Issue 850performance of various organizations. Recently, many researchers have applied DEA to various
environmental issues. A contribution of the previous DEA studies was that they found the importance ofan output separation into desirable (good) outputs and undesirable (bad) outputs (e.g., CO2 emission andair pollution substances from production activities). Acknowledging a contribution of these previous
studies on DEA environmental assessment, this study classifies efficiency measures into the twocategories according to the treatment of undesirable outputs: (a) productive efficiency and (b) unified
efficiency under natural disposability. The first efficiency does not incorporate undesirable outputs in theperformance evaluation, while the second measure incorporates them to the environmental assessment.
Using a data set regarding the manufacturing industries of 47 prefectures in Japan, this study examines
their productive and environmental efficiencies to obtain policy implications. The important empiricalfinding suggests that Japanese regional industries need to make their further efforts to reduce air pollution
substances and increase energy efficiency.

1.  

Introduction

After the two oil crises in the 1970s, Japan diversified its energy sources through an increased use of
nuclear energy, natural gas and coal to reduce the dependency on oil. Manufacturing industries,
representing a majority of energy consumption in Japan, have worked on progressing energy conservationand improving energy efficiency. It is known that Japan has few energy resources, so depending on importfor 96% of its primary energy supply. Even the nuclear generation is considered as domestic energy, theenergy import dependency is still at 82%. Despite the efforts for energy conservation and increasingenergy efficiency, oil still accounts for about 40% of Japan’s primary energy supply and most of them comefrom the politically unstable Middle East region. As a result, the Japanese energy supply structure isvulnerable. See Energy White Paper [1].

Since the Great East Japan Earthquake in 2011, such efforts have become more important than before
because all nuclear units stop their operations with an exception of only two units in 2013. Approximately
90% of electricity consumption in Japan is produced by fossil fuel power plants. Such conditions resulted
in a tight relationship between demand and supply on electricity and increased import of fossil fuels fromabroad. Currently Japan faces a major policy change on the energy that is directed towards more
renewable resources and less dependency on nuclear power generation. The Japanese government has
begun a new policy discussion on Basic Energy Plan regarding a future desirable energy mix.

Along with a shift to the new energy mix after the earthquake in 2011, Japan needs to pay attention to theclimate change and global warming in the world. Since the Kyoto Protocol came into effect in 2005,
Japanese government promoted environmental policy to reduce GHG (Greenhouse Gas) emissions fromThe IAFOR Academic Review – Issue 851

a use of fossil fuels. The manufacturing industries are important contributors to the growth of Japanese
economy and they have been major contributors for Japanese regional economy. Meanwhile, they are
major producers of GHG emissions such as CO2. In 2011, industry sector as a whole accounts forapproximately 34% of CO2 emission. That is the largest among all sectors for the amount of CO2
emission, although its share gradually decreases over time. The introduction of CO2 emission trading
scheme had been discussed, but that is not yet determined in Japan.

However, there is a voluntary institution within Japanese industries that continues to promote
environmental protection. To achieve the environmental protection goals through global competition, theindustries need to improve their productive efficiency and to satisfy environmental requirements in such amanner that they can balance between them for the development of a sustainable society. Under such abusiness condition, technology innovation in production is essential for Japanese industries. The
technology innovation, arising from environmental constraints, is usually associated with anenvironment-friendly, energy-efficient production system, as discussed by Porter and van der Linde [2].
They stated that corporate efforts for improving the productivity of an entire manufacturing process underenvironmental regulations resulted in both improving productivity and environmental protection. The
assertion is often referred to as “Porter Hypothesis” in corporate strategy.

The purpose of this study is to examine the productive and environmental performance of manufacturingindustries in 47 prefectures (local government units in Japan which correspond to states in the UnitedStates). The examination reveals the importance of improved energy efficiency and environmental
protection for the manufacturing industries in Japan to attain higher performance. In this study, theachievement of Japanese industries is measured by their unified (operational and environmental)
efficiencies. For the research purpose, this study proposes a new use of DEA (Data Envelopment
Analysis) environmental assessment, in which desirable and undesirable outputs are combined together
under a disposability concept related to environmental strategy. See, for example, recent studies [3,4] forinnovative uses of DEA in the area of energy policy and economics.

The reminder of this paper is organized as follows. Section 2 describes DEA environmental assessment as
a managerial methodology for enhancing the productive and environmental performance of industries.
Section 3 exhibits a data set regarding the manufacturing industries in the 47 prefectures. Section 4summarizes our empirical results and discusses related policy implications. Section 5 concludes this study
along with future research extensions.

