Driving competitive advantage through stakeholder engagement

Most sustainability policymakers believe that the business community plays a significant part in moving society to a circular economy business model (Geissdoerfer et al., 2017). In response we have seen an increase in sustainable entrepreneurship, which has been viewed as an all-inclusive measure to preserve and care for future generations (Horne et al., 2020; Ratten et al., 2019; Terán-Yépez et al., 2020). Recent literature in the area of sustainability suggests that a variety of stakeholders in the business community are open to pursuing sustainable opportunities if they see how those opportunities can yield a significant profit (Millette et al., 2019, 2020). Any action that can yield a firm significant profit is typically called a competitive advantage (Belton, 2017; Porter, 2008), or sometimes a green competitive advantage if based on sustainability (Zameer et al., 2020). But this raises the research question: How can a venture, new or otherwise, build a competitive advantage around a sustainable product?

Resource-based theory has recently come to emphasize that competitive advantage lies in providing value to multiple stakeholders (Barney, 2018). Thus, to better understand how to build competitive advantage for sustainable products, we conducted a grounded theory study. We interviewed key business stakeholders, i.e. investors, entrepreneurs, customers, and academics/NGO representatives. We then analyzed their opinions, views, and experiences to better understand how to build a competitive advantage around a sustainable product in existing markets dominated by incumbent non-sustainable innovations.

Few papers have focused on competitive advantage for sustainable products in non-sustainable markets from the perspective of stakeholders. Therefore, we reviewed closely connected papers and methods to explore the significance of competitive advantage for sustainable products through the eyes of the key stakeholders.

The closest study we found looked at the viewpoints of stakeholders specifically in the bio-based sector in Europe (Leipold and Petit-Boix, 2018). They conclude that the viewpoints of stakeholders can play an important role in determining business strategies that support sustainability and a circular economy. Competitive advantage is described as the notion of gaining product value proposition in the marketplace (Porter, 2008; York, 2019). In this paper, we focus on the ability of a business to make more sales and increase customer satisfaction based on sustaining and managing product-based resources and generated waste. Millette (2019) explored the motivation towards participating in a business incubator for the circular economy system and highlighted the importance of taking advantage of the opportunities within sustainability a and circular economy. Such opportunities can potentially reduce expenses and reinforce the financial performance of the business, while at the same time reducing their environmental impact’s footprint (Millette, 2019).

In the same approach, a number of articles look at engaging businesses to help promote sustainability and circular economy (Millette, 2019; Tukker, 2015; Witjes and Lozano, 2016), but they mainly focused on recycling and waste management results. Witjies and Lozano (2016) looked at a framework that is based on the collaboration between stakeholders to improve the process of sustainability and circular economy. However, they did not interview those stakeholders. Similarly, from literature, we discover that most authors omitted stakeholder interviews capturing their opinions towards building competitive advantage. Most studies focused on sustainable competitive advantage and material flows analysis without mention of how sales of sustainable products can potentially be increased (Geissdoerfer et al., 2017; Pratono et al., 2019). Zameer et al. (2020) found that sustainability offers a competitive advantage in equipment manufacturing enterprises in China, but their study only focuses on customers andnot on other stakeholders. Meanwhile, Liu et al. (2017) interviewed stakeholders about joining a collaborative supply chain arrangement, using methods similar to ours, but did not focus on sustainability.

Competitive advantage is connected to environmental strategies because customers around the globe are increasingly concerned with the spread of damaging impacts on health and on ecosystems that are associated with conventional manufacturing practices (Forbes et al., 2009; Vermeir and Verbeke, 2004). In order to connect stakeholder views to competitive advantage, we reviewed the results of some papers about stakeholders’ or customers’ views on firms’ environmental strategies and how they can be connected with the development of competitive advantage. A study by Forbes et al. (2009) analyzed views of sustainable wine consumers in New Zealand to discover if environmentally sustainable practices during the production of wine would have a competitive advantage in the wine market sphere. The results of Forbes et al. (2009) study found that customers strongly opted for the wine that was made using environmentally friendly practices, leading to superior market and financial performances. Similarly, a study by Goworek (2011) focused on the clothing industry’s journey towards the product’s value appeal to customers, such as making sure that the clothing materials are sourced through socially responsible and environmentally sustainable practices. This approach has been adopted by many clothing industry suppliers, leading to their products being organic and sourced through Fair Trade. This is one of the dynamics that has enabled the alleviation of many customers’ concerns, and the appeal to customers is recognized as a key factor that gave them the advantage to evolve and remain in business for many years (Goworek, 2011).

