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Strategic Responses to Environmental Regulation in the U.K. Automotive Sector: The European Union End‐of‐Life Vehicle Directive and the Porter Hypothesis

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  • Jo Crotty
  • Mark Smith

Abstract

As of 1 January 2006 all automotive OEMs (original equipment manufacturers) and component manufacturers operating within the European Union will need to comply with the End‐of‐Life Vehicle Directive (referred to hereafter as the EU ELV Directive). The EU ELV Directive compels all OEMs to take back and dismantle all motor vehicles for domestic use at the end of their useful lives. Each component part will then be either reused or recycled. To this end, the ultimate goal of the EU ELV Directive is that all motor vehicles for domestic use will have a reuse or recyclable content of 85% at the end of their useful lives, moving toward 95% by 2015. The burden of the EU ELV Directive falls on both the OEMs and their component manufacturers, forcing them to innovate and “design for disassembly.” This being the case, it offers a unique real world example with which to test the Porter Hypothesis. Porter asserts that strict, correctly formulated environmental regulation can offer a firm secondary benefits through improved product design and the reduction of waste. This in turn allows the firm to offset the cost of compliance. Because the EU ELV Directive has been fashioned to force firms into a process of innovation and redesign, the magnitude of these so‐called offsets can be judged. This article employs Rugman and Verbeke's 1998 strategic matrix of firm response to environmental regulation to examine qualitative details of the strategic response of automotive component manufacturers and OEMs in the United Kingdom to the demands of the directive to judge the volume of offsets generated. This analysis shows no support for the Porter Hypothesis and challenges the assumptions of Rugman and Verbeke's model.

Suggested Citation

  • Jo Crotty & Mark Smith, 2006. "Strategic Responses to Environmental Regulation in the U.K. Automotive Sector: The European Union End‐of‐Life Vehicle Directive and the Porter Hypothesis," Journal of Industrial Ecology, Yale University, vol. 10(4), pages 95-111, October.
  • Handle: RePEc:bla:inecol:v:10:y:2006:i:4:p:95-111
    DOI: 10.1162/jiec.2006.10.4.95
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    Cited by:

    1. Mark Smith & Jo Crotty, 2008. "Environmental regulation and innovation driving ecological design in the UK automotive industry," Business Strategy and the Environment, Wiley Blackwell, vol. 17(6), pages 341-349, September.
    2. Michael W. Toffel & Antoinette Stein & Katharine L. Lee, 2008. "Extending Producer Responsibility: An Evaluation Framework for Product Take-Back Policies," Harvard Business School Working Papers 09-026, Harvard Business School.
    3. Jo Crotty & Peter Rodgers, 2012. "Sustainable Development in the Russia Federation: The Limits of Greening within Industrial Firms," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 19(3), pages 178-190, May.
    4. Jörn‐Henrik Thun & Andrea Müller, 2010. "An empirical analysis of green supply chain management in the German automotive industry," Business Strategy and the Environment, Wiley Blackwell, vol. 19(2), pages 119-132, February.
    5. Bing Zhang & Hanxun Fei & Yongjing Zhang & Beibei Liu, 2015. "Regulatory Uncertainty and Corporate Pollution Control Strategies: An Empirical Study of the ‘Pay for Permit’ Policy in the Tai Lake Basin," Environment and Planning C, , vol. 33(1), pages 118-135, February.

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