The Formulation And Implementation Of Sustainability Strategies In The Cosmetics Industry : A Comparative Multiple Case Study Of MNC’s And SME´s

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The formulation and implementation of

sustainability strategies in the cosmetics

industry:

A comparative multiple case study of MNC’s and

SME´s

BACHELOR THESIS WITHIN: Business Administration NUMBER OF CREDITS: 15 hp

PROGRAMME OF STUDY: IM & SED

AUTHOR: Rebeka Matukevica, Ekaterina Piitulainen & Alina Yassin JÖNKÖPING May 2021

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Acknowledgments

We thank every person who took part in helping and guiding us throughout the way. We want to express our great respect and gratitude to our tutor Gershon Kumeto who put in a considerable effort and invested much time in our work. We appreciate every help and piece of advice given by our tutor. In addition, we want to thank the teachers who supported us with workshop lectures and provided excellent feedback about different aspects of the study. In addition, we want to thank program examiner Anders Melander for the great course structure and instructions which guided us throughout the process. We want to emphasise that the help and support provided by every professor empowered us to complete the research and provide future readers with relevant information. Moreover, we want to thank case companies for allowing us to collect data to complete the study.

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Bachelor Thesis in Business Administration

Title: The formulation and implementation of sustainability

strategies in the cosmetics industry

Authors: Rebeka Matukevica, Ekaterina Piitulainen and Alina Yassin

Tutor: Gershon Kumeto

Date: 2021-05-24

Key terms: sustainability strategies, formulation and implementation of sustainability strategies, cosmetics industry, MNC, SME

Abstract

Background:

Today as awareness about sustainable development increases, more attention is drawn towards sustainability strategies of the companies. However, prior research has not investigated the formulation and implementation of sustainability strategies within companies of different size and scope as existing studies are skewed towards the perspectives of large firms even though SMEs mark up more than 90% of the market.

Purpose:

The main objective of this study is to gain an in-depth understanding of sustainability strategy formulation and implementation within the cosmetics industry from the perspectives of both MNCs and SMEs.

Method:

To fulfil the purpose of the study, exploratory qualitative research is performed, using a multiple-case study design where several cases are selected to develop a more in-depth understanding of the research topic.

Conclusion:

Based on the collected data, it can be concluded that sustainability strategies are initially driven by an environmentally conscious founder who has translated personal beliefs into the organizational culture. Furthermore, the analysis results show the relationship between the driver of sustainability with formulation and implementation mechanisms applied within the company.

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Figures

Figure 1: Sustainability as an integral part of strategy (Bonn and Fisher, 2011) ... 13

Figure 2: Corporate sustainability strategy implementation (Engert & Baumgartner, 2016) .. 14

Figure 3: Primary Data Collection ... 20

Figure 4: Sustainability strategies among companies in cosmetics industry ... 38

Tables

Table 1: Literature review conducted by authors ... 5

Table 2: Profile of the case study companies... 18

Table 3: Interview summary ... 19

Table 4: Summary of Sustainability Strategies of the case study companies ... 32

Appendix

Appendix 1: Interview Guideline... 52

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INTRODUCTION

This section aims to present a general introduction to the topic of this thesis. First, the background to the topic on sustainability strategy formulation and implementation is presented, followed by a description of the research problem and the resulting research questions. Finally, the purpose of this research study is specified.

1.1 BACKGROUND

Sustainability is a broad concept that includes social, economic, and environmental aspects. Hence, every element must be taken into account to act genuinely sustainably (Portney, 2015). Environmental sustainability indicates responsible interaction with the environment that sustains the functioning of ecosystems and the protection of biodiversity by the precautionary principle. It also assesses that the state of the environment should not be degraded to economic and material needs (Basiago, 1998). Furthermore, economic sustainability focuses on long-term and sustainable growth that is not based on indebtedness or over-spending. Sustainable development nurtures national wellbeing, thus is the basis for social sustainability. Therefore, social sustainability engages the stakeholders in promoting well-being and equal conditions from one generation to another (Basiago, 1998).

Moreover, a sustainable company operates on the principles of sustainable development, which are defined according to the 1987 definition of the UN Brundtland Commission: "Meeting the needs of the present generation without compromising the ability of future generations to meet their own needs" (International Institute for Sustainable Development, 2020).

A sustainable future for people has a solid interconnection to a sustainable future for businesses; it is evident that companies that implement sustainability strategies into their operations are more likely to achieve a competitive position in the market. For instance, sustainable companies attract more customers and qualified employees and potential investors (Bonn & Fisher). Therefore, sustainable companies tend to have better credibility, relationships and strong brand awareness (Weidinger, Fischler & Schmidpeter, 2013).

Furthermore, consumers are becoming sustainability-conscious and favour companies that operate sustainably (Nath et al., 2013). Hence, consumption patterns are changing, consumers are more aware and demand more knowledge on the companies' activities. The origin, production methods, and safety of product raw materials are questioned. Thus, with the rise of education and broader access to the internet, the assessment of information is easier than ever before (Sahota, 2014).

Hence, companies need to adapt to meet the changing consumer demands by implementing sustainability strategies. The strategy is an integral part of business operations. Strategy implementation is often complex and is made with uncertainty prevailing (Johnson, Scholes & Whittington, 2005). Thus, success requires strategic decision-making to support the objectives that guide the action. There are several definitions of strategy. Johnson, Scholes & Whittington

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(2005) define strategy as a firm's long-term plan to achieve benefits in a changing operating environment by identifying and purposeful positioning of the company's resources and capabilities. At the same time, the company must consider the expectations of its stakeholders and strive to meet them. Grant (2010) argues that constant change of the operating environment is in its strategy definition. He defines strategy as a way for the company to be aware of the critical objectives while considering the guidelines for action in a rapidly changing world. However, visible results and competitive position in the market can only be achieved by implementing strategies designed for sustainability (Galpin, Whitttington & Bell, 2015). Formulation of sustainability strategies are defined as consideration of environmental, economic, and social aspects into product and processes as a critical element of long-term product innovation strategies and daily practices (Küçüksayraç, 2015).

