Green human capital readiness and business performance: do green
market orientation and green supply chain management matter?
Bambang Tjahjadi, Ida Bagus Gde Adhista Agastya and Noorlailie Soewarno
Department of Accounting, Airlangga University Faculty of Economic and Business, Surabaya, Indonesia, and
Api Adyantari
Department of Accounting, Atma Jaya University Yogyakarta Faculty of Economics, Yogyakarta, Indonesia
Abstract
Purpose–This study aims to examine the effect of green human capital readiness on business performance in the green economy era. This study also focuses on investigating whether the relationship is mediated by green market orientation and green supply chain management.
Design/methodology/approach–This is a quantitative study using the data of 182 manufacturing small and medium-sized enterprises in East Java, Indonesia. Data are collected using an online survey. A multiple mediation research framework is employed, and partial least squares structural equation modeling is used to test the hypotheses.
Findings–The findings demonstrate the following important results. First, green human capital readiness affects business performance. Second, green market orientation partially mediates the effect of green human capital readiness on business performance. Third, green supply chain management partially mediates the effect of green human capital readiness on business performance. Fourth, green market orientation and green supply chain management sequentially mediate the green human capital readiness-business performance relationship.
Research limitations/implications – This study limits its sample to the small and medium-sized enterprises in East Java, Indonesia. Thus, caution must be applied when generalizing to other types of organizations and different regions. The results confirm the resource-based view and sustainability theory in explaining the antecedents of business performance in the era of the green economy which are useful for future researchers and students who are interested in studying human capital, market orientation, supply chain management and business performance.
Practical implications–This study has the following practical implications. First, it implies that the owners/managers of small and medium-sized enterprises need to properly develop their green human capital readiness because they play a strategic role in driving green market orientation, improving green supply chain management and enhancing business performance. Second, it provides useful information to policymakers to make better decision-making in developing environmentally friendly companies.
Originality/value–This study is a response to calls for studies on the antecedents of business performance in the green economy era. It provides empirical evidence for the development of resource-based view and sustainability theory by employing the new construct of green human capital readiness, which has been rarely investigated in previous studies. It also employs a multiple mediation research framework that provides a more comprehensive understanding by including green market orientation and green supply chain management. It also provides empirical evidence in the research setting of small and medium-sized enterprises in Indonesia as an emerging market.
KeywordsGreen human capital readiness, Business performance, Green market orientation, Green supply chain management, Corporate sustainability, Entrepreneurship
Paper typeResearch paper
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The authors would like to thank the Ministry of Education, Culture, Research, and Technology Republic of Indonesia for funding this research.
Funding:The study is funded by the Ministry of Education, Culture, Research, and Technology Republic of Indonesia.
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-5771.htm
Received 26 October 2021 Revised 19 July 2022 13 September 2022 Accepted 23 October 2022
Benchmarking: An International Journal
Vol. 30 No. 10, 2023 pp. 3884-3905
© Emerald Publishing Limited 1463-5771
DOI10.1108/BIJ-10-2021-0622
1. Introduction
Countries around the world still face many significant environmental issues. Those issues make the world aware of the importance of green economy and sustainable development that ensure the interests of current and future generations. As an important indicator to determine the achievement of companies’goals, business performance should reflect efforts to achieve the goals of green economy and sustainable development. Due to the increasing environmental regulations as well as public concern on environmental issues, companies have begun to implement strategies that meet environmental standards in order to improve their business performance (Chenet al., 2015;Fernandoet al., 2019;Liet al., 2018;Phamet al., 2020;Vanalleet al., 2017). The new era of the green economy demands management to have green strategies that can enhance business performance and environment sustainability. Green strategies demand the readiness of green human capital to effectively execute those strategies.
The results of previous studies on the effect of green human capital on business performance are still inconsistent. Some studies demonstrate the positive and significant impact of green human capital on business performance (Bag and Gupta, 2020;Chuang and Huang, 2015;Khanlarovet al., 2020). Meanwhile, other previous studies byChang (2016), Cabrilo and Dahms (2018),Chuang and Huang (2018)andYusoffet al.(2019)revealed that green human capital does not have any direct impact on business performance. This study gap motivates the current study. Our study employs a more specific construct, namely green human capital readiness, not merely green human capital. We argue that the value of intangible assets such as human capital lies in their readiness to support strategy execution.
The use of green human capital readiness as the independent variable is supported by the resource-based view (RBV) and sustainability theory. RBV argues that environmentally friendly human capital should be applied within companies in order to improve business performance (Bag and Gupta, 2020; Chuang and Huang, 2015). In line with RBV, sustainability theory posits that environmentally friendly human capital is able to improve and balance the stakeholders’satisfaction and quality of life (Boiral, 2020;Savitz, 2013). In the era of green economy, the better the readiness of green human capital, the better the green market orientation strategy. Furthermore, the better the green market orientation strategy, the higher the need to properly manage the green supply chain. Finally, the better the green supply chain management, the better the business performance.