The IAFOR Academic Review – Issue 8

52

2.  

Methodology

2.1 Previous Efforts on DEA Environmental Assessment

To combat the climate change, many previous studies proposes DEA as a methodology for environmental
assessment. See, for example, [5-15] and many other articles published in the past decade. As discussed in
the previous efforts, DEA was originally developed as a managerial methodology to evaluate theperformance of various organizations in public and private sectors. A contribution of the previous studies
in environmental assessment was that they separated outputs into desirable and undesirable ones. An
important issue to be considered is how to unify these different outputs to assess the performance oforganizations from their production and environmental concerns. See [15] that summarized more than
100 articles in environment and energy studies. As a result of their contributions, DEA environmental
assessment can serve as an empirical methodology for planning and developing a sustainable society where
economic prosperity can coexist with environmental protection. This study will fully utilize the researchwisdom explored in the previous studies.

2.2 Natural Disposability

To discuss DEA environmental assessment, this study needs to describe a strategic concept related toenvironmental protection [16-18], which is referred to as “natural disposability”, indicating that anorganization decreases the directional vector of inputs to decrease the directional vector of undesirable
outputs. Given the reduced vector of inputs, the organization increases the directional vector of desirable
outputs as much as possible. This study considers the natural disposability as a negative adaptation to achange on environmental regulation because it does not invest for technology innovation but decreases
inputs to cope with government regulation on undesirable outputs.

Figure 1 visually describes the relationship between desirable and undesirable outputs under naturaldisposability. The functional form (f) is expressed by g = f(b) where g and b stands for desirable (good)and undesirable (bad) outputs. The figure depicts the natural disposability to respond to a regulation
change on an undesirable output. As in Figure 1, an organization reduces the amount of an input todecrease the amount of an undesirable output (from bn to br) until it satisfies the level of an undesirable
output that is required by governmental regulation. Under the condition, the organization tries tomaximize the desirable output as much as possible (from gn to gr) under natural disposability to enhance
its productive and environmental unified efficiency.

The IAFOR Academic Review – Issue 853

Desirable	  Output	  (g)Regulation

gr

Increase	
  in	
  Desirable	  Outputg=f(b)
Improvement	
  of	
  Unified	
  Efficiency

gn

Decrease	  in	
  Undesirable	  OutputNo	
  Regulationbn

brUndesirable	  Output	  (b)Figure 1: Natural Disposability
As discussed above, the concept on natural disposability originates from corporate strategy to adapt aregulation change on undesirable outputs. The natural disposability responds negatively to the regulation
change because it does not invest in the production system for introducing technology innovation. This
study is fully aware of an existence of other strategic alternatives in which firms respond positively to theregulation change by considering it as a new business opportunity, or they shift production facilities to aregion and a country with less environmental regulation. However, this study excludes such strategic
alternatives and focuses on the negative adaptation to the regulation change.

Finally, using an axiomatic expression, production technology to express natural disposability is
formulated by the following two types of output vectors and an input vector, respectively [17, 18]:

{

n

n

n

n

}

P n ( X ) = (G, B ) : G ≤ ∑ j =1 G j λ j , B ≥ ∑ j =1 B j λ j , X ≥ ∑ j =1 X j λ j , ∑ j =1 λ j = 1, λ j ≥ 0 .
In the axiomatic expression, this study considers n DMUs (Decision Making Unit, e.g., corresponding toan organization in private and public sectors).

output vector and

X ∈ R+m is an input vector, G ∈ R+s is a desirable

B ∈ R+h is an undesirable output vector of each DMU. The subscript (j) stands for thej-th DMU and λ j indicates the j-th intensity variable (j = 1, .. , n) that connects data points to constructa convex hull (part of an efficiency frontier) in a data domain.

