ADOPTION FACTORS FOR EMS ISO 14001 IN MALAYSIA Razuan Zainol & Suhaiza Zailani School Of Management Universiti

Sains Malaysia 11800, Penang Malaysia Tel: 604 6577888 ext 3952 Fax: 604 6577448 ABSTRACT The ISO 14001 Environmental Management System standard, designed to introduce environmental improvement into every aspect of a companys operations, offers an organized approach to manage environmental issues and it has now become a widespread administrative tool towards corporate environmental management. It was introduced in 1996, and has been adopted by over 60,000 firms around the world, including Malaysia. Based on the literature review there are many benefits that firms can gain by adopting ISO 14001. The study is to investigate the factors that influence adoption based on a survey conducted on a sample of ISO 14001 adopter and non-adopter manufacturing firms that operate in Malaysia. Using discriminant analysis, the study identified the factor affecting adoption of the standards. The results indicate that the most influential factors are motivation, followed by role of top management, market orientation, and organizational culture. The study also revealed that perceived benefit factor not plays a significant role in determining adoption. Based on the analysis and discussion, the study concluded that the certification bodies and related institutions has to disseminate information regarding ISO 14001 standard facts as to promote adoption among manufacturing firms in Malaysia. Key words: Environmental Management System, adoption, discriminant factor, Malaysia

ADOPTION FACTORS FOR EMS ISO 14001 IN MALAYSIA ABSTRACT The ISO 14001 Environmental Management System standard has become a widespread administrative tool towards corporate environmental management. It was introduced in 1996, and has been adopted by over 60,000 firms around the world, including Malaysia. Based on the literature review there are many benefits that firms can gain by adopting ISO 14001. The study is to investigate the factors that influence adoption based on a survey conducted on a sample of ISO 14001 adopter and non-adopter manufacturing firms that operate in Malaysia. Using discriminant analysis, the study identified the factor affecting adoption of the standards. The results indicate that the most influential factors are motivation, followed by role of top management, market orientation, and organizational culture. The study also revealed that perceived benefit factor not plays a significant role in determining adoption. Based on the analysis and discussion, the study concluded that the certification bodies and related institutions has to disseminate information regarding ISO 14001 standard facts as to promote adoption among manufacturing firms in Malaysia. Key words: Environmental Management System, adoption, discriminant factor, Malaysia INTRODUCTION Todays business is not about selling or providing customer service. In facing rapid evolution of the global market place, having a set of common rules is critical to facilitating trade. Increasingly in this single world market, an organization needs to demonstrate sound business management, which includes the concern for the environment. The root causes of environmental problems are related to human activities, consumption and production patterns. However, industry has often been blame as being a major contributor to the environmental problems. Government policies proved to be essential regarding these concerns, but firm behavior is relatively important as well. It is now widely recognized that firms, through better management practices can play a major role in tackling environmental problems. Environmental Management System (EMS) is defined as the part of the overall management system that includes organizational structure, planning, activities, responsibilities, practices, procedures, processes and resources for developing, implementing, achieving, reviewing and maintaining the environmental policy (ISO 14001:2004). This standard provides for elements of an effective EMS that can be integrated with other management systems of an organization. The idea and practices of proper environmental management has spread in North America and in Europe (Guimares & Sato, 1996). Currently in Asia, several countries have made a significant leap forward in ISO 14001 certification. Led by Japan, the Asian region with countries such as China, Taiwan and Korea can ranks higher with both the USA and European countries. Even Malaysia ranks higher than some of the smaller European countries. The world is currently facing environmental degradation such as global warming, water and air pollution, depletion of stratospheric ozone layer, and acid rain, therefore, it is a need to satisfy environmental demands. For Malaysia, with a large segment of industry being export oriented, the impact from consumer demand forces the individual companies to respond to the environmental issues. As far back as 1996, manufactured goods continue to be the main

component of Malaysian exports, accounting for 29.12 % of Gross Domestic Product (Economic Report 2001/2002). Realizing the significant contribution of exports to the economy, the Malaysian government has formally endorsed the drafts of the standard ISO 14001, partly because it feared the standards could put Malaysian companies off the European and other markets as well (Chemical Week, 1996). In February 1996, Standards and Industrial Research Institute of Malaysia (SIRIM) started an ISO 14001 pilot project consisting of 32 companies, of which 5 companies were certified by end of 1996 and 22 companies by July 1997. By the end of December 2003, it was confirmed that 370 companies were certified in Malaysia (ISO twelfth cycle, 2003). As of June 2004, 288 companies were certified by SIRIM comprise of sectors such as chemical, material and food 40 %, Engineering 14.2 %, Electrical/Electronic 35.4 % and Services 10 % (SIRIM Directories, 2004). Central recorded 132, East Coast 27, South 35, North 75, Sabah 7 and Sarawak 12 companies respectively. Information regarding Malaysias industry attitudes towards ISO 14001, however, is limited as the ISO 14001 environmental management system is considered new. The first component of ISO 14000 series was only formally released in October of 1996. The scarcity of the data or evidence on the factor that determines adoption of ISO 14001 has highlighted the need to conduct a study. There are several major factors that influence an organization to adopt ISO 14001. This is especially so when it is become a requirement by markets, internal or external stakeholders and industry associations. Some empirical finding indicates that the adoption is influences by top management involvement (Govindarajulu & Daily, 2004), managers values and beliefs (Nakamura et al. 2001), and companys management awareness towards environmental protection (Russo & Fouts, 1997). While other results indicate that motivation and perceived benefit are some of the main factors (Fryxell et al., 2004). ISO 14001 certification is voluntary, in which, the adoption is depend on aspirations of the companies and the external drivers. This study focuses on the internal and external factors that several literatures indicate play significant role in determining adoption of ISO 14001. For a manufacturing firm in Malaysia, the factor such as role of top management, perceived benefit, motivation, market orientation, resource availability, regulatory concerns and organizational culture is choose as independent variables. These factors is expected directly influence the adoption of ISO 14001. This study does not evaluate the quantitative benefit of the adopter companies, but rather evaluate type of EMS program that practiced by adopter and the factors influencing adoption. Problem Statement ISO 14001 is a set of international voluntary standards recognized by major trading nation and trade regulating organization such as World Trade Organization and GATT (World Bank, 2000). Like other ISO standards, it is not mandatory to adopt. Instead, it offers firms registration or certification, stating that their policies and practices conform to the standards drawn out. However, many firms will need to obtain ISO 14001 registration because of the potential wide application of the series. Asia the drivers of adoption are mainly the prospects of global trade, emerging environmental awareness and pressure. However, it is not clear how successful the implementation would be, as the diffusion of ISO 14001 varies significantly across the globe. As from the report of ISO survey, up to the end of December 2003, at least 66,070 certificates have been issued in 113 countries and economies. Approximately twenty percent (20.3 %) is in Japan and approximately fifty percent (48.4%) in the European countries.