A multinational company (MNC) is a company that owns production units in several countries, a company that engages in foreign direct investment and has branches in two or more countries (Mayrhofer & Prange, 2015).In addition, MNCs tend to employ local small and medium-sized enterprises with their components, subcontracting and service orders. They are said to help developing countries achieve better production levels (Ferdausy & Rahman, 2009). However, the effects on the working force in the country have often been called into question. With MNCs, capital, experience, knowledge, and technology scurry from one country to another (Sönmez, 2013). The economic influence of MNCs is considerable, they tend to relocate the production facilities according to where costs, such as labour costs and taxation, are lowest. The pursuit of the most favourable production location quickly leads to a situation where governments compete for the favour of companies (Zhao et al., 2014). Some MNCs tend to ignore human rights issues such as working hours, pay, trade unions and occupational safety. The solution to this problem has been the requirement of MNCs to comply with the legislation of each country in which they operate (Colovic et al., 2019).

Different sustainability regulations provide strict operational standards for companies; for instance, the European 2020 Sustainability Strategy aims to create a knowledge and innovation-based economy, encouraging a low-carbon, resource-efficient, competitive economy, and is cultivating social and territorial stability in a high-employment economy (European Commission, 2020). Essentially, organisations are required to ensure that, under pressure from public policy and increasing legal enforcement, they not only sustainably perform business on their own but all their partners - including vendors and sub-suppliers - do so as well (Andrecka & Mitkidis, 2017).

As markets are changing, small and medium-sized enterprises (SMEs) also recognise the need to implement sustainability. SMEs are characterised by having less than 250 employees and a turnover of up to EUR 50 million. (European Commission, 2021). However, SMEs account for more than 90% of all EU enterprises, hence playing a vital role in sustainable development

(OECD, 2019). Therefore the formulation and implementation of sustainability strategies in SMEs warrant as much empirical investigation as MNCs.

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1.2 PROBLEM DISCUSSION

The increasing recognition of the importance of sustainability creates a need for companies to redesign their strategies. However, prior research on the formulation and implementation of sustainability strategies mainly focused on MNCs (Wayland & Cole, 1997). Perhaps this gap in the literature results from the fact that MNCs have a more visible environmental footprint and often are the targets of pressure from consumers and governments (Andrecka & Mitkidis, 2017). However, the authors of this study argue that it is equally important to study sustainability strategy formulation and implementation from the perspective of SMEs as they have a significant market share, and the impact that SMEs have on sustainable development is often underestimated in the literature. Hence, the value of such research is crucial. One approach to bridging this gap in the literature is a comparative study between MNCs and SMEs.

Moreover, research on sustainability strategies is often presented from a global perspective, and there is a lack of research on the cosmetics industry (Bager & Lambin, 2020; Movassaghi & Bramhandkar, 2012). There were no significant studies found that would examine the formulation and implementation of sustainability strategies of cosmetics companies. According to Ridder (2020), the revenue generated by cosmetics companies in the US is around 42 billion US dollars in 2020. According to Sahota (2014), the market for cosmetics is overgrowing. In addition, cosmetics have a substantial environmental impact, generating many emissions from product production and distribution. Equally important is that most of the packaging is not recyclable (Sahota, 2014).

Furthermore, women play a significant part in the consumption of cosmetics. They tend to spend around 300 US dollars monthly (McLintock, 2020). Hence, the authors argue that formulation and implementation of sustainability strategies within the cosmetics industry are crucial to investigate as women are more environmentally concerned and tend to make more sustainable purchasing decisions (Bloodhart & Swim, 2020).

1.3 RESEARCH PURPOSE

The purpose of this study emerges from the above research problem discussion. Based on the identified gap, this study aims to investigate the formulation and implementation of sustainability strategies in a comparative study between MNCs and SMEs in the cosmetics industry. The main objective is to gain an in-depth understanding of sustainability strategy formulation and implementation within the cosmetics industry. Hence the authors aim to conduct exploratory research where qualitative methods of data collection are employed.

1.4 RESEARCH QUESTIONS

To fulfill the above research purpose, the following questions will form the basis of our research:

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Research Question 1:

Why do MNCs and SMEs in the cosmetics industry adopt sustainability strategies?

What sustainability strategies are implemented in MNCs and SMEs in the cosmetics industry?

How do MNCs and SMEs formulate and implement sustainability strategies in the cosmetics industry?

The main focus of this thesis is to investigate the formulation and implementation of sustainability strategies. The purpose of the thesis is exploratory research, denoting that qualitative methods are implemented to collect and analyse present literature along with primary data collected from interviews with cosmetic companies. This thesis will undertake an exploratory qualitative multiple case study and thus aim to determine drivers of sustainability strategies and formulation and implementation of sustainability strategies within the cosmetics companies. Furthermore, the relationship between the size of the company and the scope of sustainability strategy formulation and implementation will be examined through the cross-case analysis of MNCs and SMEs.

1.5 DELIMITATION

This research has three main delimitations. Firstly, the authors will analyse companies within the cosmetics industry. Therefore, findings and primary data collection methods are limited to the cosmetics industry. Secondly, the qualitative method used for this study sets limitations on the research generalisability. Lastly, business perspectives on the formulation and implementation of sustainability strategies are analysed, limiting research and excluding direct data collection of the consumer perspectives.

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FRAME OF REFERENCE

The purpose of this section is to provide an overview of the existing literature about the topic of this thesis. First, the authors present the process of literature selection. Further, the literature review is conducted presenting research done in the field of strategy formulation and implementation. Finally, theoretical frameworks are outlined.

Table 1: Literature review conducted by authors

In order to construct a frame of reference, a systematic approach was used in the process of the literature review. This was done by first defining the scope of the search words, followed by identification of the key literature, and finalised by the review of the literature.

In order to be able to assess the literature, databases such as Primo and Google Scholar were utilised for this research. Furthermore, to ensure that all the relevant articles are included in the review, academic journals that are more relevant to the topic of this study were examined, journals such as Sustainability, Strategic Management Journal, and Business Strategy and the

Environment. Furthermore, to establish a high quality of the study, the focus lies primarily on

academic, peer-reviewed articles.