Sustainable product innovators may require a different business model. For example, electric cars, may require distinctive charging stations and different business plans (Porter, 2008; Westgren and Wuebker, 2019). Some previous literature has focused strongly on the psychological, political and logistical phases of business execution (Michael and James, 2015; Tukker, 2015; Westgren and Wuebker, 2019; Witjes and Lozano, 2016). Most studies support the importance of sustainable products in terms of their design when compared to the implementation of waste management strategies (Andrews, 2015; Lieder and Rashid, 2016; Park et al., 2010) while other studies support business collaboration and stakeholder engagement as key (Bocken et al., 2014). Some authors argue that sustainable products and circular economy related technologies will need new policy paradigms as much as new business models to flourish (Preston, 2012; Westgren and Wuebker, 2019; Ying & Li-jun, 2012).

Other studies suggests that competitive advantage for sustainable entrepreneurship requires good teamwork, attentiveness to market developments and customer pressure, willingness to change, and strategic thinking (Ratten et al., 2019). Moreover, the complexity of sustainable entrepreneurship demands good planning abilities (Miragaia et al., 2017; Ratten et al., 2019). Therefore, this notion elaborates the barriers that are faced by entrepreneurs during build-up of sustainable products (de Medeiros et al., 2014; Melander, 2020). These writers build on the hypothesis of this paper, especially if the key stakeholder interviews would yield the same recommendations. Thus, this paper would act as a validation of those theories by means of interviews.

This study will use interviews to discover competitive advantage not only because key stakeholders have valuable knowledge but also because stakeholder engagement and commitment are significant in the implementation of a circular economy (Belz and Binder, 2015; Geissdoerfer et al., 2017; Lieder and Rashid, 2016). The insertion of the stakeholder concept has in the past been linked to corporate environmental management (Geissdoerfer et al., 2017; Madsen and Ulhøi, 2001). The importance of considering the opinions and positions of stakeholders has been emphasized by previous studies that used interviews but not in a manner that led to the objectives of this paper. It is also worthwhile to analyze the challenges and opportunities highlighted by stakeholders in regards to building competitive advantages for business partnerships as used and mentioned by (Millette, 2019). The stakeholder theory offers an opportunity for business practices to be based upon theories of social science and normative ethics (Jones and Wicks, 1999). The stakeholder theory is explained by some previous studies that remarked that it may hold the fundamental value that is necessary for all interested stakeholders, and stakeholder interests are all equal without any probable dominance over others (Jones and Wicks, 1999). Therefore, this paper would make sure that stakeholder theory is respected by highlighting the differences and similarities of all the participants. In this way, the findings will stimulate rich debates at the interchange of business and society, as suggested in literature (Barney and Harrison, 2020; Jones and Wicks, 1999). Thus, the whole exercise of this paper is to make available the missing knowledge that can be relevant to entrepreneurs (Jin et al., 2017).

Investors, customers, and academics/NGOs are some of the key stakeholders for sustainable businesses and their engagement will support circular economy implementation Geissdoerfer et al. (2017) and Lieder and Rashid (2016). It is therefore with this notion that to unlock potential, one should understand what these stakeholders care about in regard to sustainable products.

General findings

Some general findings came to light during the interview process before content analysis.

Number of codes that emerged

Globally, the frequency of similarly coded concepts allowed for the emergence of global themes amongst participants. Major concepts emerging included lessons, sustainability challenges, and sustainability openings (Table 2). The most discussed topic is “Lessons” (lessons learned in regard to sustainable products from stakeholder’s viewpoints) consisting of two distinct categories (building trust and quoted