Furthermore, firms from the Central and Eastern Europe accounts for the insignificant proportion of the total. In contrast, the adoption of ISO 14001 has been relatively slow outside of Africa/West Asia, value to approximately three percent (3.02 %). However, in the Far East more than thirty-five percent (35 %) of the total certified firms (ISO, 2003). Malaysian firms seem to have conservative attitude toward the ISO 14001 adoption (Tan, 2003), in which only 370 firms were certified as in December 2003, which is about one percent (0.6 %) of the total certified firms in the world. Therefore the purpose of this study is to identify the determinants of ISO 14001 adoption. It is assumed that because ISO 14001 certification is voluntary, firms will only seek certification where it is in their best economical interest, i.e. the benefit of adopting ISO 14001 certification outweighs the costs (Darnall et. al., 2000). Based on such assumptions, this study describes the driving forces associated with the adoption of ISO 14001 generally. Specifically, the study proposes a conceptual framework to explain the factors that facilitates the adoption of the EMS standards. This study is supported by primary data collected from a questionnaire mailed to a representative sample including certified and non-certified manufacturing firms in Malaysia. The following research questions were formulated for the purpose of this study. What are the factors that influence the adoption of ISO 14001 in Malaysia? The objectives of this study are as follows:a) To investigate whether the factors such as top managements role, perceived benefit, market orientation, motivation, availability of resources, regulatory concerns and organizational culture influence the adoption of ISO 14001. b) Further understanding of the relationship between type of industry, ownership, experience, size, type, and EMS program practices with ISO 14001 adoptions. LITERATURE REVIEW Background of ISO 14001 The roots of EMS can be traced back to the mid 80s in the US, when there was a need to ensure compliance with rapidly increasing environmental legislation. The Earth-Summit in Rio 1992 brought a new global emphasis to the corporate role in environmental protection. The International Standardization Organization (ISO) sets up a committee to develop an EMS, which was finalized in 1995. In 1996, ISO developed so-called ISO 14000 series which described the requirements to be fulfilled by organizations to implement an effective environmental management system (EMS). Some environmental management system studies claim that the effective implementation of ISO 14001 elements would reduce or eliminate negative environmental impact and towards better environmental performance for firms (Quazi, 2001). However, only few studies discuss the quantitative effects of implementing ISO 14001 on improving the environmental performance (Russo & Fouts, 1997). Holt (1998), has identified the perceived benefits of accreditation to an environmental management standards in 13 UK companies. The benefits include reduced risk, lower insurance premiums, cost savings, regaining new and old customers, and a broad competitive advantage. In addition, ISO 14001 would help the firm to address all of the legal, commercial and other challenges related to the environment (Chin, Chiu, & Pun, 1996). A systematic approach to manage environmental issues help to identify opportunities of conserving material and energy inputs, and to reduce waste, thus improving process efficiency (Johnson, 1997). Hughes (1996), also indicated that in his study, a good EMS would help identify the opportunities for cost