The search process implied using multiple applicable search terms and various combinations to obtain relevant and essential studies in the research field. Focus lay in getting articles that are relevant in the formulation and implementation of sustainability strategies. For this reason, the search process included the following search terms: Strategy, Sustainability Strategy,

Sustainability Implementation, Sustainability Strategy Implementation, Formulation of

Theoretical area Search words Database (nr books

and articles found)

Selected articles & books

Strategy “What is strategy” Primo (12 912) Google Scholar (19 300)

6 articles

Sustainability Strategy “Sustainability Strategy” Primo (5,383) Google Scholar (25 600) 15 articles Sustainability Implementation “Sustainability

Implementation” Primo (633) Google Scholar (4 240)

7 articles Sustainability Strategy

Implementation

“Sustainability Strategy

Implementation” Primo (43) Google Scholar (307)

5 articles Sustainability Strategy in SMEs “Sustainability Strategy” in SMEs Primo (968) Google Scholar (4 110) 4 articles Formulation of Sustainability Strategies "Sustainable Strategy Formulation" Primo (11) Google Scholar (26) 2 articles Sustainability in the Cosmetics Industry “Sustainability in the Cosmetics Industry” Primo (18) Google Scholar (74) 6 articles Sustainability Strategy in MNCs “Sustainability Strategy” in MNCs Primo (229) Google Scholar (2 920) 5 articles

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Sustainability Strategies, Sustainability Strategy of SMEs, Sustainability Strategy of MNCs, Sustainability in the Cosmetics Industry.

The key literature was selected by evaluating titles, abstracts, and summaries of the articles obtained by the search results. The chosen literature was in-depth analysed and structured systematically to identify relationships, define subtopics, and summarise the significant academic findings within the research field. Ultimately, the frame of reference served as the basis for the data collection and analysis, which helped fulfil the purpose of the research.

2.1 LITERATURE REVIEW

2.1.1 STRATEGY

The word strategy originally comes from the Greek word ‘strategos’, meaning the skill of leading and winning in war (Strategos, 1991). Strategy is crucial for business; strategy outlines policies that have to be followed to achieve goals (Porter, 1980). According to Mintzberg and Quinn (1996), strategy is a pattern of decisions and actions whose resulting behaviour can be identified. Johnson, Whittington and Scholes (2012) define strategy as a direction and scope of an organisation over the long term. They emphasise the importance of strategy to determine the use of resources so that stakeholders' market requirements and needs can be met.

On the other hand, Harvard Business School Professor Michael Porter underlines the combination of organisational resources, skills, and competencies to create a competitive advantage (Stonehouse & Snowdon, 2007). A strategy forms the basis on which the company plans, implements and monitors its strategic activities towards the desired target state. It is a way to anticipate the future and be prepared for different scenarios while maintaining a competitive advantage (Bukhari, 2019).

2.1.2 SUSTAINABILITY STRATEGY

Sustainability has greatly influenced strategy development within companies (Engert & Baumgartner, 2016). Previously companies focused on short-term profit maximisation. However, demand for companies' environmental and social long-term sustainability is increasing (Eccles, Perkins & Serafeim, 2012; Engert & Baumgartner, 2016). Sustainability becomes an essential factor of overall success in the long-term (Galpin, Whitttington & Bell, 2015). Studies show that ‘high sustainability’ companies outperform their competitors. Hence there is a relationship between the sustainability performance of a company and its overall growth (Eccles, Ioannou & Serafeim, 2014; Baumgartner, 2014). More companies consider sustainability a source of competitive advantage and are disposed to making business more sustainable (Lloret, 2016).

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However, to achieve sustainability, it has to be addressed in corporate strategy and included in the strategic decision-making processes (Bonn & Fisher, 2011; Galpin, Whitttington & Bell, 2015). Epstein and Roy (2001) refer to sustainability strategy as one aiming “at balancing the social, environmental and economic needs of both the company and society”. The authors state that successful sustainability strategies have to be viewed over a long-term period for indicators of efficiencies to be studied. Through careful identification of key performance drivers, the process can be improved. Furthermore, Baumgartner (2014) argues that focus should not lie on ´why the company has to be sustainable´ but rather on ´how it can become more sustainable. The challenge is to identify a sustainability strategy that is altered to the individual firm (Engert & Baumgartner, 2016). Furthermore, sustainability has to be embedded into the organisational strategy, extending opportunities that create value for the company (Lloret, 2016).

Sustainability is becoming the strategic imperative of the 21st century. Many companies have declared their strategic commitment to sustainability, yet for these strategies to meet success, they require creating infrastructure that reflects and reinforces these initiatives. Hence, sustainability strategies' formulation and implementation stages are crucial (Galpin, Whitttington & Bell, 2015).

2.1.3 FORMULATION OF SUSTAINABILITY STRATEGY

There is no standardised sustainability strategy applied by any company to bring the desired results (Steger, Salzmann & Inonescu-somers, 2005). Hence, the choice of the sustainability strategy and its careful adjustment to the specific companies circumstances is one of the significant challenges that the company faces (Engert & Baumgartner, 2016).

The theory on strategic management states that a company should perform internal and external analysis to identify objectives while formulating the strategy (Mintzberg & Waters, 1985). However, the formulation of ‘regular’ strategies and sustainability strategies is different as sustainability strategies are driven mainly by external stakeholders rather than current customer demands and the long-term nature of the issue. Thus sustainability strategies are more difficult to form (Egels-Zandén & Rosén, 2015). By understanding the complex issue of sustainability, researchers agree that sustainability is a ´wicked´ problem (Frame, 2008), which identifies that sustainability can have unforeseen, unique consequences. Sustainability strategy seldom is made in a planned manner, and emergent strategy-making has to be taken into account in sustainability strategy formulation (Neugebauer, Figge & Hahn, 2016).

However, companies that distinguish the importance of implementing sustainability into their business activities attempt to bypass the complexity of the process and seek more accessible solutions where sustainability is only an addition to its core strategy rather than fully integrated into one. Companies' sustainability views and the companies’ strategies often contradict one another (Galpin, Whitttington & Bell, 2015). Studies state that for a company's strategy to be sustainable, sustainability has to be fully integrated into the firm's strategy. At the strategy formulation stage, the company has to look at every component of the strategy through the

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sustainability lens (Figge, et al., 2002; Behnam & Rasche, 2009; Galbreath, 2009; Engert & Baumgartner, 2016). Furthermore, Engert & Baumgartner (2016) highlight the importance of companies having a clear definition of sustainability on the stage of sustainability strategy formulation and a vision that integrates sustainability into the company's culture.