We argue that the research gaps in previous studies may be due to the following: (1) the construct of green human capital is considered too general in meaning, not specific; (2) previous researchers tend to ignore the idea that green human capital does not directly affect business performance but through mediators. To address the issue, we propose green market orientation and green supply chain management as the mediating variables that have an important role in our research framework. Thus, our study has the following novelties that will support the development of RBV and sustainability theory: (1) we focus on the issue of“readiness”and employ a more specific construct, namely green human capital readiness which is rarely studied;
(2) we propose a more comprehensive framework consisting of two mediating variables. Thus, our study addresses the following four research questions: (1) Does green human capital readiness affect business performance? (2) Does green market orientation mediate the effect of green human capital readiness on business performance? (3) Does green supply chain management mediate the effect of green human capital readiness on business performance? and (4) Do green market orientation and green supply chain management sequentially mediate the effect of green human capital readiness on business performance?
To test the hypotheses, we employ the partial least square-structural equation modeling (PLS-SEM). A total of 182 data were collected using online survey. The respondents were selected from the database of the Office of Cooperatives and SMEs. This study is important for SMEs in East Java because many of them do not properly apply environmental management. The fact that approximately 12,000 SMEs have dumped liquid waste into rivers
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is a problem that requires a serious attention of all parties (Wijayanto, 2018). This happens because the SMEs’human capital is not ready to deal with environmental issues, and this negatively affects their business performance.
The most important empirical finding shows that green market orientation and green supply chain management sequentially mediate the effect of green human capital readiness on business performance. It shows the relevance of RBV and sustainability theory in explaining the antecedents of business performance in the era of green economy. It proves that the better the implementation of green human capital readiness, the more effective the market orientation strategy, then the better green supply chain management, and finally the better the business performance.
Our study has theoretical and practical contributions. Theoretically, it provides empirical evidence to the development of RBV and sustainability theory by addressing the issue of
“readiness”in the construct of green human capital. It also uses a multiple mediation research framework by introducing green market orientation and green supply chain management as the mediating variables. Practically, the framework provides a more comprehensive understanding to SMEs regarding the determinants of business performance in the era of green economy and sustainability. SMEs’owners/managers need to invest in the readiness of their green human capital, green market orientation and green supply chain management to enhance their business performance. It also provides useful information to policymakers, future researchers, students and other SMEs’stakeholders.
The rest of the paper is structured as follows. The next section provides a summary of the literature and hypothesis development. The following section explains methodology.
The study results and discussions are reported afterwards in the subsequent section. The contribution of the study is also reported. Finally, this study concludes with a brief conclusion, limitations and future research.
2. Literature review and hypothesis development
RBV and sustainability are the two theories which are the most suitable to employ for this current research. RBV posits that companies improve their competitive advantage by utilizing their internal resources (Jogaratnam, 2018;Muniret al., 2019;Penrose, 1959;Peteraf, 1993;
Wernerfelt, 1984). RBV is employed to get a better understanding regarding the main role of internal resources on firm performance, especially in developing countries (Masakureet al., 2009). RBV argues that management should pay more attention to vital resources that are valuable, unique, hard to duplicate and irreplaceable (Pulkaet al., 2021). Management needs to focus on their intangible resources, such as human capital, to improve performance (Barney, 1991;Grant, 1991;Jogaratnam, 2018). Human capital resources will effectively function when associated with strategies to achieve excellent performance (Bag and Gupta, 2020). Meanwhile, the sustainability theory explains that companies will improve their performance when they can integrate economic, environment and social aspects (Çankaya and Sezen, 2019;Elkington, 1994).
Sustainability is operationalized using a framework consisting of three elements (environment, economics, and social), namely the triple bottom line (TBL) (Elkington, 1994). TBL suggests that companies should balance their financial performance as well as environmental and social responsibility (Alhaddi, 2015;Montabonet al., 2016;Yanget al., 2020). Green human capital readiness, green market orientation and green supply chain management are internal resources which are crucial for business performance.
Green human capital is described as the combination between knowledge, skill, ability, experience, attitude, policy, wisdom, creativity and commitment of employees regarding environmental concern and management (Bag and Gupta, 2020;Chang, 2016;Chen, 2008).
The availability of green human capital drives the adoption of environmentally friendly business practices for sustainability purposes (Bag and Gupta, 2020;Yuslizaet al., 2019).
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It can be determined from employees’contribution and knowledge on the environment, especially their level of participation and support of managers in environmental protection (Chen, 2008). The favorable impact that human capital has on a company depends on its readiness. The human capital readiness can be measured by determining the difference between the requirements of strategy implementation and the current company’s capability (Kaplanet al., 2004;Talaprataet al., 2019). Thus, the green human capital readiness is an idea to discover the readiness of human capital in implementing environmentally friendly-based strategies.
Green market orientation is the advancement of market orientation strategy, with an additional green element as the uniqueness of intangible resource (Periset al., 2020). It can be described as the company’s strategy that aims to fulfill the market needs by taking into account the environmental aspects (Chenet al., 2015;Liet al., 2018;Papadaset al., 2017). The main objective of this strategy is to develop and promote environmentally friendly goods and services in order to catch consumers’attention (Chanet al., 2012;Chenet al., 2015;Periset al., 2020). By implementing this strategy, the company can grasp consumer needs, analyze, follow-up on competitors’actions and implement environmentally friendly practices in all aspects of the business.