savings in the areas of raw material management, waste reduction, elimination of pollution, energy efficiency and prevention and mitigation of accidents. For example, a number of ISO 14001 adoption companies in Singapore have reported a significant amount of cost savings. Among these companies are Sony, Baxter Healthcare, and SGS Thompson (Rimington, 1997). It is also proven that one of the sound business practices, such as efficient notification system can reduce the time it takes to respond, and thus reduce the impact, risk and liability to the organization (Haklik, 1997). Factors influencing adoption Study by Morrow and Rondinelli (2002), in five German energy and gas companies indicated that among the reasons that motivates them to adopt or to certify an EMS are improved documentation and increased efficiency of process. Darnall et. al. (2000), however found that other non-environmental considerations such as maintaining a competitive advantage, enhancing public relations, meeting customer demands, and reduction in overall costs seemed to outshine more in a companys decision to seek certification. Economics and institutional pressures also play a significant role in determining adoption ISO 14001 (Bansal & Bogner, 2002). Results from the study by Welch, Mori, and Aoyagi-Usui (2002), indicated that early adopters of such standards in Japan tend to be larger, greener and less driven by regulatory, competitive or media pressures. They believed that the organizations have the interest and resources to pursue new environmental initiatives. On the other hand, subsequent adopters tended to be smaller, less green and more pressured by regulatory, competitive and media forces. Below are the factors identified in the study to be the most influential factors in influencing the adoption of ISI 14001. 1. Role of Top Management As with all management-based systems, ISO 14001 requires participation from all levels and functions within an organization. Argyris (1998), described commitment as generating human energy and activating human mind. Without commitment, the implementation of any new initiative would not be successful. The extent to which the top management participates in EMS activities is considered as a measure of the organizations commitment to the environment (Wee & Quazi, 2005). Many studies point out that strong commitment and support from top management to continuous improvement of environmental management, prevention of pollution, regulatory compliance and to adequate resource allocation are the key factors. The research outcomes by Chin and Pun (1999), revealed that top management commitment is one of the major concerns for implementation of EMS ISO 14001 in Printed Circuit Board (PCB) industry in Hong Kong. Without management commitment, the firm, or at least the environmental management portion, will fail (Kuhre, 1995). Henriques and Sadorsky (1999), argued that firms are unlikely to achieve its objectives and targets regardless of how carefully an EMS has been prepared or to what standard it has been designed, unless the implementation has the full support and commitment of all members of the organization, especially senior management. Several writers have also pointed out that it is the companys management awareness of the environment that really encourages the decision to advance from an environmental perspective, and finally to achieving ISO 14001 certification (Azzone, Bertelle, & Noci 1997). Likewise, Stone, Joseph and Blodgett (1997), indicated that the decision to advance environmental management actions

is difficult to assume in firms whose managers maintain a traditional and defensive mentality towards environment practices. 2. Perceived Benefit Potential benefits for ISO 14001 adoption includes reduced costs of waste management, savings in consumption of energy and materials, and enhancing corporate image, regulatory cost savings, more effective supply chain management, improve customer relationships, and increased market competitiveness (ISO 14001: 2004). Advocates of ISO 14001 claimed that the adoption of ISO 14001 substantially improved organizations operational and managerial systems (Rondinelli & Vastag, 2000). Study by Poksinska, Dahlgaard and Eklund (2001), in Sweden also showed that the most important benefit perceived was improvement of corporate image, substantial benefits were achieved in improvement of internal procedures, improvement of relations with authorities and communities. In Malaysia, study by Maliah and Nazli (2002), stated that ISO 14001 certification is perceived to boost both economic and environmental performance positively. Firms surveyed by them reported an enhanced company reputation as well as significant waste reduction at their plants. 3. Market Orientation Market force is one of the incentives for the adoption of ISO 14001. Extensive acceptance of ISO 14001 established an internationally recognized minimum level of environmental management as well as reducing the need for command and control method of regulating. ISO 14000 helps firms to involve in international trade, avoiding multiple permits, registrations, and inspections (Watson, 2000). Some trade changes arise once the environmental management system or ISO 14001 is established. Companies would want to ensure its suppliers abide the same standards and the whole organization will become responsible to recognize the environmental impacts. Kirkpatrick and Pouliot (1996) believed that ISO 14001 is a good business idea for all companies, not just global ones. Kuryllowicz (1996), believed that there are three main reasons that drives implementation of ISO 14001. The factors would be customer demand, marketing advantage, and the motivation to become a better company. The changes, for example in the aerosol purchased due to concerns over ozone depleting substances signaled the industry of possible opportunities and threats they faced in response to environmental activists (Holt, 1998). Some companies take advantage by exploiting environmental issues to strengthen their market position and penetrate new markets (Halkos & Evangelinos, 2002). 4. Motivation There have been several studies (Pan, 2003; Corbet, Luca & Pan, 2003; del Brio, Fernandez, Junquera & Vazquez, 2001), that investigated firms motivations for certification, their implementation experiences, and the benefits received. Some studies also indicated other motives as, tool in achieving more control over the firm in a general sense and a way of introducing structures into the firm (del Brio & Junquera, 2003). Researchers explored the economic rationales for corporate ecological responsiveness. Bansal and Roth (2000), labeled this competitiveness as a motivation. Firms ecological responses, like eco-labeling, green marketing, and EMS implementations are also sources of competitive advantage (Russo & Fouts, 1997; Shrivastiva, 1992). . From their study on ISO 14001 Rondinelli and Vastag (2000), reported that manager and workers in the firm they studied have became more aware of the environmental aspects,