While the formulation stage of the sustainability strategy is recognised and analysed by researchers, research lacks practical implementation of these processes (Engert & Baumgartner, 2016). Epstein and Roy (2001) argue the significance of moving from strategy into action, which confirms the need of filling the gap between the formulation and the implementation of sustainability strategies.

2.1.4 IMPLEMENTATION OF SUSTAINABILITY STRATEGY

According to Hrebiniak (2006), implementation of the strategy is a complicated process that plays a crucial role in the overall success of the business strategy. Strategy implementation is about how well-developed plans are turned into actions (Engert & Baumgartner, 2016). According to Jarzabkowski (2005), the strategy includes both firms’ plans and actions, meaning that a formulated strategy should be implemented as regular organizational activity. Managers are facing difficulties during the implementation process due to the lack of practices in handling various obstacles. In addition, problems can happen due to several reasons, such as managers having a lack of knowledge from the practical perspective; the strategy formulation and implementation are two independent strategy-making processes that are mistakenly thought to be connected. The strategy implementation process takes more time than the formulation because it includes various obstacles that can be faced (Hrebiniak, 2006).

Furthermore, understanding sustainability concepts do not mean that companies can easily implement them in the core of the business activities. If a company wants to implement sustainability, it should develop a strategy execution plan to bring the theory into practice (Bonn and Fisher, 2011). Implementing sustainability strategies has become a challenging part of accomplishing (Engert, Baumgartner, 2016). Despite the obstacles that can be faced while implementing the strategy, it is still possible to overcome them by developing the guidelines that will support the process (Hrebiniak, 2006). To successfully implement sustainability strategies into the core of business activities, companies should examine expenses of meeting the requirements over the business’ profitability. Even though organizations should be responsible for the impact which their products or services cause, the cruciality of still earning profit should not be underestimated (Epstein & Roy, 2001).

Although the nature of the sustainability strategy itself differs from business to business, the importance and positive effect of integrating sustainability into strategy and implementing this concept as a day-to-day business activity should be considered by every organization (Radomska, 2015).

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2.1.5 SUSTAINABILITY STRATEGY IN COSMETICS INDUSTRY

During the past decade, the cosmetics industry has shown reasonable growth and is one of the largest industries in the world (Melo et al., 2013). Consumer demand has grown, both in developed and developing countries. However, the cosmetics industry is known for the heavy use of plastics, toxic chemicals, and waste generation. The cosmetics industry’s production cycle has high CO2 emissions and significant energy and water consumption patterns (Fortunati, Martiniello & Morea, 2020).

Due to the significant impact on the environment, the cosmetics industry has been affected by the sustainable approach of business operations, both in environmental and social issues (Fortunati, Martiniello & Morea, 2020). Sustainability impacts the entire cosmetics supply chain (Bom, Ribeiro & Marto, 2020). The need for resource efficiency and demand for sustainable goods as ethical consumerism is rising is pulling the cosmetics industry towards sustainable development (Sahota, 2014; Sharma, 2020). The 21st century has become a turning point for the cosmetics industry, and there is an increased interest in sustainability (Sharma, 2020).

Nowadays, much attention has reserved sustainable innovation within the field. Companies are looking for environmentally friendly solutions to find renewable and biodegradable ingredients that will not harm society or the environment (Sharma, 2020). Moreover, this is influencing at large the overall industry trends. Large enterprises in the field are maintaining the change and are committing to sustainability. It is done by introducing new product lines and redesigning strategies in sustainable terms, which indicates a bright future for the industry and leads to innovative solutions (Sharma, 2020).

2.1.6 SMEs

Small and medium-sized enterprises (SMEs) are usually defined by the number of employees (World Bank, 2011). The workforce ranges between a minimum of 1 to a maximum of 250 employees per organization (Inyang, 2013). According to the World Bank (2011), SMEs can also be defined by the number of maximum sales or loan values. European Commission (2016) divides SMEs based on three categories: an enterprise is an autonomous, a partner, or a linked enterprise. A company will belong to the autonomous category if it is ”completely independent or has one or more minority partnerships”. Meanwhile, partner SMEs are those where minimum holdings with other enterprises start at 25% and are up to 50% (European Commission, 2016). Additionally, the last category defined by EC is linked, which includes SMEs that have at least 50% of other enterprise holdings. However, the definition of SMEs can vary from the country and economy it is operating in, meaning that there is no one global united description that will precisely define SMEs (World Bank, 2011). According to European Commission (2016), SMEs create most of the job market where 9 out of 10 enterprises are micro, small, and medium-sized. Consequently, the importance of encouraging the operation of SMEs in different countries and assisting them with the correct governmental practices becomes crucial in improving an economic context (Issa, Lucke & Bauernhansl, 2017).

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2.1.7 SUSTAINABILITY STRATEGY IN SME

According to European Commission (2012), SMEs produce around 70% of all industrial pollution made by different companies in Europe. Since the global needs are changing, SMEs should adapt their strategies to meet the requirements (Shields, & Shelleman, 2015). According to Brammer, Hoejmosr, and Marchant (2012), SMEs are trying to implement sustainability strategies alongside large enterprises revising their strategies and adapting sustainability concepts in primary operations. Consequently, SMEs’ sustainability strategies create competitiveness in the market (Shields & Shelleman, 2015). Those strategies bring many advantages that SMEs receive, such as being highly competitive, encouraging large enterprises to consider small companies as sustainable investments, and being efficient in their operations (Fiksel, 2006).

Moreover, by being a sustainable SME, a company gains the privilege of catching up with a rapidly changing market environment and attracting future potential customers who are not yet a part of the current market (Ács, 1999). According to European Commission (2007), SMEs tend to shift towards more sustainable ways to produce and sell goods, meaning that most investments go to social and environmental capital and human resource management. Based on the research done by Moore and Manring (2009), implementing sustainability strategies in SMEs is represented by the ability to maintain the dynamic balance between creating value for the society and future generation while at the same time remaining profitable.

However, SMEs face some challenges while implementing sustainability strategies (Shields & Shelleman, 2015). For instance, lack of financial and human resources makes implementing sustainability strategy complicated for SMEs (Nicholas, Ledwin, & Perks, 2011). The lack of knowledge and experience within sustainable practices that SMEs face leads to difficulties in implementing sustainability into real-life operations (Becherer & Helms, 2014). Moreover, approaches used to guide large companies during sustainability implementation might not be applicable for smaller companies (Shields & Shelleman, 2015). Although SMEs are trying to implement sustainability strategies, the lack of research on how practically those strategies can be implemented in SMEs makes the process challenging (Chowdhury & Shumon, 2020). Additionally, the gap in the literature regarding SMEs and the implementation of sustainability strategies in the core of their business activities is identified (Lawrence, 2006).