The IAFOR Academic Review – Issue 8542.3 Productive Efficiency

This study starts with describing a non-radial model to measure productive efficiency, or PE of the k-th
DMU. Since this study employs the non-radial measurement, the level of inefficiency is determined byslacks. The operational efficiency does not consider an influence of undesirable outputs in the efficiency
measurement, which is thus based on the fundamental framework of conventional production economics.
The PE measure regarding the k-th DMU is obtained by the following non-radial model [19]:Maximize

m

x
i

x
i

i =1

ij

j

n

s.t.

s

g
r

∑ R d +∑ R d∑ x λ +d = x∑ g λ −d = g∑ λ =1,
j =1

n

j =1

rj

j

r =1

g
r

x
i

ik

(i = 1,..., m ) ,

g
r

rk

( r = 1,..., s ) ,

(1)

n

j =1

j

λ j ≥ 0 ( j = 1,..., n ) , dix ≥ 0 (i = 1,.., m),and d rg ≥ 0 ( r = 1,..., s ) .
The two production factors are expressed by X j = ( x1 j , x2 j , .. , xmj )T and G j = g1 j , g2 j , .. , g sj(

T

) . Thesuperscript “T” indicates a vector transpose. It is assumed that X j >0 and G j >0 for all j = 1, .. , n,where the inequality is applicable to all components of the two vectors.
Slacks regarding inputs and desirable outputs are specified by d ix (i = 1, .. , m) and d rg (r = 1, .., s),respectively in Model (1). A column vector of intensity variables are expressed byT

λ = ( λ1 ,..., λn ) .

They are used for connecting the input and output vectors by a convex combination. Since the sum ofstructural variables is restricted to be unity in Model (1), the production possibility set is structured undervariable RTS (Returns to Scale).

The data ranges (R) in Model (1) are determined by the upper and lower bounds of the two production
factors. They are specified as follows:

Rix = (m + s)−1 max xij j = 1,.., n − min xij j = 1,.., n

( {

g

}

( {

}

{

{

})−1 .

Rr = (m + s)−1 max g rj j = 1,.., n − min g rj j = 1,.., nAfter solving Model (1), the level of OE is determined by

The IAFOR Academic Review – Issue 855})−1 and

(

m

)

s

θ * = 1 − ∑ i =1 Rix dix* + ∑ r =1 Rrg d rg* .

(2)Here, slacks within the parentheses are obtained from optimality of Model (1).

2.4 Unified Efficiency under Natural Disposability

The research of [17, 18] has proposed the following model to measure the unified efficiency (UEN) of thek-th DMU under natural disposability after incorporating a vector of undesirable outputs or B j > 0 whereT

B j = (b1 j , b2 j , .. , bhj ) :Maximize
s.t.

∑
∑
∑
∑
∑

m
i =1

n

s

h

Rix dix + ∑ r =1 Rrg d rg + ∑ f =1 R bf d bf
xij λ j + dix = xik(i = 1,..., m ) ,g rj λ j − d rg = g rk

( r = 1,..., s ) ,b λ + d bf = b fk
j =1 fj j( f = 1,..., h ) ,

j =1
n
j =1
n

n
j =1

(3)

λj = 1,

λ j ≥ 0 ( j = 1,..., n ) , dix ≥ 0 (i = 1,.., m),
d rg ≥ 0 ( r = 1,..., s ) , and d bf ≥ 0 ( f = 1,.., h).

Since Model (3) measures unified (productive and environmental) efficiency, undesirable outputs areincorporated into the model. Slacks regarding undesirable outputs are specified by d bf (f = 1,…,h). Using
the upper and lower bounds of inputs, desirable outputs and undesirable outputs, their data ranges are
specified as follows:−1

Rix = (m + s + h)(max { xij−1Rrg = (m + s + h )−1

Rbf = ( m + s + h )

}

{

}) ,

}

{

}) and}{}) .

j = 1,.., n − min xij j = 1,.., n(max { grj

j = 1,.., n − min g rj j = 1,.., n(max {bfj

j = 1,.., n − min b fj j = 1,.., n

−1

−1

−1

Model (3) considers only negative deviations d ix (i = 1,…,m) to attain the natural disposability where all
inputs decrease to improve the productive efficiency of the k-th DMU, while satisfying the regulation
requirement on undesirable outputs. A unified efficiency score ( θ * ) of the k-th DMU under naturaldisposability is measured by slightly modifying Equation (2), so becoming

(

m

s

h

)

θ * = 1 − ∑ i =1 Rix dix* + ∑ r =1 Rrg d rg * + ∑ f =1 Rbf d bf * ,The IAFOR Academic Review – Issue 8

56

(4)

where the inefficiency score and all slack variables are determined on optimality of Model (3). The
equation within the parenthesis, obtained from the optimality of Model (3), indicates the level of unified
inefficiency under natural disposability. The unified efficiency is obtained by subtracting the level ofinefficiency from unity.

3.  