Green supply chain management has become the crucial issue for industry in achieving market profitability by reducing environmental risks and improving efficiencies (Chandet al., 2018). Green supply chain management is a company innovation that pays attention to environmental issues in overall supply chain management from suppliers, manufacturers, consumers and feedback logistics (Hervaniet al., 2005;Famiyehet al., 2018;Longoniet al., 2018;Linet al., 2020;Baahet al., 2021a,b). The internal implementation of green supply chain management includes the company’s self-management, such as eco-design and internal environmental management, while the external implementations are in the form of cooperation with stakeholders, such as green purchasing, customer cooperation with environmental concerns and investment recovery (Vanalleet al., 2017;Zhuet al., 2013). In manufacturing companies, green supply chain management is implemented in raw materials procurement, product design, production and goods distribution (Choudhary and Sangwan, 2021;Rahmanet al., 2020;Srivastava, 2007;Zhuet al., 2013).
Business performance refers to the utmost company’s goal that can be used by stakeholders as a reference in decision-making (Leeet al., 2015). It can be determined through the company’s financial and non-financial situation (Kaplan and Norton, 2000). Financial condition can be identified from net profit, revenue and profit increase every year (Atkinson and Brown, 2001), while the non-financial condition can be determined through consumers, employees and other stakeholders’satisfaction (Chiouet al., 2004;Kaplan and Norton, 2000;Leeet al., 2015). The balanced scorecard (BSC) introduced byKaplanet al.(2004)is a comprehensive and effective tool for evaluating the effectiveness of the strategy execution. It consists of four perspectives, namely financial, customer, internal business process, and learning and growth perspectives. BSC can also be utilized to evaluate business performance that focuses on environment, such as environmentally friendly products, waste management, environmentally oriented suppliers and quality resources (Hervaniet al., 2005;Kazancogluet al., 2018).
2.1 Green human capital readiness and business performance
RBV argues that human capital is an important resource for a strategy success. Human capital readiness is crucial for supporting an effective strategy execution (Kaplanet al., 2004;
Talapatraet al., 2022). In line with sustainability theory, an effective strategy execution needs human capital who have the knowledge of business sustainability. Due to increasingly stringent environmental regulations and increasing public awareness of environmental issues, companies are encouraged to use their internal resources, namely green human
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capital. The“green” element in human capital strategy is important for companies with environmentally oriented business strategies (Bag and Gupta, 2019). This demand for sustainability makes human capital readiness important in the execution of green strategies to improve business performance (Kaplan and Norton, 2004). Green human capital readiness is a good investment for enhancing competitive advantage (Bag and Gupta, 2020;Chenet al., 2015). Only a company that can balance the economic, social and environment issues will survive in the era of green economy and sustainability.
To our knowledge, empirical research examining the effect of green human capital readiness on business performance is rare. Several studies have tried to use the construct of green human capital, not specifically green human capital readiness. A study byThiagarajan et al.(2017)on manufacturing companies in India revealed that green human capital has a favorable impact on operational, environmental, social and governance performance. while Khanlarovet al.(2020)demonstrated that green human capital is an important element for SMEs in Ukraine that willingly implement environmentally friendly practices in their business activities in order to achieve higher business performance. Other studies conducted byChuang and Huang (2015)as well asBag and Gupta (2020)also showed the positive and significant influence of green human capital on firm performance. Because this study focuses on the issue of readiness, it argues that the higher the human capital readiness, the higher the business performance. Based on the previous arguments, the followingfirst hypothesisis proposed:
H1. Green human capital readiness is positively associated with business performance.
2.2 Green human capital readiness, green market orientation and business performance Climate and environmental changes obligate businesses to focus more on environmental issues. RBV and sustainability theory argue that green human capital readiness and green market orientation are important internal resources for business in implementing environmentally friendly strategies. The hardship experienced by various parties over the damage caused by business activities is the reason why companies start to implement a green market orientation strategy (Lotfiet al., 2018). Green market orientation is the development of market orientation, with the addition of“green”element as the uniqueness of intangible asset (Periset al., 2020). This strategy does not only deal with consumers, but it also integrates competitors’actions (Jogaratnam, 2018). Green market orientation can be the key success factor to satisfy consumers’ needs by adding the environmental aspect (Li et al., 2018;
Talapatra and Uddin, 2019). By adopting this strategy, companies can deeply understand customers’needs, analyze, follow-up competitors’moves and implement environmentally friendly practices in all aspects of businesses. A study byMuniret al.(2019)on hotels in Pakistan revealed that human capital has a positive impact on customer intimacy, which is one of the business tools to measure business performance, especially in hospitality industry.
Another study conducted byLombardiet al.(2019)showed that the company’s commitment followed by good employees’attitudes, habits and knowledge is the ultimate key factor to understanding consumer demand. Thus, this study argues that the higher the green human capital readiness, the better the implementation of green market orientation.
Previous studies also have revealed the effect of green market orientation on business performance. A study by Lotfiet al. (2018) demonstrated that green market orientation successfully creates a new competitive advantage by focusing not only in market needs but also in environment protection. Another study byAmegbeet al.(2017)demonstrated the impact of green market orientation consisting of employee satisfaction, employee retention, customer satisfaction and image on business performance of SMEs in Ghana. The positive impact of green market orientation has driven business performance. In summary, the higher the green human capital readiness, the better the implementation of green market orientation;
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the better the implementation of green market orientation, the higher the business performance. Based on the previous justifications, the following second hypothesis is proposed:
H2. Green market orientation mediates the relationship between green human capital readiness and business performance.