2.1.8 MNCs

The development of a domestic manufacturing company into a multinational company (MNC) usually includes three stages: export, foreign production, and global phase. Usually, a company starts internationalization with direct or indirect exports. Once exports have started well, and the market potential has been identified, the company usually sets up an independent export unit. Next step is to create an entire export department that is as large as a domestic sales department. Next, the company will set up sales units and if possible product assembly

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operations abroad. This export phase ends when the company decides to enter foreign markets through its production unit (Root, 1978). According to Buckley and Casson (2009), an MNC has operations in two or more countries. They also argue that MNCs are often focused on high-skilled industries characterized by high product development, marketing investments and a skilled workforce (Buckley & Casson, 2009). These features are not surprising in the sense that Stephen Hymer already wrote in the 1960s that MNCs should hold some sort of possession competitive advantage over local companies, especially when it sets up production units abroad to offset the initial situation (Welch, Benito & Petersen 2007).

According to Hood and Young (1979), the company has to make foreign trade multinational. However, the company must have operations in more than one country to qualify as an MNC. Thus, the amount of foreign direct investments determine MNC. MNC is, therefore, a company that owns and controls in whole or in part its foreign direct investments in more than one country. At the same time, the company is connected to international production by financing direct foreign investments across national borders (Hood & Young, 1979).

2.1.9 SUSTAINABILITY STRATEGY in MNCs

MNCs play a significant role in sustainable development. The decisions of MNCs, governments and municipalities regarding sustainable development have a substantial impact on the environment. Forsgren (2013) argues that international companies have many adverse effects on the environment, human rights, and the workforce and its well-being. However, some people see the impact of MNCs on society as positive, such as an essential creator of change, a significant driver of globalization, a creator of economic growth and national well-being (Forsgren 2013).

According to Duran and Bajo (2014), in the case of MNCs, the main limitation to sustainability strategy formulation is the legal rules, a different set of values, and economic structures of the host countries. Some countries have more established institutions than others and thus have a better basis for sustainability strategy formulation and implementation. MNCs frequently adjust global sustainability strategies based on standardized sustainability practices across all countries in which the company operates. This strategy enables the company to achieve the cost advantage due to economies of scale since there is no need to modify the strategy for different countries separately. In contrast, a multidomestic sustainability strategy is focused on adapting the activities to the local environment of the host countries while allowing subsidiaries autonomy to establish their sustainability strategies (Duran & Bajo, 2014).

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2.2 THEORETICAL FRAMEWORK

To understand the drivers of sustainability strategies within the companies, the authors applied the institutional theory (Scott & Mayer, 1984) when analysing the data. According to Martínez-Ferrero and García-Sánchez (2017), the social environment significantly impacts the companies' motivation concerning sustainability practices undertaken and reported by companies. The theory has also been extended to the neo-institutional approach, which provides a framework for isomorphism analysis in organisational behaviour by recognising ignored elements such as cultural values, arguing that cultural support for an organisation is highly correlated with legitimacy. The legitimacy can be enhanced via three isomorphic institutional forces such as law (coercive), moral compliance (normative) and the industry-related accepted behaviour pattern (mimetic).

According to Martínez-Ferrero and García-Sánchez (2017), the legal system, the stage of cultural development and the level of industry’s concerns about sustainability aspects impact the companies’ voluntary assurance in their sustainability reports. Voluntary assurance provides arguments for the credibility of sustainability reports to gain a greater audience and social confidence in the information provided. Martínez-Ferrero and García-Sánchez (2017) show that the greater demand from stakeholders, the more likely management of the companies will tend to include an assurance process to legitimise the sustainability report and meet the requirements of the external environment. Implying that companies with similar institutional structures will adopt homogenous behaviour patterns in their sustainability strategies.

Neo-institutional theory and its implication in the Martínez-Ferrero and García-Sánchez’s (2017) study are essential for this study: it allows the authors to consider the external factors that guide the companies towards operating more sustainably. The legal and cultural contexts are setting the requirements for sustainable operations. Meaning that, in this study, the authors shall keep in mind that understanding sustainability differs depending on the culture.

Mintzberg’s (1973) three modes theory is used by the authors of the thesis when exploring the approaches adopted by SMEs when formulating sustainability strategies. According to Mintzberg (1973), the strategy-making process can be divided into three modes: entrepreneurial, where an individual decision-maker makes bold decisions; adaptive, where a group of decision-makers responds to the pressure of the environment by adopting minor changes to the strategy; and planning, where analysts incorporate strategic decisions into structured strategies. Entrepreneurial mode is characterised by bold, reckless behaviours prevalent in emerging businesses or new markets. The aggressive scanning for new opportunities is central to the entrepreneurial mode strategy. Opportunities determine strategy, whereas challenges are secondary and often neglected. Adaptive mode often shares power between divisional managers and other stakeholders in the organisation. These organisations lack clear goals, and stakeholder feedback is always crucial to decision-making, and the focus is on short-term strategies. The planning mode of strategy growth is mostly seen in mature organisations. The long-term strategy of an organisation is described using complex analysis

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accompanied by formalised decision-making. The developed strategy is constantly reviewed and changed if needed.

To analyse the implementation of sustainability strategies, the authors utilised a framework by Bonn and Fisher (2011). The framework that can help managers integrate sustainability into the strategy. The framework suggests addressing the different aspects of sustainability at the organisation's strategic level, both during the strategic decision-making process and as part of the strategy content at the corporate, business, and functional levels. Emphasis is placed on integrating economic, environmental, and social factors into strategy and the continuous consideration of these factors in all business activities.