Data

Table 1 summarizes descriptive statistics of Japanese manufacturing industries. This study considers three
inputs to produce both a desirable output and four undesirable outputs. The three inputs are the amountof labor, capital, and energy. The labor, as an input, is determined by the number of employees multipliedby the index of working hours, which is standardized by year 2000 (unit: index). The amount of capital, as
another input, is a capital stock of private-sector firms multiplied by the rate of operation regarding
capital assets, standardized by year 2000 (unit: index). The amount of energy is the final energy
consumption (unit: 1,000 Terajoule).

A desirable output is the real GPP (Gross Prefecture Product, unit: 100 billion yen). Four undesirable
outputs are the amount of carbon emissions (unit: 10,000 ton Carbon), SOx emissions (unit: 100 kNm3),
NOx emissions (unit: 100 kNm3) and dust emissions (unit: 10 ton per annual).

All data sets constitute for each 47 Japanese prefecture for the year 2002, 2005 and 2008, each of which isrelated to manufacturing industries and non-manufacturing industries.

The data sources are as follows. The number of employees and the capital stock of private-sector firms arefrom the regional database of CRIEPI (Central Research Institute of Electric Power Industry). The index
of working hours is obtained from the survey on a work force by Ministry of Internal Affairs andCommunications and the monthly survey on labor statistics by Ministry of Health, Labor and Welfare.
The index of rate of operation on manufacturing industries is obtained from statistics of rate of operation
regarding capital for mining and manufacturing industries, prepared by Ministry of Economy, Trade andIndustry. The data source concerning the amount of final energy consumption is the energy consumption
statistics for each prefecture, prepared by Agency for Natural Resources and Energy, Ministry of
Economy, Trade and Industry.

The IAFOR Academic Review – Issue 8

57

Table 1: Descriptive Statistics of Manufacturing Industries
Outputs andInputsDesirable
OutputVariables

Real Gross
Prefecture
Product

Unit

Avg.
Max.
2002
Min.
S.D.
Avg.
Max.
2005
Min.
S.D.
Avg.
Max.
2008
Min.
S.D.
Avg.
Max.
Total
Min.
S.D.

Undesirable Outputs

InputsCarbonEmissions

SOx
Emissions

NOx
Emissions

Dust
Emissions

Labor

CapitalEnergy100 Billion
JPY

10,000 ton
Carbon

100 kNm3
100 kNm3(kilo-newton (kilo-newton
per cubicper cubicmeter) per
meter) per
AnnualAnnual10 ton per
Annaul

Index

Index

1,000 Tera
Joule

22.3920114.4226
1.924224.0486
26.6152
139.1626
1.936628.5525
27.9972
129.2511
2.058528.4268
25.6681139.1626
1.924227.0024178.9503
1678.2387
3.4962314.6423
175.1315
1669.7059
2.7995311.9574
157.1507
1417.4103
2.5986274.4460
170.4108
1678.2387
2.5986298.9037

23.1470
102.8552
2.895923.240122.8297101.1612
2.979522.7059
22.482398.9933
3.157122.1069
22.8197102.8552
2.895922.5280

69.3575
341.4123
6.664168.2247
78.4672398.2985
7.702377.028177.5445402.2377
7.610375.492575.1231402.2377
6.664173.269025.0987
138.5414
0.844728.5836
22.2721107.2844
1.040223.879916.187975.2500
0.330017.2381
21.1862138.5414
0.330023.819752.1242241.4170
3.613051.7796
53.5589252.7304
4.447153.029441.1374
234.1000
1.080046.3464
48.9402
252.7304
1.080050.4152

83.8218
336.1282
3.428080.092680.9142353.3633
3.985081.220964.8745296.4000
2.200067.102876.5368
353.3633
2.200076.3195

138.4510
1031.8996
9.6391
192.4770
138.1335
1026.8958
10.5616
192.4507
126.3314
883.1531
10.9340
170.6623
134.3053
1031.8996
9.6391
184.2389

The real GPP is obtained from prefecture economic accounts prepared by Cabinet Office. The amount ofcarbon emissions is obtained from energy consumption statistics for each prefecture by Agency for
Natural Resources and Energy, Ministry of Economy, Trade and Industry. The data source of other
undesirable outputs: (a) SOx emissions, (b) NOx emissions, and (c) dust emissions; is the survey of air
pollution substances conducted by the Ministry of Environment.

Table 1 indicates that the real GPP of Japanese prefectures increases over the observed period, while allundesirable outputs such as carbon emissions and two inputs (i.e., labor and energy) decrease during thesame period in the manufacturing industries. An amount of capital increases over the observed period.
This indicates that the Japanese manufacturing industries make their corporate efforts to improve theiroperational and environmental performance by decreasing the amounts of labor and energy inputs andincreasing the amount of capital to introduce technology innovation.

