Managing green innovation investment in a Co-opetitive supply chain under capital constraint

Abstract

Responding the increasing concerns on environment and green consumerism, many firms found specialized environmental foundations to invest in green technology innovators (GTIs) and achieve green features in their products to attract consumers. However, facing increasing financial pressure during the economic downturn in recent years, they may have limited capital for green investments. In this paper, we investigate, in the presence of limited environmental foundation sizes, whether a pair of co-opetitive supply chain players (consisting of an Original Equipment Manufacturer (OEM) and a Contract Manufacturer (CM) that serves as both a supplier and a competitor in downstream market for the OEM) should co-invest in a joint GTI. We consider two scenarios, Scenario N where the OEM and CM respectively invest in two independent GTIs, and Scenario Y where the two firms co-invest in a joint GTI. We analyze both the exogenous or endogenous reward rates cases for the promoting of green innovation efforts of the GTIs. Under both exogenous and endogenous reward rates, we find that although Scenario Y always yields higher greenness level than Scenario N for both the OEM and CM, the OEM doesn’t always have incentive to do so due to the CM’s strategic use of wholesale price or reward rate decision responses, while the CM is always better off in Scenario Y when the reward rate is exogenous. We also find that the market size and competitive intensity will post significant impacts on the green innovation outcomes, wholesale price and reward rates decisions in the co-opetitive relationship. Intensified downstream quantity competition can motivate upstream innovation investment. However, greener technology may result in worse environmental performance for the whole supply chain because of increased total quantity.