Figure 1: Sustainability as an integral part of strategy (Bonn and Fisher, 2011)

According to the framework (Bonn and Fisher,2011) (Figure 1), an enterprise´s vision consists of shared sustainability values that forms a basis for the design of sustainability strategies and their implementation. A defined concept creates a tool for making strategic decisions concerning sustainability, including economic, environmental and social considerations in all decision-making processes. With sustainability as a core value, the strategy must include activities in an organization's corporate portfolio that address the global sustainability issues so that the corporate portfolio balances the economic, environmental, and social goals of the organization. On a business level, different business units must be aligned with the organization's sustainability strategies. This implies that sustainability strategy sets guidelines for the products and services that can be offered to the market. Furthermore, existing products and services must be modified according to the sustainability guidelines or removed from the product line. On a functional level, sustainability strategy should guide managers within finance, human resource and marketing activities. Eventually, organizational culture is formed based on the vision and sustainable strategy supported by the norms, values and beliefs of the organization and its people. And as a result, the behaviour of managers and employees will

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reflect these norms and values. The goal of the framework would be for the organization to guide these sustainability principles inside and outside of the organization and promote sustainable behaviour in economic, social and environmental contexts.

A similar study was performed by Engert and Baumgartner (2016) (Figure 2) that identified the core success factor for sustainability implementation into strategy. Organizational structure and culture together with leadership, management control, communication, employee motivation and qualification form a basis for sustainability assessment of the strategy and guide towards efficient sustainability implementation into strategy. The framework aims to raise managers' awareness when designing the implementation of the sustainability strategy and help reduce the overall difficulty of this multi-dimensional task.

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METHODOLOGY

This section presents the methodological approach that was obtained to gather empirical data. First, the research philosophy is explained. Then a research approach is presented, followed by a case study design explanation. Further, the data collection and analysis are presented. Lastly, discussing research quality and ethical considerations.

3.1 RESEARCH PHILOSOPHY

Philosophical research paradigms lay in the foundation for research and outline the researchers' perceptions and beliefs that guide the design, collection, and analysis of data. There is a broad spectrum of philosophical views adopted by researchers. These are frequently expressed in the literature as philosophical paradigms between positivism on the one end of the spectrum and interpretivism on the other end.

Positivism is the philosophical perspective often adopted in experiments, quantitative research, and empiricism, all of which look at knowledge objectively and aim towards non-biased results. In the positivism paradigm, the researcher believes in proven facts and that social reality is objective (Ryan, 2018). In contrast, interpretivism is occasionally called anti-positivism. Interpretivist believe that knowledge is subjective and can be influenced by culture, historical background, experience, and personal understanding. The interpretivism paradigm suggests that the researcher has influence when data is collected, interpreted, and analysed.

For this study, the interpretivist research paradigm is adopted as the case study implies investigation of individual company's perception of sustainability strategies and their journey towards sustainable development. As the authors will explore drivers and motives of formulation and implementation of sustainability strategies in the cosmetics industry, this exploration is somewhat subjective, as several companies will be analysed and compared to fulfil the research purpose; hence there is no single truth. Consequently, the interpretivist research paradigm is the more appropriate choice.

3.2 RESEARCH APPROACH

To proceed with further data collection, qualitative or quantitative methods should be chosen. A quantitative approach is used when authors of a study are aiming to collect data based on the distribution of variables meaning that the main focus is on how many variables exist based on the specific characteristic, at the same time, the conclusion is based on the numerical data collected through the process (Smeyers, 2008). However, numerical data and exact numbers are not always relevant for a particular study and are hard to identify. As a result, a qualitative research approach is used for some types of studies. Using a qualitative approach, the authors of a study tend to use interviews, work documentations and other non-numerical methods for gathering in-depth data. Both qualitative and quantitative methods are equally reliable and valuable for conducting a research study. In addition, those approaches are used to find a solution to a problem and answer questions in society (Taylor, 2005). The qualitative research

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approach is more appropriate in this study to answer research questions stated in chapter 1, which deal with qualitative issues regarding sustainability strategy formulation and implementation.

Furthermore, an inductive, deductive or abductive approach should be chosen. Woiceshyn and Daellenbach (2018) stated that the deductive approach is characterised by “moving from the general to the particular” and aims at testing an existing theory. Meanwhile, the inductive approach is about “moving from the particular to the general” and aims at developing a theory. The abductive approach is utilised when authors strive to analyse a particular observation and find a credible explanation (Aliseda, 2007).

The reasoning used in this study is abductive as authors start by analysing data through the lens of existing theories. Furthermore, patterns in the observations and relationships between change in conditions are identified. Hence the authors theorise the investigated phenomenon. Lastly, the purpose of the study can be explorative, descriptive or explanatory. Exploratory research is characterised by the intention to find and analyse new insights in a particular observation. The explanatory type of research analyses various variables and their relationships (Easterby-Smith & Thorpe & Jackson, 2015). Descriptive research mainly focuses on existing theories, hypotheses or situations (Ghauri & Grønhaug, 2002). The research purpose of the given study is exploratory because the aim is to gather insights from particular companies in the cosmetics industry to analyse the formulation and implementation of sustainability strategies.

3.3 CASE STUDY DESIGN

A case study is a research strategy in which the purpose is to study in-depth one or a few objects or a set of phenomena. A case study is a crucial data acquisition strategy for studies based on qualitative research methods (Hyett, Kenny & Dickson-Swift, 2014). A case study is loosely defined and can be implemented using various analytical data collection methods and combining different materials. These different data collection methods can be interviews, questionnaires, and observations (Eisenhardt 1989).

According to Eisenhardt & Graebner (2007), multiple case studies provide a more comprehensive understanding of theoretical evolution and research questions. Moreover, a case study often creates a more compelling hypothesis when the suggestions are more intensely grounded in further empirical evidence.

Thus, the authors of this thesis have chosen multiple case study designs to obtain high-quality material from which results can be drawn. Furthermore, the multiple case design will help the authors study the phenomenon within the real-life context, hence offering the broader discovery of theoretical evolution and research questions. The main goal is to understand the sustainability strategies in the cosmetics industry utilised by MNCs and SMEs. Hence a comparative multiple case study is conducted.

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3.3.1 CASE SELECTION

The purposive sampling technique is utilised in this study, meaning that samples are chosen based on researchers’ preferences based on the purpose of the study (Tongco, 2007). The authors use the purposive sampling method to identify and select cases related to the phenomenon of interest. Using purposive sampling, the authors could choose a subset of interest that best contributed to the study. The cases used in the research correspond to the authors’ judgments and preferences, meaning that results are limited to the sample categories and cannot be generalised for the whole industry (Bornstein, Jager, & Putnick, 2013).