regulations, and effects at work, home an in the community level. The most significant motive for implementing ISO 14001 is enhancing corporate image, gaining marketing advantage, reducing customer pressure, and to improve its relations with communities and authorities (Poksinska, Dahlgaard & Eklund, 2003). 5. Resources Availability The act of developing a formal EMS requires that the firms have access to a sufficient level of resources. The level of resources available to the firm and its personnel potentially affects the degree to which the various environmental options are used or considered (Zeng, Vivian Tam & Deng, 2003). Corporate resources should play an important role in the environmental option considered by the firm. For example, Hormozi (1997) noted that it is generally expected that the costs of attaining ISO 14001 should be higher and it required extra paperwork compared with ISO 9000 certification. According to Hormozi (1997), the costs experienced with ISO 9000 are a good benchmark in relation the costs that can be expected with ISO 14001. Firms, which are more advanced in the environmental field showed more importance to the environmental area because they have managers exclusively for this area (del Brio et. al., 2001). Environmental status in the firm is revealed, among other factors, in existence of a manager and environmental department with environmental responsibility that facilitates the adoption and control of the environmental actions (Fortanier, Gordon & Maiko, 1995). 6. Regulatory concerns A firm naturally becomes deeply involved not only in the local communities but also in a global scale where its offices and organizations are located. As society has various expectations from firms, it is the responsibility of the firm towards the society to take actions that meet societal expectations. By carrying out such actions, a firm and its employees can obtain a favorable evaluation from society, and this can lead to increase social value for the company (Rutherfoord, Blackburn & Spence, 2000). Over the last several years newly imposed regulations encourage industry to follow more environmentally sound practices. Generally, countries started with the traditional command and control approach that, if adequately enforced, has the features of high reliability and predictability. It was not until the 90s that voluntary ISO14001 as environmental initiatives signaled a movement away from traditional adversarial relationship (Stenzen, 2000). Researchers have recognized the role of regulatory pressure to push firms to be environmentally responsive (Fineman & Clarke, 1990). ISO 14001 is seen by many government officials as a possible solution to Asias main problem, that is creating effective environmental law or to tackle problem concerning environmental laws (Tremblay, 1996). Study by Kwon, Seo and Seo (2002), in Korea indicated that non-certified firms had an environmental regulation violation three to eight times higher than certified firms. 7. Organizational culture Culture has been described as the way things are done around here (Drennan, 1983). It is the summation of all the nuances of the organization. The culture of an organization is neither something created by a single leader, nor something that can be controlled and foreseen by an organizations manager. Thus in this study, culture is a constraint of accepting the organization to change, employee participation, willingness to learn, and ISO 9000 norms. Delmas (2002), believed that the more experience with process standard such as adoption of ISO 9000, the more

likely for the firm to adopt ISO 14001.There is a need for cultural changes that support the implementation of environmental management programs in an organization. Those are changes that enhance employee participation and cross-functional integration across the organization (Kitazawa & Sarkis, 2000). An organization must design, plan, and implement an organizational development program with great care as it is to help alter what Porter and Van der Linde (1995), have defined as organizational inertia. However, Ruth (1999), reported that the barrier of implementation of EMS is inconsistent top management support. Training and improvement in knowledge and skills enable individuals to achieve objectives such as systematic problem-solving skills and process-conscious approach. Without the proper skill empowerment, team efforts become less effective (Harris et. al., 2002). Several research supports the notion that employee participation possibly improves manufacturing performance (Hanna et. al., 2000). On the other hand, survey by OhEocha (2000), demonstrated that the most significant barrier towards implementation project for improvement are related to communication, degree of employee involvement and attitude of employee. RESEARCH METHODOLOGY Theoretical Framework The critical factors identified for the development of theoretical framework are based on the literature review. The independent variables are as follows: role of top management, perceived benefit, market orientation, motivation, availability of resources, regulatory concerns and organizational culture. The dependent variable is ISO 14001 adoption. Independent Variables Role of Top Management Perceived Benefit Market Orientation Motivation Resources Availability Regulatory Concerns Organizational culture Figure 1. Theoretical Framework This model was also tested on the local framework of manufacturing firms in Peninsular Malaysia. Such testing determined the validity of hypotheses that generated from the relationships. The following null hypotheses were developed based on relevant literature review: Hypothesis 1: Whether an organization chooses to adopt ISO 14001 or not is influenced by top management role. 8 ISO 14001 Adoption Dependent Variable

Hypothesis 2: Whether an organization chooses to adopt ISO 14001 or not is influenced by their perceived benefit. Hypothesis 3: Whether an organization chooses to adopt ISO 14001 or not is influenced by market orientation. Hypothesis 4: Whether an organization chooses to adopt ISO 14001 or not is influenced by motivation. Hypothesis 5: Whether an organization chooses to adopt ISO 14001 or not is influenced by resource availability. Hypothesis 6: Whether an organization chooses to adopt ISO 14001 or not is influenced by regulatory concerns. Hypothesis 7: Whether an organization chooses to adopt ISO 14001 or not is influenced by organizational culture. Sampling Design The population of this study comprises of all manufacturing firms in Peninsular Malaysia that are registered under Federation of Malaysian Manufacturers (FMM). Samples were randomly selected from the Federation of Malaysian Manufacturers Industries Directory 2003. In drawing the samples, care was taken to avoid selecting the branches of the same firm. The unit of analysis for this study is the organization to determine the factors that discriminate the adoption of ISO 14001. Disproportionate stratified random sampling was done to select the samples for the study as the population has been divided into seven grouping based on types of industry. The organizations environmental management representative or environmental, safety and health manager are the respondents targeted in this study because they are more knowledgeable about the environmental management system than others do. This is what being recommended by Nunnally (1978), when a measuring instrument is used for data collection, and the subjects used to be those for whom the instrument is intended and Sekaran (2003), suggested the sample analysis should be at least 10 times the number of variables in a study. A total number of 250 respondents were selected from the FMM list of companies comprise of 50 (electrical and electronics), 45 (chemical and chemicals products), 35 (textiles and textiles products), 35 (rubber products), 30 (food products and beverages), 25 (pulp, paper and paper products), and 30 (other types of industries). Data Collection Method The mail questionnaire was used to collect the data. This study sent a personally administered questionnaire to each of environmental management representative and environmental, safety and health managers of companies listed in the Federation of Malaysian Manufacturers Directories 2004. These companies represent companies that adopt EMS ISO 14001 in Malaysia. The questions asked in the questionnaire were developed based on literatures (Chin, et al., 1999; Delmas, 2000; Welch, et al., 2002; Zeng, et al., 2003; Poksinka, et al., 2002; Nakamura, et al., 2000; 1999; Kwon, et al., 2002; Chin & Pun, 1999) and a report by National Database on Environment Management System, the University of North Carolina, United States (Villani, 1999). The questionnaire together with a cover letter, were mailed to all selected respondents. Variables and Measurement