2.3 Green human capital readiness, green supply chain management and business performance
Green human capital readiness and green supply chain management are internal resources that bring favorable impact for business sustainability and environment. Green supply chain management is described as the integration between environmental value and supply chain management principles (Longoniet al., 2018;Srivastava, 2007;Talapatra and Uddin, 2018).
Internal green supply chain management and external green supply chain management involve a very broad scope for companies to be consistent with environmental concerns (Abdallah and Al-Ghwayeen, 2020;Zhuet al., 2013). Therefore, the implementation of green supply chain management must be supported by employees’capabilities.
This study argues that green supply chain management mediates the relationship between green human capital readiness and business performance. A study byHuoet al.
(2016)revealed that human capital with organizational commitment and multi-skilling has a positive effect on supply chain integration. Bag and Gupta (2020) also proved that the availability of green human capital can improve green supply management implementation to achieve sustainable goals. Therefore, green human capital readiness can be an opportunity for companies to enhance their green supply management practices.
Previous studies have examined the impact of supply chain management on business performance. A study conducted by Longoni et al. (2018) showed that employees with adequate knowledge of and concern for the environment are able to implement a better green supply chain management and improve business performance, especially environmental performance. Another study by Abdallah and Al-Ghwayeen (2020) revealed that green supply chain management significantly influences the environmental, operational and business performances. In conclusion, the higher the green human capital readiness, the better the implementation of green supply chain management; the better the implementation of green supply chain management, the higher the business performance. Based on the previous arguments, the followingthird hypothesisis proposed:
H3. Green supply chain management mediates the relationship between green human capital readiness and business performance.
2.4 Sequential mediating roles of green market orientation and green supply chain management
RBV and sustainability theory argue that green human capital readiness, green market orientation and green supply chain management are strategic initiatives that can persuade stakeholders regarding the utilization of companies’ internal resources for cultivating business sustainability and environment (Baahet al., 2021a,b). A study byLotfiet al.(2018) showed that green market orientation brings very many favorable opportunities for companies to create various variations of green supply chain strategies. A study byÇankaya and Sezen (2019)also showed that the existence of green supply chain management can help companies to achieve environmental performance. The linkage between these strategic initiatives not only generates performance improvement on environmental aspect, but also produces a significant impact on operational, economic and social aspects (Talapatra et al., 2022).
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This study argues that green human capital readiness and green supply chain management sequentially mediate the relationship between green human capital readiness and business performance. A study byLinet al.(2020)demonstrated that green market orientation has an impact on green relational quality, and green relational quality mediates the effect of green market orientation on green competitive advantage. A study byHabibet al.
(2020)also revealed that market orientation and green supply chain management mediate the effect of green entrepreneurial orientation on sustainable firm performance. Therefore, the implementation of green market orientation strategy and green supply chain management that is based on environmentally friendly human resources will improve businesses, enabling them to achieve exquisite business performance. Based on the previous justifications, the followingfourth hypothesisis proposed:
H4. Green market orientation and green supply chain management sequentially mediate the relationship between green human capital readiness and business performance.
Figure 1depicts the conceptual framework of this study. It is a multiple mediation framework that investigates (1) the main effect of green human capital readiness on business performance, (2) the mediating effect of green market orientation on green human capital readiness-business performance relationship, (3) the mediating effect of green supply chain management on human capital readiness-business performance relationship and (4) the sequential mediating effect of green market orientation and green supply chain management on green human capital readiness-business performance relationship.
3. Research methodology 3.1 Sample and data collection
The research sample was obtained from the database of Department of Cooperatives and SMEs, the East Java Province, which was selected based on the following criteria: (1) must have a clear name and address, (2) must have a clear email address and (3) must have a WhatsApp contact. Based on these criteria, 512 SMEs qualified as the respondents.
The primary data were collected through online surveys. Before the questionnaires were distributed to the respondents, a pilot test was conducted on 35 SMEs in the city of Surabaya.
The results confirmed that the questionnaire items were valid and reliable. Furthermore, as many as 512 questionnaires were sent to respondents in 38 cities in the East Java. Each questionnaire was accompanied by a cover letter explaining the aims and objectives of research and guaranteeing the confidentiality of the respondents’answers. Every two weeks, respondents who had not filled out their questionnaires were reminded. After three months of
Green Human Capital Readiness
Business Performance Green
Market Orientation
Green Supply Chain Management Figure 1. G
Research conceptual framework
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the data collection period, 185 questionnaires were obtained, and 182 questionnaires were ready for further process. Thus, the response rate for the questionnaire was about 36%.
3.2 Research stages
Figure 2presents the stages of conducting this study. It shows the steps from the purpose to conclusions.
3.3 Analysis
This study employs the PLS-SEM to analyze the data and to test the hypotheses studied. The process consists of two stages. The first stage is to conduct the measurement model analysis which assesses the reliability and validity of the research model. According toChin (1998)and Sholihin and Ratmono (2013), to meet the convergent validity, each indicator must have a
Previous studies, research gap, grand theory, phenomena Stage 1: Library Research
1) Green human capital readiness Business performance;
2) Green human capital readiness Green market orientation Business performance;
3) Green human capital readiness Green supply chain management Business performance;
4) Green human capital readiness Green market orientation Green supply chain management Business performance.
Stage 2: Hypotheses Development Purpose: This research aims to examine the effect of green human capital readiness on business performance in the green economy era. As such, this study investigates whether the relationship is mediated by green market orientation and green supply chain management.