The IAFOR Academic Review – Issue 8

58

4.  

Empirical Results

4.1 Efficiency Measures

Table 2 summarizes the two types of efficiency measures regarding manufacturing industries, which aremeasured by Models (1) and (3), respectively. Figure 2 visually describes the average efficiency in thethree annual periods.

Table 2: Results of PE and UEN
Industries

Manufacturing Industries

Year

2002

2005

2008

Total

Productive Efficiency (PE)

Statistics
Avg
Max
Min
S.D.

0.93841.00000.68600.06800.95221.00000.70720.06050.96461.00000.8331
0.04130.95171.00000.68600.0583

Unified Efficiency under Natural Disposability (UEN)

Statistics
Avg
Max
Min
S.D.

0.88801.00000.48850.11890.90761.00000.51550.10710.93851.00000.71060.07540.91141.00000.48850.1035

1.00
PE

UEN

0.95

0.90

0.85

0.80
2002

2005

2008

Figure 2: Efficiency Measures of Manufacturing Industries

The findings from Table 2 and Figure 2 are summarized as follows: First, two efficiency measuresincreased from 2002 to 2008. For instance, PE increased from 0.938 to 0.965 and UEN from 0.888 to
0.939 for the manufacturing industries in the three annual periods. This indicates that Japanese

The IAFOR Academic Review – Issue 859manufacturing industries made the corporate efforts for improving their performance on productive andunified efficiency. Second, the result indicated that the efficiency scores became lower when undesirable
outputs, or environmental factors, were incorporated into the proposed DEA assessment. Furthermore,
PE had the smaller variation among prefectures in a similar level of efficiency, than UEN. The result
implied that manufacturing industries in all Japanese prefectures made similar level of efforts for
improving their productive performance. In other words, the productive and environmental unified
performance of Japanese manufacturing industries was less important than their productive performance.

4.2 Sources of Inefficiency

In this section, this study is interested in what production factors are sources of the inefficiency exploredin Section 4.1. Since this study employs non-radial DEA models, each slack is related to each production
factor and the slack directly links to a level of inefficiency. Thus, it is possible for us to identify the sourcesof inefficiency by examining the level of slacks regarding production factors. To explore the researchconcern, this study measures a ratio of each adjusted slack to the total sum of adjusted slacks. For example,
the inefficiency related to each input i (i = 1,…,m) is expressed by

Rix dix*(∑ R d + ∑ R d ) for Model (1), and

Rix dix*(∑ R d + ∑ R d + ∑ R d ) for Model (3).

m

i =1
m

i =1

x
i

x
i

x*
i

x*
i

s

r =1
s

r =1

g
r

g
r

g*
r

g*
r

h

f =1

b
f

b*
f

The denominator of the above ratios indicates the level of inefficiency, which is expressed by thesecond term of the right-hand side of Equations (2) and (4), respectively.

Figure 3: Slacks Used to Measure Productive Efficiency Measures

Figure 3 visually describes the average of each adjusted input slack to “productive inefficiency” fromThe IAFOR Academic Review – Issue 8

60

2002 to 2008 on the manufacturing industries. The magnitude of the vertical axis in Figure 3 isstandardized on the range from 0 to 0.04.

Figure 3 depicts that an amount of energy is the largest production factor to produce the productive
inefficiency. This indicates that the level of energy efficiency is important for their operational
performance.

0.04
GPP
Dust

0.03

CO2
Labor

SOx
CapitalNOx
Energy

0.02
0.01
0.00
2002

2005

2008

Figure 4: Slacks Used for Measuring Unified Efficiency under Natural Disposability

Figure 4 shows an annual change of slacks used to measure unified efficiency under natural disposability(UEN) on the manufacturing industries. It is easily found in Figure 4 that four undesirable outputs (i.e.,
CO2, SOx, NOx and dust emissions) dominate their unified inefficiency measures. The amounts ofenergy and capital still explain a significant part of unified inefficiency. Therefore, the reduction ofundesirable outputs and capital, and the improvement in energy consumption are important measures forregional manufacturing industries to attain a high level of unified (productive and environmental)
performance. Figure 4 visually describes that the manufacturing industries in some prefectures attain ahigh level of unified efficiency by controlling their undesirable outputs, energy and capital.