Several factors are generated from the literature, however only seven factors are used for the purpose of this study. A five-point Likert scale was used to measure these independent variables, which is coded and describes as 1 (strongly disagree), 2 (disagree), 3 (neutral), 4 (agree) and 5 (strongly agree). RESEARCH FINDINGS The Sample Characteristics The descriptive statistics is used to analyze the background of respondents, as well as the overview of adopters and non-adopters of ISO 14001 among manufacturing firms. A total of 110 questionnaires were received out of the 250 questionnaires distributed, 6 questionnaires were discarded due to incomplete answer. Hence, only 104 were used for the analysis. Table 1 Manufacturing Sectors in the ISO 14001-adoption study
No. 1 2 3 4 5 6 7 Type of Industry Electrical, electronic and machinery Chemicals, chemicals product and plastics Food products and beverages Textiles and textile products Pulp, paper and paper products Rubber products Other Total No. of Selected Respondent 50 45 30 35 25 35 30 250 Actual No. of Respondent Reply 31 21 8 11 2 7 24 104

Among the respondents, 52.9% of the firms have adopted ISO 14001 while 47.1% have not adopted the standards. Among the respondents firm, it is seen that it consists of 29.8% Electrical, electronic and machinery firms, 20.2% Chemicals, chemicals product and plastics, 6.7% Rubber products, 7.7% Food products and beverages, 10.6% Textile and textile products, 1.9% Pulp and paper, and 23.1% other firms including Metal, Ceramics, Cement, Quarry, Glass, and Recycling. Among the adopters, 26.9% are Electrical, electronic and machinery, followed by 10.6% other industries, 9.6% Chemicals, 3.8% Rubber and 1.9% Food and beverage. However, none of the respondent from Textiles and textile products and Pulp, paper and paper products adopts ISO 14001. The adopter formed from 18.3% by Japanese firms, 8.7% Malaysian firms, 7.7% Joint ventures, 5.8% United States, 5.8% Germany, 1.9% by Taiwanese, and 1.0% by Belgium, Canada, Denmark, France, and Ireland respectively. It is also noted, majority of the firms that adopted ISO 14001 involved in Electrical, followed by Chemicals. Based on the results observed, the establishment of the ISO 14001 adopters firms are between 6 15 years, but there are also some adopters firm have less than 5 years of establishment. It is believed that many foreign firms that invest in Malaysia are electrical and electronics, and so almost all the adopter firms have more than 1000 employees. Table 2 Respondent Firms Profile
Characteristics Malaysian Foreign Joint Venture

10

ISO 14001 Adoption Adopter

Non-adopter

7 (6.7%) 21(20.2%)

39 (37.5%) 17 (16.3%)

9 (8.7%) 11(10.6%)

Type of Industry Electrical, electronics and machinery Chemicals, chemicals products and plastics Food products and beverages Textiles and textile products Pulp, paper and paper products Rubber products Other
No. of Year Establishment

3 (2.9 %) 4 (3.8 %) 3 (2.9 %) 6 (5.8 %) 1 (1.0 %) 0 (0 %) 11 (10.6 %) 1 (1.0%) 9 (8.7%) 7 (6.7%) 11 (10.6%) 0 (0 %) 6 (5.8 %) 7 (6.7 %) 9 (8.7 %) 6 (5.8 %) 12 (11.5 %) 16 (15.4 %) 2 (4.1 %) 0 (0.0 %) 14 (28.6 %) 5 (10.2 %) 0 (0.0 %) 11 (10.6 %) 1 (1.0 %)

26 (25.0 %) 9 (8.7 %) 3 (2.9 %) 5 (4.8 %) 1 (1.0 %) 2 (1.9%) 10 (9.6 %) 4 (3.8%) 23 (22.1%) 11 (10.6%) 18 (17.3%) 1 (1.0 %) 3 (2.9 %) 16 (15.4 %) 16 (15.4 %) 20 (19.2 %) 15 (14.4 %) 41 (39.4 %) 1 (2.0 %) 4 (8.2 %) 8 (16.3 %) 1 (2.0 %) 3 (6.1 %) 39 (37.5 %) 0 (0.0 %)

2 (1.9 %) 8 (7.7 %) 2 (1.9 %) 0 (0 %) 0 (0 %) 5 (4.8 %) 3 (2.9 %) 2 (1.9 %) 9 (8.7%) 4 (3.8 %) 5 (4.8%) 1(1.0 %) 0 (0 %) 8 (7.7 %) 8 (7.7 %) 3 (2.9 %) 2 (1.9 %) 18 (17.3 %) 0 (0.0 %) 0 (0.0 %) 2 (4.1 %) 3 (6.1 %) 6 (12.2 %) 4 (3.8 %) 0 (0.0 %)

Less than or equal to 5 years 6 10 years 11 15 years More than 15 years

No. of Employee

20 49 50 99 100 299 300 999 > 1000 Type of Firms Publicly listed Privately owned Status of Adoption ISO 14001 (for non-adopter) Not applicable Not being considered Future consideration Assessing suitability Planning to implement ISO 9000 certification (prior to adopt ISO 14001) Yes certified Not certified