Sample and data collection, research stages, analysis, definitions and measurements
Characteristics of respondents, descriptive statistics, measurement model analysis, structural model analysis, common method variance
Discussion of results
Stage 3: Research Methodology
Stage 5: Discussion Stage 4: Research result and analysis
Stage 7:
Conclusions Conclusions, implications, limitations, and future research
Stage 6:
Theoretical and managerial implications Theoretical and managerial implications
Figure 2.
Research stages
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factor loading of above 0.6 and average variance extracted (AVE) must be above 0.5. To pass the reliability test, the Cronbach’s alpha must be above 0.7, although a value between 0.6 and 0.7 is still accepted (Nunnally, 1975;Segars, 1997;Sholihin and Ratmono, 2013). For assessing discriminant validity, the square root of AVE must be greater than the correlation between latent variables (Segars, 1997;Sholihin and Ratmono, 2013). When the model is reliable and valid, the second step is to conduct structural model analysis to test the hypotheses studied.
Knowing the direct effect of green human capital readiness is important as the initial procedure in this analysis. When the result is significant, then the next procedure is to test the mediating role of green market orientation and green supply chain management on green human capital readiness–business performance relationship. This study followsBaron and Kenny (1986) to determine the types of mediating effect, namely partial mediation, full mediation and no mediation.
3.4 Definitions and measurements
Based on a thorough literature review, a questionnaire is developed to examine SMEs’green human capital readiness, green market orientation, green supply chain management and business performance. This study uses a five-point Likert scale to measure the constructs, rating from“(1) strongly disagree”to“(5) strongly agree.”The questionnaire of the current study is presented inappendix.
3.4.1 Green human capital readiness.Green human capital readiness is defined as the readiness of human capital in terms of their skills, knowledge and values so that environmentally friendly business strategies can be more effectively executed. This study adopts three dimensions of human capital readiness suggested byKaplan and Norton (2004), namely skills, knowledge and values. Seven statements have been developed consisting of the following items: (1) knowledge to carry out green operational activities; (2) knowledge to know green customer needs; (3) knowledge to create a good quality of green products at affordable prices; (4) skills to implement green business process; (5) communication skills in receiving suggestions and responding complaints; (6) good understanding on green strategy, politeness and fast response in serving customers; (7) good teamwork attitude to achieve common goals.
3.4.2 Green market orientation.Green market orientation is defined as a strategy focusing on conducting green business processes and fulfilling market demands with environmentally friendly products. As suggested byNarver and Slater (1990), there are three dimensions of market orientation, namely customer orientation, competitor orientation and intra-functional coordination. In order to measure green market orientation, ten statements are developed with the following items: (1) customer satisfaction as a driver to run environmentally friendly business; (2) commitment and orientation to serve environmentally friendly customers; (3) green products information to employees and customers; (4) competitive advantage based on eco-friendly customer-oriented knowledge; (5) customer satisfaction measurement on green products; (6) customer service that operates regularly; (7) investment in green product developments; (8) existence of company’mission to serve green customers; (9) medium for customers to assess the quality of green products; and (10) regular customer satisfaction data updates to all employees.
3.4.3 Green supply chain management.Green supply chain management is defined as an environmentally friendly business processes, starting from raw materials procurement, product design and production to distribution. According toZhuet al.(2013), there are two dimensions of green supply chain management, namely internal chains (eco-design and internal environmental management) and external chains (green purchasing, customer cooperation with environmental concerns and investment recovery). Ten statements are developed to measure green supply chain management with the following items: (1) eco-friendly product designs available for
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reducing material/energy consumption; (2) eco-friendly product designs available for reusable, recycled and recoverable raw materials and supporting components; (3) eco-friendly product designs available to avoid or reduce the use and/or production of hazardous substances; (4) cost efficiency implementation in various materials and components that are not environmentally friendly; (5) reduction of raw materials that are not environmentally friendly; (6) reduction of toxic materials usage; (7) suppliers selection using environmentally friendly criteria; (8) collaboration with green suppliers; (9) implementation of green conditions to raw materials; and (10) supplier development program available to fulfill environmental compliance requirements.
3.4.4 Business performance.Business performance is defined as the final result obtained after executing overall business strategies utilizing all resources owned. Twelve statements are developed to measure business performance as suggested byKaplanet al.(2004). The statements relate to the last three years’performance with the following items: (1) increase in sales; (2) increase in cost efficiency; (3) increase in profit; (4) sell high-quality products at an affordable price; (5) decrease in customer complaint; (6) build good image and reputation; (7) improve production and service quality; (8) gain new customers and retain old customers; (9) improvement in products and services innovation; (10) improvement in employees’skills; (11) improvement in information processing using computers; and (12) improvement in employees’teamwork.
4. Research results and analysis 4.1 Characteristics of respondents
Table 1presents the characteristics of respondents. It reveals that most of the SMEs are in the food and beverage business (49%). Most of them have annual sales less than IDR 300 million (88%). Most of the SMEs have 1 to 4 employees (73%).
4.2 Descriptive statistics
Table 2shows the results of descriptive statistics. Most respondents have chosen“agree”or
“strongly agree”to the statements in the questionnaire. It can be concluded that SMEs have adopted environmentally friendly business strategies, including green human capital readiness, green market orientation and green supply chain management to enhance their business performance.