Cases were selected based on the five criteria. The first criterion is the industry in which the company is operating. Since the study only focuses on the cosmetics industry, companies sustainably operating in other industries were not included in the research. The second criterion is the presence of sustainability strategies within the business. To select companies in the cosmetics industry that operate sustainably, the authors studied the companies' websites and published data on the Internet. By the presence of sustainability strategies, the sample was selected. The third criterion is the market where companies are operating. This criterion had two subsets, as the study aims at comparing MNCs and SMEs. The authors first selected companies that are operating internationally. Further, companies operating locally within developed countries were selected. The fourth criterion is the size of companies. Since this research study focuses on comparing MNCs and SMEs, the authors selected companies' correspondence to be defined as MNC and SME. The last criterion is the language which is further considered a limitation. The authors of the study are using English as the only language to collect data. Due to this reason, companies were selected based on the ability to provide information in English.

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3.3.2 PROFILE OF THE CASE STUDY COMPANIES

A summary of the selected cases is presented in Table 2. Table 2: Profile of the case study companies

3.4 DATA COLLECTION

To achieve sound results, both primary and secondary data was used. Saunders (2012) has stated that various data collection methods improve the data quality and lead to more reliable results. Moreover, primary data is gathered and arranged for the purpose of the study. Meanwhile, secondary data is collected based on the information collected from publicly available sources, such as websites, social media accounts, and mass media publications (Saunders, 2009).

3.4.1 PRIMARY DATA COLLECTION: INTERVIEWS

The interview is a commonly used data collection method in a qualitative study (Gill et al., 2008). It is a purposeful discussion between people. Many factors can support its use: during the interview, direct interaction with the interviewee allows the interviewer to gather the information directly and highlight the underlying response motives. In a face-to-face interview, the interviewer is able to interpret the non-linguistic messages of the respondent. The interviewer can clarify the answers and deepen his knowledge by asking additional questions or asking for reasons and motives for the interviewee's opinions (Gill et al., 2008).

The authors of this study conducted semi-structured interviews with respondents from the selected companies to gather primary data. Semi-structured interviews were conducted to allow

COMPANY NAME ORIGIN SIZE (nr of

employees) YEAR FOUNDED MARKET CASE A UK 14 000 employees 1995 Global CASE B UK 10 000 employees 1976 Global CASE C

US 2 employees 2019 US, Canada,

Australia, Denmark, UK CASE D UK Family owned and operated 2020 UK

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a discussion rather than straightforward question and answer format (Creswell, 2013). Due to Covid-19 pandemic restrictions, face-to-face meetings were unfeasible to arrange. Hence, primary data was collected through Google Meet/Whatsapp and sending follow-up questions by email to interviewees from the selected companies. Interviews and further communication were held with employees who have the position that tackles sustainability processes within organizations. Table 3 shows the summary of the primary data collection process.

Table 3: Interview summary

The conducted interviews were guided by the questions that authors have prepared in advance (Appendix 1), meaning that the conducted interviews were a semi-structured thematic interview (Harrell & Bradley, 2009). However, questions asked during the interview were adapted to the company's size and operation range to gain valuable insights on the topic of interest. The thematic interview is targeted to specific themes to be discussed. In this study, the themes are formulation and implementation of sustainability strategies within the company and across the industry.

Invitations for an interview were sent between January 11 and February 13, 2021. If no response to the invitation was received within a week, a reminder message was sent. A maximum of two emails were sent to the interviewees, one was a reminder message. A total of 50 companies were contacted, 18 companies declined, 24 companies did not respond, and eight interviews were confirmed. However, three companies rejected the interview at the last minute due to different reasons within the company.

Case companies Interviewee Interview

Date Mode of interaction Duration

Data confirmation with respondent

CASE 1 The Head of

sustainability team

2021/03/15 Video interview (Google Meet)

50 min 2021/05/10

CASE 2: The Head of Brand and Activism

2021/04/12 Telephone interview 25 min 2021/05/10

CASE 3: The Managing Director

2021/03/23 Answered questions via email

2021/05/10

CASE 4: The Founder 2021/04/22 Answered questions via email / Telephone interview (through Whatsapp)

15 min 2021/05/10

CASE 5: The Founder 2021/04/23 Answered questions via email / Telephone interview (through Whatsapp)

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Figure 3: Primary Data Collection

The authors successfully conducted interviews with 5 companies. After the data collection, the authors maintained communication with the interviewees to gather additional data during the analysis stage. After the analysis was performed, data was confirmed with respondents, and permission for publishing the analysis was asked.

After collecting data from 5 interviews, the researchers concluded that additional interviews would not add any new valuable insight to the information obtained from the already conducted interviews. This phenomenon is called the point of data saturation, meaning the stage of the data collection, where the collection of extra data adds nothing new to the understanding of the research topic (Guest, Bunce, & Johnson, 2006).

3.4.2 SECONDARY DATA COLLECTION

Secondary data helps collect more information about the research field and increase the data quality and help avoid researchers bias. At the same time, data gathered through secondary sources show different perspectives regarding the topic and provide detailed background about the field of the study. Additionally, it is essential to identify the relevant information which should be used in the research. (Church, 2002).

To gather additional data about case companies, the companies’ websites were researched. Furthermore, the companies' social media accounts were examined, collecting data that would help analyse and gain more detailed data on sustainability strategies of the case companies. In addition, mass media sources and publicly available news platforms were investigated to gain secondary data.

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3.5 DATA ANALYSIS

The authors used the 'RADaR' technique (Watkins, 2017) because it helps to manage large amounts of qualitative information into the systematically analysed and structured data. The first step was to design all of the data transcripts in the same way for more accessible data screening. So the transcripts of the recorded interview material were created. In the second step, transcripts were placed in one document, making it easier to analyse the responses and see them in the whole context. This way, the unnecessary data can be easily visible and then removed. The third step involved gathering the remaining data and screen it again to find focused themes and concentrate on them. The transcripts were printed and each interview was read through and important themes were marked with coloured pencils and highlighters. Each colour code was marked up to make it easier to see directly in what context the themes are popping up. Next, the authors browsed through the interviews for each question at a time and opened the answers in an Excel spreadsheet. The themes that arose were also written down in the created Excel table and other important points from the interviews. After making Excel, the result was a precise analysis of the study and the necessary information for conclusions.