Adopters Profile and Relationship In this study, the chi-square test is used to test the relationship between adopters and non-adopters profile, namely type of industry, ownership, year of establishment, number of employees, type of company, and the EMS program. Table 3 is cross tabulation of adopters and non-adopters profiles after regroup type of industry, number of employees, and number of years of establishments. From the row percentages, almost 27% of the electronic firms are adopters, and only 2.9% are non-adopters. The chemicals firm adopters and non-adopters are almost equal, with the percentages of 9.6% and 10.6% respectively. Group of foods, textiles, paper, and rubber manufacturers contributes only 5.8% adopters the remain is 21.2% are non-adopters. The overall group type of industry shows that the observed significant level P-value of Pearson

11

Chi-square P<0.05. This test indicated that there is a relationship between type of industry and ISO 14001 adoption. Pearson Chi-square value for the variables of ownership indicates the observed significant level is less than 0.005, which lead to conclusion that there is a relationship between ownership and ISO 14001 adoptions. The highest adoption percentage of 37.5% is from foreign firms, compared to Malaysian only 6.7% and joint venture firms by 8.7%. Table also show that many of the Malaysian firms being non-adopters are 20.2% compared foreign firms by 16.3% and joint venture firms by 10.6%. This study also tries to relate between the experience firms in term of year of establishment with ISO 14001 adoptions. However from Chi-square test, the result shows that there is no significant at P>0.005, hence we can say that there is no relationship between adoption of ISO 14001 with experience of the industry. It is also applies to size of company in terms of number of employees and type of company listing either public or privately owned. There is no relationship between size of company and year of establishment with ISO14001 adoptions. Table 3 EMS Adopter Profile and Relationship
Item Type of Industry Ownership Group Electrical, electronic Chemicals Foods, Textiles, Paper and Rubber Malaysian Foreign Joint venture 15 years and below More than 15 years 150 and below More than 150 Public Private No. 31 21 28 24 28 56 20 70 34 11 93 29 75 Adopter 28 (26.9%) 10 (9.6%) 6 (5.8%) 11(10.6%) 7 (6.7%) 39 (37.5%) 9 (8.7%) 36 (34.6%) 19 (18.3%) 4 (3.8%) 51(49.0%) 15 (14.4%) 40 (38.5%) Nonadopter 3 (2.9%) 11(10.6%) 22 (21.2%) 13 (12.5%) 21 (20.2%) 17 (16.3%) 11 (10.6%) 34 (32.7%) 15 (14.4%) 7 (6.7%) 42 (40.4%) 14 (13.5%) 35 (33.7%) Pearson Chi-square 29.270 P-value 0.000

15.548 0.182 1.347 0.022

0.000 0.670 0.246 0.883

Year of establishment No. of employee Type of company

Factor Analysis Factor analysis is used to find the variables or factors observed among the variables. This study indicates that the measures of sampling adequacy for all variables are above the acceptable level of 0.5, and the variables are kept for further analysis (Hair et al., 1998). The KMO measures the sampling adequacy, in which should be greater than 0.6, which is adequate for further analysis. The next items show that all the factors are extracted from the analysis along with their Eigenvalue. Only eight components are extracted and found significant, the remaining components are not significant. Component matrix showed the loading of all factors on the eight components extracted. As suggested by Hair et al., (1998), factor loading greater than +0.5 is considered significant, whereby loading just greater than +0.30 are considered the minimal level. Details of the results are shown in the Table 4. There are eight factors that explain about 70.67% of the variance. Factor eight was excluded as it avoids single measurement error. After selecting the appropriate items, resource availability is then absorbed into motivation as measures for this variable is compatible. This also applies to regulatory 12

concern in which is absorbed into the organizational culture. The five remaining factors can be used as variables for further analysis. Table 4 Varimax Rotated Component Matrix 0.23 3f 0.34 0.30
3g* Motivation 4a* 4b 4c* 4d 4e* 4f 5a* 5b 5c* 5d 6d Organizational Culture 6a 6b 6c 6e 7a 7b 7c* 7d 0.19 -0.05 0.35 0.005 0.13 0.46 0.45 0.45 0.29 0.52 0.65 0.08 0.23 -0.18 0.77 0.73 0.37 0.76 0.72 0.84 0.23 0.36 0.45 0.19 0.57 0.16 0.12 0.060 .16 0.11 0.28 0.24 0.15 0.24 0.26 0.15 0.43 0.05 0.18 0.14 -0.02 0.20 -0.07 0.38 0.04 -0.02 -0.06 0.12 0.08 0.11 0.26 0.07 0.03 0.01 0.06 0.26 -0.26 0.12 0.35 0.16 0.20 0.37 -0.12 0.15 0.16 0.02 0.26 0.47 0.68 0.68 0.52 0.04 0.67 0.10 0.71 -0.05 0.12 -0.02 0.28 0.21 -0.03 0.43 0.21 0.36 0.28 0.16 0.05 0.58 0.30 0.10 0.24 0.10 0.03 0.03 0.08 0.14 0.10 -0.07 0.09 0.24 0.14 -0.03 0.43 0.45 0.20 0.09 0.23 -0.10 -0.25 0.27 0.19 0.11 0.03 0.07 0.22 0.11 -0.13 0.14 0.13 0.05 0.05 0.03 0.17 0.23 0.55 0.65 0.27 0.66 0.41 0.10 0.04 0.21 0.26 0.33 0.11 -0.11 -0.19 -0.11 -0.02 -0.15 -0.23 0.11 -0.10 0.12 0.05 -0.10 -0.12 -0.12 -0.13 0.40 0.26 0.39 -0.04 0.04 0.10 0.28 0.10 0.73 -0.09 0.04 -0.06 0.17 -0.03 0.07 0.1