The normality probability plot shows that the data spread out following a diagonal line.
The Kolmogorov-Smirnov test reveals that the value of Asymptotic significance (2-tailed) of
Variable Category Frequency % of sample
Type of business Food and beverages 90 49
Handicraft 32 18
Fashion 8 4
Batik 24 13
Bag 5 3
Shoes 3 2
Others 20 11
Annual sales ≤IDR300 million 161 88
>IDR300 million–IDR 2.5 billion 14 8
>IDR2.5 billion–IDR50 billion 7 4
Number of employees 1–4 employees 133 73
5–19 employees 42 23
20–99 employees 7 4
Table 1.
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0.762 is greater than 0.5. In conclusion, the data are normally distributed. The Variance Inflation Factor (VIF) values of less than 10 (GHCR53.205; GMO53.252; GSCM52.408) indicate that there is no multicollinearity problem. The Glejser test shows a significance value of more than 0.05 (GHCR50.068; GMO50.095; GSCM50.062) means that there is no heteroscedasticity issue.
4.3 Measurement model analysis
This analysis assesses the convergent validity, internal consistency reliability and discriminant validity. In the first iteration, the factor loading of BP5 (customer complaints tend to decrease) is 0.573, and the factor loading of GSCM6 (use of toxic materials in production) is 0.497. Because those factor loadings are less than 0.6, both indicators are excluded in the next process.Table 3 shows the result after the second iteration. All factor loadings are greater than 0.6, withp-value
<0.001. The construct of GHCR has an AVE value of 0.775, and GMO has an AVE value of 0.651.
With the factor loadings more than 0.6 and the AVE value for each construct greater than 0.5, this study model has passed the convergent validity test. Furthermore,Table 3indicates the values of the composite reliability (CR) and Cronbach’s alpha are greater than 0.7, proving that this study has passed the internal consistency reliability test.
The discriminant validity test is conducted to ensure that the construct does not measure the same thing as other constructs.Table 4shows the result of discriminant validity test. The
Variable Mean Standard Deviation Category
Green human capital readiness (GHCR) 4.157 0.841 Agree
Green market orientation (GMO) 4.287 0.853 Strongly agree
Green supply chain management (GSCM) 4.249 0.868 Strongly agree
Business performance 4.130 0.848 Agree
Construct Factor loading p-value Construct Factor loading p-value
GHCR 1 0.860 <0.001 GMO 1 0.730 <0.001
GHCR 2 0.908 <0.001 GMO 2 0.827 <0.001
GHCR 3 0.861 <0.001 GMO 3 0.815 <0.001
GHCR 4 0.889 <0.001 GMO 4 0.852 <0.001
GHCR 5 0.887 <0.001 GMO 5 0.853 <0.001
GHCR 6 0.877 <0.001 GMO 6 0.636 <0.001
GHCR 7 0.879 <0.001 GMO 7 0.779 <0.001
GMO 8 0.861 <0.001
GMO 9 0.873 <0.001
GMO 10 0.813 <0.001
GSCM 1 0.806 <0.001 BP 1 0.764 <0.001
GSCM 2 0.724 <0.001 BP 2 0.778 <0.001
GSCM 3 0.853 <0.001 BP 3 0.750 <0.001
GSCM 4 0.816 <0.001 BP 4 0.816 <0.001
GSCM 5 0.699 <0.001 BP 6 0.879 <0.001
GSCM 7 0.852 <0.001 BP 7 0.871 <0.001
GSCM 8 0.868 <0.001 BP 8 0.839 <0.001
GSCM 9 0.848 <0.001 BP 9 0.854 <0.001
GSCM 10 0.814 <0.001 BP 10 0.842 <0.001
BP 11 0.711 <0.001
BP 12 0.859 <0.001
Table 2.
Results of descriptive statistics
Table 3.
Measurement model analysis
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square root of AVE of each construct is greater than the correlation between constructs horizontally, proving that this study has also passed the discriminant validity test. Thus, the research model is valid and reliable for further structural model analysis.
4.4 Structural model analysis
Structural model analysis is used to test the hypothesis studied. It consists of two steps in analyzing the mediation role (Baron and Kenny, 1986). The first step is testing the direct effect of GHCR on BP. The result is presented inTable 5(panel A), which shows that GHCR has a positive and significant effect on BP (βcoefficient50.709;p-value < 0.01;R250.502). Thus, thefirst hypothesisstating that green human capital readiness is positively associated with business performance is supported.
The second step is testing the indirect effect by including the mediating variables of GMO and GSCM into the model. The analysis reveals that GHCR has a positive and significant effect on GMO, with theβcoefficient of 0.813 and ap-value < 0.01. The effect of GMO on BP is also positively significant, with theβcoefficient of 0.126 and ap-value <0.05. The result also demonstrates that GHCR has a positive and significant effect on GSCM (βcoefficient50.449;
p-value <0.01). The effect of GSCM on BP is positive and significant (βcoefficient50.179;
p-value < 0.01).Table 5(panel B) presents the result, showing that the direct effect coefficient of GHCR on BP has decreased from 0.709 to 0.474, but it is still significant (p-value < 0.01.
This indicates that there is a partial mediation (Baron and Kenny, 1986). Thus, the second and third hypothesesare supported.