In summary, undesirable outputs produce a large difference in efficiency measures among prefectures,
because some prefectures successfully manage the reduction of undesirable outputs, while the others do
not. Such a difference among prefectures is also due to their energy and capital usages.

4.3 Regional Differences in Efficiency Measures

The data set used in this study consists of Japanese 47 prefectures. They are geographically classified into

The IAFOR Academic Review – Issue 861nine regions from north to south: (a) Hokkaido, (b) Tohoku, (c) Kanto, (d) Chubu, (e) Kinki, (f)Chugoku, (g) Shikoku, (h) Kyushu and (i) Okinawa.

(b) UEN(a) PE
1.0

1.0

0.8

0.8

0.6

0.6

0.4

0.4

0.2

0.2

0.0

0.0

2002

2005

2008

2002

2005

2008

Figure 5: Regional Differences of Efficiency Measures in Manufacturing Industries

Figure 5 depicts the productive efficiency (PE) and the unified efficiency measure (UEN) of the nine
regions. The left hand side of Figure 5 is related to the PE. The right hand side is for the UEN for the
manufacturing industries.

The two efficiency measures exhibited different patterns among nine regions. For example, the regionalvariation on PE was relatively small, but the PE of Hokkaido was slightly lower than that of the otherregions, whereas the other regions were almost same in the level of the PE. Shifting our interest from PE
to UEN, the regional variations of UEN were larger than those of PE as discussed in Section 4.1,
although there was a similar trend between PE and UEN. That is, Hokkaido was the lowest among theregions, followed by Chugoku with respect to both PE and UEN. The lower efficiency measures in
Hokkaido and Chugoku implied that these areas may have a future potential to improve their unified
efficiency measures by changing their industrial structures.

5.  

Conclusion

This study proposed the DEA models for the two efficiency measures such as PE and UEN. This study
applied them to a data set, consisting of Japanese manufacturing industries in 47 prefectures. The
measurement of PE did not incorporate undesirable outputs whereas those of UEN incorporated
undesirable outputs in their assessments.

This study found four empirical results, which were summarized as follows. First, the PE and UEN in the

The IAFOR Academic Review – Issue 8

62manufacturing industry indicated an efficiency improvement from 2002 to 2008. Second, the level of
efficiency decreased when the DEA model incorporated undesirable outputs. In particular, four
undesirable outputs were major sources of inefficiency in UEN, which indicated there were wider
variations among prefectures on controlling undesirable outputs, compared to the management efforts forincreasing desirable outputs. The desirable output did not make a similar level of inefficiency. Meanwhile,
the amount of energy was the largest source of inefficiency in PE. It also explained a large part ofinefficiency in UEN for manufacturing industries. Third, the amount of capital caused a certain level ofinefficiency in UEN of the manufacturing industries. Finally, Hokkaido and Chugoku were lower thanthe other regions in terms of efficiency. The difference in efficiency measures of the two regions with theothers are larger in UEN than OE.

These findings suggest Japanese regional industries need to make their further effort to reduce air
pollution substances. The improvement can be achieved by investing in technology innovation. Such aneffort requires a certain amount of capital for the investment. In addition, it is true that the investment
takes a time until its result appears, depending upon the condition of macro economy, an investment cycleand other regional factors. In particular, the manufacturing industries in Hokkaido and Chugoku havepotential to improve their productive and environmental performance by introducing technology
innovation. This study did not examine such a positive adaptation of industries to the regulation.

Although this study examined PE and UEN regarding Japanese regional industries, their industrial
structures were different among regions. Each region has its intrinsic industrial structure. The difference
influences the level of efficiency measures concerning each region, particularly when the assessment
included environmental factors such as GHG emissions. Thus, it is necessary for this study to investigate
the relationship between the level of efficiency measures and the industrial structure of regions. That will
be an important future research task.

Finally, it is hoped that this study makes a contribution on DEA environmental assessment and Japaneseregional study. We look forward to seeing future research extensions as discussed in this study.

Acknowledgements
This work is supported by JSPS Grant-in-Aid for Scientific Research (C) 24530287.

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The IAFOR Academic Review – Issue 8

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The IAFOR
Academic Review
Volume 1 | Issue 8

Collected Essays on Sustainable
Development & the Environment

Published by The International Academic Forum(IAFOR), Japan
IAFOR Publications. Sakae 1-16-26-201, Naka-ward,
Aichi, Japan 460-0008
IAFOR Publications © Copyright 2015
ISSN: 2188-9570
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