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Note: * Cross loading and low loading items were excluded for further analysis Reliability Test Cronbachs alpha method is used to determine the reliability coefficient. The highest value of Cronbachs alpha is 1.0; it shows the higher internal consistency reliability. A value greater than 0.6 is acceptable in exploratory research. The result of reliability test is presented in Table 6, which alpha value ranges from 0.64 to 0.84. Table 6 Reliability of Factors Affecting Adoption
Factors Organizational Culture Perceived Benefit Role of Top Management Market Orientation Motivation Number of items per factor 5 3 4 4 4 Number of items per factor (original) 4 8 5 7 6 Cronbachs Alpha 0.86 0.81 0.81 0.78 0.64

Discriminant Analysis Discriminant analysis is used to discriminate the factor that influences the adoption of ISO 14001. The five factors generated from factor analysis is used to discriminate the respondent between adopters and non-adopter. In this study, direct discriminant analysis is used where all the variables were entered at once. The 104 of the respondents were split into analysis and hold out samples to check the predictive accuracy of the discriminant function. For validation purpose this study considers 29.8% for the hold out and the remains 70.2% for estimation of the discriminant function. Only one discriminant function is expected when there are two groups presented distinct dimension (Bryman & Cramer,1999). The percentage of variance accounted for by each discriminant function is shown in eigenvalues table (Appendix H). The canonical correlation of 0.67 indicates that (0.67)2 = 0.45 or 45% of variance in the dependent variable can be explained by the independent variables. The Wilks Lambda test is also significant with p-value 0.000 proves that there is a statistical significance of the discriminatory power of the discriminant function. Tests of equality of group indicate the significance level between the means of independent variables for the two groups adopters and non-adopters. At 0.05 levels, role of top management, market orientation, motivation and organizational culture showed significant difference whereas perceived benefit is not significant. Hair et al., (1998) suggested that the discriminant loading is more valid in interpreting the discriminant power of independent variables because of their correlational nature. As such, the coefficient for discriminant function and univariate F ratio was ranked in descending direction from the highest discriminatory power to the lowest. Table 7 shows that among the influences factors are motivation, followed by role of top management, market orientation and organizational culture. Perceived benefit therefore is not substantially significant to differentiate between the adopters and non-adopters. Table 7 Summary of Interpretive Measures for Discriminant Analysis 14

Factors Motivation Role of Top Management Market Orientation Organizational Culture Perceived Benefit

Discriminant Loading 0.65 0.64 0.50 0.42 0.19

Rank 1 2 3 4 5

Univariate F Ratio 24.60 23.62 14.80 10.26 2.00

Rank 1 2 3 4 5

Based on the discriminant result we can observe that four hypotheses are accepted; role of top management, market orientation, motivation, and organizational culture as these factors did influence the adoption of ISO 14001. Perceived benefit does not play a significance role in ISO 14001 adoption. Two variables, namely resources availability and regulatory concerns are not considered as a factor after data reduction. Summary of the hypotheses is presented in Table 8. Table 8 Summary of the Hypotheses Results
No. H1 H2 H3 H4 H5 H6 H7 Hypothesis Whether an organization chooses to adopt influenced by top management role. Whether an organization chooses to adopt influenced by their perceived benefit. Whether an organization chooses to adopt influenced by market orientation. Whether an organization chooses to adopt influenced by motivation. Whether an organization chooses to adopt influenced by resource availability. Whether an organization chooses to adopt influenced by regulatory concerns. Whether an organization chooses to adopt influenced by organizational culture. ISO 14001 or not is ISO 14001 or not is ISO 14001 or not is ISO 14001 or not is ISO 14001 or not is ISO 14001 or not is ISO 14001 or not is Results Accepted Rejected Accepted Accepted Omitted Omitted Accepted

DISCUSSION AND CONCLUSION Types of industry have a relationship with the adoption of ISO14001. This study indicates that no matter what industry influences adoption. From the study, electrical and electronic firms were the highest adopter followed by chemicals firms. It is believed that almost all foreign electronic firms and their level of environmental awareness is higher compared to Malaysia. Malaysian firms tend to adopt EMS ISO 14001 when there are joint ventures with other non-Malaysian firms. The types of company either public or privately owned results are not significant contributor of the adoption of ISO 14001. This study tries to examine if the publicly traded firms are more concerned about environmental aspect as their stakeholders monitor their activities. The study by Delmas (2001), shows that the stakeholders play a significant role in determining ISO 14001 adoption. There is no evidence from previous study