GHCR GMO GSCM BP
Green human capital readiness (GHCR) 0.880 0.799 0.754 0.699
Green market orientation (GMO) 0.799 0.807 0.750 0.633
Green supply chain management (GSCM) 0.754 0.750 0.811 0.616
Business performance (BP) 0.699 0.633 0.616 0.816
Panel A: Direct effect (before mediation) Variable
Path to Business performance (BP)
Green human capital readiness (GHCR) 0.709***
R2 0.502
Panel B: Full model
Variable
Path to Green market
orientation (GMO)
Green supply chain management (GSCM)
Business performance (BP) Green human capital
readiness (GHCR)
0.813*** 0.449* 0.474***
Green market orientation (GMO)
0.388*** 0.126**
Green supply chain management (GSCM)
0.179***
R2 0.661 0.635 0.530
Note(s):***p< 0.01; **p< 0.05
Table 4.
Discriminant validity test
Table 5.
Results of structural model analysis
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Table 6presents the indirect effect for paths with three segments. The result of WARP PLS 7.0 shows that the effect of GHCR on BP after including GMO and GSCM as the mediation variables is significant, withp-value of 0.091 (p-value <0.1). Thus, thefourth hypothesis stating that green market orientation and green supply chain management sequentially mediate the relationship between green human capital readiness and business performance is supported.
4.5 Common method variance (CMV)
Common method variance (CMV) may occur when data collection is carried out through self- assessment by respondents. According toPodsakoffet al.(2003)andAlveset al.(2021), this study uses two control procedures to overcome the possibility of instrument bias, namely: (1) ex anteand (2)ex post. In theex-anteprocedure, the following activities have been done: (1) conducting a pilot test on 35 respondents to ensure the respondents’understanding of the questionnaire items; (2) at the beginning of the questionnaire, there is an introduction part explaining the following information: (a) the respondent’s answer is strictly confidential and anonymous so that the respondent is expected to answer honestly; (b) there is no right or wrong answer regarding of the questionnaire statements. In theex-postprocedure, this study employs the Harman’s single-factor test. If the result of the single factor extracted from Harman’s single-factor test exceeds 50% of the variance of the research variables, then it indicates the existence of CMV (Podsakoff and Organ, 1986). The result shows that the single factor extracted is 23% (GHCR), 27% (GSCM), 31% (GMO) and 31% (BP), indicating that this study does not contain any bias. Based on the results ofex-anteand ex-post procedures, it can be concluded that this study is free from common method variance.
5. Discussion
5.1 Green human capital readiness and business performance
This study proves that green human capital readiness has a direct effect on business performance. As theoretically predicted by RBV, human capital enhances business performance (Jogaratnam, 2018; Khanlarov et al., 2020), and human capital readiness increases the effectiveness of strategy execution (Kaplan and Norton, 2004). Because business activities can potentially damage the environment, companies should cultivate the environmental awareness among their employees. Green human capital readiness becomes one of the strategic resources to increase competitive advantage in the era of green economy.
This result also supports the previous studies byThiagarajanet al.(2017)andBag and Gupta (2020). Therefore, this study provides empirical evidence that the higher the green human capital readiness, the higher the business performance.
In the context of Indonesian SMEs, this study reveals the following insights. First, the SMEs have been aware of environmentally friendly businesses. Second, the SMEs have a good understanding that environmentally friendly employees are crucial for improving their business performance. To develop SMEs, some government agencies, universities and other stakeholders have conducted trainings to the owners/managers of SMEs regarding the roles of entrepreneurship and human capital in the era of green economy. The Bank of Indonesia has a special program to review the readiness of environmentally friendly SMEs in obtaining financing supports (Bank of Indonesia, 2012). Training and mentoring programs in the era of
p-value of indirect effect for paths with three segments GHCR GMO GSCM BP
Business performance 0.091
Table 6.
Result of indirect effect for paths with three segments
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green economy are included in the 2015 strategic plan of the Office of Cooperative and SMEs of East Java. Thus, empirical results confirm that the higher the green human capital readiness, the higher the business performance of the Indonesian SMEs.
5.2 Mediating role of green market orientation on green human capital readiness-business performance relationship
This study demonstrates that green human capital readiness has a positive effect on green market orientation, which supports the previous studies ofVahdatiet al.(2016)andPhamet al.
(2020). Moreover, the result proves that green market orientation has a positive effect on business performance, which supports the previous studies of Amegbe et al. (2017) and Papadaset al.(2019). According toBaron and Kenny (1986), green market orientation partially mediates the effect of green human capital readiness on business performance because the β coefficient is decreased. This partial mediation simply means that there is not only a significant relationship between green market orientation and business performance, but also some direct relationship between green human capital readiness and business performance.
In the context of Indonesian SMEs, the partial mediation of green market orientation might be due to several reasons. First, SMEs are not aggressive enough in their green marketing activities, so they still do not deeply understand what green consumers want.
Second, SMEs are not aggressive enough to meet the increasing environmentally friendly market demand. Third, SMEs do not strongly increase their awareness that green market orientation requires environmentally friendly practices in every line of business (Liet al., 2018). To develop SMEs, the government has encouraged SMEs to implement green market orientation strategy by conducting trainings and workshops. They have developed a green- based economy for SMEs by utilizing the local comparative advantages and mobilizing the community to prioritize the environment protection. The aggressiveness of SMEs becomes the key factor in building a stronger or full mediation role of green market orientation.