To analyse the collected data, the authors decided to utilise within-case and cross-case analysis. Withcase analysis allows researchers to investigate each case separately with the help of in-depth gathered data (Byrne and Ragin, 2009). In addition, within-case analysis is used to examine cases according to their complexity and individual characteristics that cause a different outcome of each case analysis. However, the within-case analysis does not give an exact answer to the purpose of the research.Consequently, authors seeking a straightforward output of qualitative research use cross-case analysis which strengths the results found during investigation (Byrne and Ragin, 2009). Cross-case analysis helps authors bring meaningful outputs and results from gathered data with the help of comparing cases with each other (Khan and Wynsberghe, 2008). The comparison is based on the information found within-case analysis, meaning that cross-case analysis gives a general assumption about cases based on the characteristics found earlier (Khan and Wynsberghe, 2008). The authors of this study firstly utilised within-case analysis that helps to scrutinise each case. Secondly, the authors did cross-case analysis to find similarities and differences between cross-cases.

3.6 RESEARCH QUALITY

Qualitative research focuses on depth and aims to understand behaviour, opinions and motivations (Renz, Carrington, and Badger, 2018). This kind of data can not be mathematically proven or quantified, so there is a need to discuss and justify the quality of findings— furthermore, a need for methods that would allow qualitative research to be trustworthy. Criteria to assess the trustworthiness of the qualitative study were addressed by Lincoln and Guba (1985), which are credibility, dependability, confirmability, and transferability.

Crucial aspect of assess the trustworthiness of the qualitative research is credibility (Connelly, 2016; Shenton, 2004; Renz, Carrington, and Badger, 2018), where the researcher can link the

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study's findings with reality and can justify why the research findings are accurate and what makes the study accountable. To ensure credibility in the thesis authors used triangulation. Triangulation aims at strengthening qualitative research by using multiple approaches (Collis and Hussey, 2014). Data was gathered from different sources and data was collected from both primary and secondary sources. Furthermore, in this research, investigator triangulation was applied, as a team of three authors was making coding, analysis, and interpretation decisions. That way, the credibility issues of the study were addressed (Shenton, 2004) as qualitative research conducted by using triangulation tools ensures the quality of research findings. Another criteria addressed in this thesis was transferability which identifies the degree to which the results of qualitative research can be transferred to other contexts or settings with other respondents. In this thesis, the authors in section 1 Introduction and section 3 Methodology made a thorough description of the research contexts and assumptions central to the research making it possible to 'transfer' the results to a different context.

Furthermore, dependability includes the aspect of consistency and establishes that the findings of the research are repeatable and confirmability examines the neutrality of the study and concerns the interpretation of findings. Researchers have to make sure that findings are not biased at this stage, as findings have to be grounded in the collected data rather than researchers personal viewpoints (Lincoln and Guba, 1985). To ensure dependability and confirmability of the findings, the authors are thoroughly describing the data collection and analysis process and providing the raw data collected as all of the primary data collected through interviews have been recorded and stored on the software supplied by Jönköping University. The researchers also discussed and received feedback from their thesis supervisor and colleagues to construct the interview guide to ensure that it is an effective instrument for collecting relevant and valid data for this study.

3.7 ETHICAL CONSIDERATIONS

Ethics is an essential part of the research. Hence, the research was carried out in full compliance with good research ethics. It has been declared that none of the participants has imposed any risk of physical or psychological harm during the process. Before the data collection, participants were informed about the background and the purpose of the study. Each participant was informed about the further use of data shared and acquainted that they have the right without giving any reason to conclude the interview at any point of data collection. Participation in the study was voluntary and did not imply any monetary or other rewarding. All of the interviews were arranged in advance and held in a private setting. The reserved information was handled with confidentiality and not used outside of the research setting.

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DATA PRESENTATION

In this section, empirical data for the five cases is presented. Every case is described in a separate subsection. It has a short introduction of the company, including background information of their sustainability practices and a summary of the data collected through interviews. In this subsection, the authors present information gained from interviews on the formulation and implementation of sustainability strategies within each case. Summary of Sustainability Strategies of the case study companies is presented in table 4.

4.1 CASE A

Case A is UK-based cosmetics company operating since 1994 and has expanded into a global chain company. Currently, the company has more than 930 stores in 49 countries. Company mainly sells cosmetics for consumer use, but in the UK and US has also beauty salon services. Products are handmade at their factory in England from fresh raw materials by hand. The products use little or no packaging, preservatives, nor synthetic raw materials. Company manufactures its products solid whenever possible to reduce packaging materials.

Moreover, all products are vegetarian, with a large range of vegan products, and 65% are naked (i.e. packaging-free). Used raw materials are only purchased from companies that do not carry out animal experiments. The company’s product range includes traditional bar soaps, shower gels, shampoo and hair conditioners, bath bombs, face and body creams, and face masks. Moreover, from the beginning, the company had sustainability at the core of its brand. The company has emphasized the importance of animal rights and produced products without packaging to minimize waste.

4.1.1 DRIVERS OF SUSTAINABILITY STRATEGIES

“Why would you want to destroy the planet with your business?”, says the head of the sustainability team, by explaining that motivates and drives all of the sustainability-related strategies introduced. As presented in Table 4, the company has an understanding of the effects it has on society and environment hence undertaken actions are evaluated to be inline with the overall vision of the company. Furthermore, the company notices the engagement of the young audience in the sustainability issues and sees support from them. Hence benefits from applying and communicating the sustainability strategies are seen. However, the initial driver for the sustainability strategies is internal, brought in by the company CEO. Thus, company proceeds to share the sustainability values throughout the years and focuses on hiring like-minded people. As the importance of making stakeholders proud is in the core of the company. The company creates an open space for sustainability implementation, allowing employees to share their values and concerns, to be heard, and have an impact. Hence, employees are also affecting sustainability implementation within the company. By engaging people and making campaigns that raise awareness about environmental and social challenges brings attention to important issues and attract like-minded people, who concecuantually become the driver of sustainability within the company. Furthermore, customers also find the sustainability values of the company

The Formulation And Implementation Of Sustainability Strategies In The Cosmetics Industry : A Comparative Multiple Case Study Of MNC’s And SME´s