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that size of the firm could determine the adoption. However this study does not segregate clearly the size of the firms. The experience of the firms or number of years establishment is quite substantial to determine the adoption, as almost all adopters were quite long established. Tan (2003) surveyed the firms in Malaysia as newly industrialized found out that most Malaysian firms pursue ISO 14001 because of insistence from top management and not because of the experience that they have. Determinants of ISO 14001 Adoptions Even though the industrial features of the particular industry shows very influential for adoption, some underlying factors also should be identified as to determine the reason for adoption or else the industry would lose a good chance to compete in the international market. Motivation Motivation is part of the drivers that motivate industry to adopt ISO 14001. In this study, some of the measurement is based on industry perception on enhancement their reputation, reduced wastes, develop better products and benchmark with their competitor. EMS ISO 14001 is not a regulated system, it is merely voluntarily basis. There should be something internally or externally drives the organization to adopt ISO 14001. As such, if there is factor could motivate the adoption, the industry will not hesitate to certify with ISO 14001. Melnyk et al., (2003) study has demonstrated that firms with formal environmental management system have a positive impact on many dimensions of their operations performance specifically in ability to reduce wastes and pollution. As wastes are part of the product, it is better to reutilize it in other way as an economics value. This activity is proven with emerging of recycling firms in Malaysia now day. The adoptions of EMS 14001 are partly improved firms corporate image, and enhanced its relationship with authorities and communities. That is the reason why some firms still can stand for years even their activities are near to residential area. The firms believed environmental preservation is important as part of their corporate social responsibility. Role of Top Management Top management could play a significant role in determining the adoption of ISO 14001. The top management means, the person that could make decision in allocating resources, commitment and mission for the firms. Obtaining commitment from the top management of an organization is an early step in establishing an environmental management system (ISO 14001:2004). It is clearly stated in the systems guideline clause 4.1.2; Top management commitment and leadership. The systems view top management commitment are crucial factor that the system could lead to nonconformance if the management fail to show their commitment in establishing or improving the systems. Top management plays a significant role in the successful implementation and maintenance of the environmental management system by providing adequate financial resources and intangible resources such as support, commitment of time, encouragement of employee that facilitate the adoption and maintenance of the system. Implementation of ISO 14001 usually requires changes in an organization(Lin, 1995). Top management should ensure that the objective of adoption are clearly understood and supported by all employees as their role and responsibilities may change accordingly after decision to adopt ISO 14001. The management has to establish additional systematic program and procedures, put extra effort in developing activities, which is required under ISO 14001. Chin, et. al., (2002) have suggested that the implementation could be easy by

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creation of a management structure that encourages integration between environmental issues and all other business operations. Consequently, the organization could achieve their environmental objectives and target when all functional level has the same direction. Market Orientation Some attributes of the market orientation in this study include overcoming export barrier, accommodation of current international situations and regulations, explicit demands and pressure from customer regarding environmental management. Before EMS was established, firms apply environmental compliance procedures only to fulfill the regulatory requirements. That is different with todays trend, in which EMS procedures are used to deal with consumerdriven green demand and market pressures. The word green came to be indiscriminately applied not only to individuals involved with environmental campaigns but to any product or idea remotely concerned with protection of the environment (Hunt & Johnson, 1995). Hunt et al., (1995), revealed that the phenomenon upsurges in late 1980s, which included green consumerism, green advertising, green investment, environmental reporting, and increased interest in sustainable development. For example, the interest for green consumerism can be seen started from Western Society, preference for organic vegetables, ozone depleted substance (ODS) free products, and car with catalytic converter. Organizational Culture Organizational culture is one of the attributes that management has to consider prior to adoption of ISO 14001. Such organizational change include employee empowerment, crossfunctional teams job coordination and training of employee and management The top management has to equip the personnel with necessary knowledge and skills to ensure effectiveness of the adoption. Awareness towards the environmental issues within the scope of organization shall be cultivated through proper communication, education and campaign. Employee participation is part of the element that helped management achieve environmental objective and target. The situation is not so complicated for the organization if the ISO-norm already exist, particularly ISO 9000 quality management system. Research by Delmas (2002), shows that ISO 9000 norm within and organization have an important impact on the likelihood of adopting ISO 14001. The previous adoption of ISO 9000 facilitates the adoption of ISO 14001 as both standards are very similar, and information on how to implement already available. This study showed that almost all adopter already certified with ISO 9000 prior to adopt ISO 14001, only 1.0% is not adopt ISO 9000 prior to adoption of ISO 14001. Perceived Benefit The decision of implementing an EMS according to the ISO 14001 certification is quite critical as it involves participation of all level in the organization. With reference to some literature review (Tan, 2003; Holt, 1998; Petroni, 2000), the organization shall be able to adopt ISO 14001 and gain benefit if plans in accordance to the standards. However, the result from this study indicated that the perceived benefit was not influence the adoption of ISO 14001. By nature most of the adoption benefit are intangible and are difficult to measure, as a result the firms sees no significant benefit to adopt ISO 14001. However, the descriptive statistics showed that even though the firms currently do not adopt ISO 14001 their response towards adoption is positive with 21.5% of the Malaysian firms willing to consider adopting, 9.6% still assessing

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suitability, and 3.8% already on the way to implement and none of them answered not being considered. Implications, limitations and recommendations for Future Research The result obtained from this study showed that adoption of ISO 14001 is influenced by four main factors, namely motivation, role of top management, market orientation and organizational culture. However, it is contrary with the previous research that perceived benefit is significant influencer for ISO 14001 adoption. The supplier or customer also could play importance role in promoting ISO 14001 certification among manufacturing firms in Malaysia. Information on ISO 14001 shall be easily obtained as to promote certification. Certification body such as SIRIM, could play an important role in deliberating information as industry need to be motivated and understand the implication of ISO 14001 adoption. There was a limited coverage of type of industry and the number of respondents due to time constraint. A large number of respondents would reflect more accurate results. The numbers of respondent in certain groups of industry were small and this would lead to inaccurate result. The certification result by industry is more dominant from electronics compare to others such as textile, rubber and food. This study has shown that there are significant factors that influence the adoption of ISO 14001 in Malaysia. The results seem consistent to those of other studies such as (Tan, 2003) and (Maliah et al., 2002). However, the perceived benefit was contrary with previous study such as (Holt, 1998; Petroni, 2001). As such, it is recommended that future research should address the issues on perceived benefit.

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