5.3 Mediating role of green supply chain management on the relationship between green human capital readiness and business performance
This study reveals that green human capital readiness has a direct effect on business performance. The result supports the previous studies ofAlfalla-Luqueet al.(2015)andHuo et al.(2016). In line withChoi and Hwang (2015)as well asYanget al.(2020), this study also proved that green supply chain management has a significant effect on business performance. Referring to Baron and Kenny (1986), green market orientation partially mediates the effect of green human capital readiness on business performance because the βcoefficient is decreased. It means that there is not only a significant relationship between green supply chain management and business performance, but also some direct relationship between green human capital readiness and business performance.
In the context of Indonesian SMEs, the partial mediation of green supply chain management might be due to the following reasons. First, many external parties, such as suppliers and customers, which play a crucial role in enhancing business performance, are beyond the control of management. Second, not all parties around the value chain have adequate concerns for the environmental issues in East Java. Third, SMEs are not aggressive enough in cultivating green culture to their employees so that they do not have adequate motivation to implement green supply chain management. To develop SMEs, the Bank of Indonesia has provided financing support for SMEs that use environmentally friendly raw materials and energy savings in their production activities. The OCSMEs have also developed a green economic development program to guide SMEs to more aggressively collaborate with green suppliers. The aggressiveness of SMEs is the key factor in building a stronger or full mediation role of green supply chain management.
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5.4 Sequential mediating role of green market orientation and green supply chain on the relationship between green human capital readiness and business performance
Using thep-value of indirect effect for paths with three segments as the output of WarpPLS software, this study confirms that green market orientation and green supply chain management sequentially mediate the relationship between green human capital readiness and business performance. This result supports the study ofLin et al. (2020), stating that green market orientation facilitates employees in developing product innovation and selecting the right supplier in accordance with environmentally friendly goals. Green supply chain management also encourages businesses to use environmentally friendly raw materials, energy consumption, waste production, toxic emissions and actions that are against the environment (Habibet al., 2020;Zhu and Sarkis, 2004). The higher the readiness of green human capital, the more effective the execution of global market orientation strategy, which then it leads to the greater importance of an effective green supply chain management for the success of business performance. In fact, the government of East Java has been aware of the increasing demand for environmentally friendly products. Therefore, the government agencies have conducted trainings and workshops to enhance the competencies of SMEs’employees. This activity is one of government efforts to prepare green human capital readiness, to encourage SMEs to be more aware to manage their business in the green economy era.
6. Theoretical implications
Theoretically, the current study enhances the existing literature on human capital readiness, green market orientation and supply chain management concerning business performance.
First, it provides additional empirical evidence about the positive effect of green human capital readiness on business performance. Second, the current study empirically proves the critical role of green market orientation and supply chain management in mediating green human capital readiness in improving business performance. This finding also strengthens the literature on the crucial role of green market orientation and supply chain management in improving business performance. In particular, it provides empirical evidence on the sequentially partial mediating effect of green market orientation and supply chain management on the relationship between human capital readiness and business performance. Investigations of the mediating effects of green market orientation and supply chain management are rarely investigated and, therefore, contribute to the absence of literature. In summary, these findings also imply that RBV and sustainability theory are relevant to explaining business performance determinants.
7. Managerial implications
The current study has managerial implications. First, it increases the understanding of the owner/manager on the mechanism of how to improve business performance. Second, it implies that in achieving better business performance, owners/managers and other stakeholders such as banks, government agencies, universities and consultants must collaborate in preparing MSMEs to face the challenges of a green economy. They must provide specific green programs regarding training, markets, supply chain, systems and databases, culture and leadership.
Third, it has crucial implications for new policies or approaches to developing MSMEs.
8. Conclusions, limitations and future research 8.1 Conclusion
To address the inconclusive results of previous studies regarding the effect of human capital on business performance, our study proposes green market orientation and green supply
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chain management as the mediating variables. It also employs a construct of green human capital readiness, which has a more specific meaning than merely human capital or green human capital, and it refers to employees who have environmentally friendly behaviors and are ready to execute strategy. This study adopts RBV and sustainability theory as presented in a multiple mediation research framework. Using 182 samples, the PLS-SEM is employed to test the hypotheses. The results have addressed the four main research questions previously stated in the introduction and become the main contributions of this study. First, green human capital readiness affects business performance. Second, green market orientation partially mediates the effect of green human capital readiness on business performance.
Third, green supply chain management partially mediates the effect of green human capital readiness on business performance. Fourth, green market orientation and green supply chain management sequentially mediate the green human capital readiness-business performance relationship. This is the first research of its kind to be conducted in the research setting of Indonesian SMEs. The findings provide empirical evidence for RBV, especially the antecedents of business performance in the era of green economy.
8.2 Limitation and future research
This study has the following limitations. First, the survey was conducted during the COVID-19 pandemic. Some owners/managers of SMEs were reluctant to answer the questionnaires because they were busy in handling their business problems and sustainability. This has a significant impact on the effectiveness of the survey. Second, not all respondents are familiar with online questionnaires, and this affects the response rate of the questionnaires obtained. Third, due to a limited sample size, this study limits its generalization only to East Java. It is recommended for future researchers: (1) to use secondary data to test the same research model; and (2) to test other readiness constructs, such as information capital readiness and organizational capital readiness.
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