Factors Affecting Environmental Strategy in SME Manufacturing Firms of a Developing Country: Mediating Role of Green Employee Behavior

Theoretical foundation

According to the RBV, the resource-based view recommends that a company's performance and effectiveness stem from its unique resources and abilities (Dionysus & Arifin, 2020). By this study, RBV is appropriate to explain that reducing natural resource use and making processes and products greener (independent variables) can help develop a sustainable competitive advantage through environmental strategy among (dependent variable), through environmental behaviour of employees acting as a mediating variable. It is circulated that RBV resources are subdivided into tangible and intangible resources according to the viewpoint of the resources-based view theory. This means that in this given case, the reduction of resource use would entail shrinking resource use by the factor of the primary tangible resources comprising energy, water, and raw materials. Development and implementation of eco-friendly technologies and procedures during all the other activities of the concern, which are featured as non-material assets of a company.

From the viewpoint of the RBV, eco-friendly firms have a golden chance to capture a more significant market share by using their resources in a manner that would communicate their green efforts both internally and to the outside world, leading to various benefits like reputation, efficiency, and satisfaction of the customers’ demand for sustainable goods and services. Those factors can be a basis for customer centricity, cost efficiency and financial success. While the RBV insists that it implies more than just being a rich brand, it should be a rich brand where the resources are managed well and leveraged. Mediation plays a role in green employee actions here. The organization-friendly behaviour of green individuals implies that employees’ internal personal activities and attitudes will be positively connected to the company’s environmental sustainability initiatives (Yang & Liu, 2022). This behaviour can include saving energy, decreasing waste, and becoming proactive in activities that promote sustainability.

Hypothesis development

Reduction of resource use

Organizations could secure resources by saving them. As a result, companies will be able to apply their resources most efficiently (Shkarlet et al., 2020). Such contribution will ensure emissions decline, reduced waste generation, and reduced pollution rates, all prerequisites for excellent environmental performance. Most reduction strategies in the resource field have places where the company wages are decreased (Azizi et al., 2021; Bilal et al., 2024). For instance, installing energy-saving devices results in lower energy expenses, using waste-preventive measures reduces dumping expenses, and saving aluminum leads to input savings. Organizations that reduce their resource consumption simultaneously minimize their operational expenses and develop superior resource efficiency capabilities for today’s environmentally sensitive marketplace. The operation’s efficiency improves when resources diminish because waste minimization and emission reduction put the firm in a leadership role regarding sustainability. According to the RBV, strategic resource management contributes to regulatory compliance while building the firm’s environmental standing to draw concerned customers and stakeholders. Through these capital savings, the solidification of the business case for resource management is strengthened alongside environmental management improvement (Afum et al., 2021; Sohu et al., 2024; Kherazi et al., 2024). These efforts can be the impetus for innovative technologies, new styles of work, and resource-efficient products. This benefit is that businesses can distinguish themselves from their competitors by being an environmentally conscious company that meets the evolving market needs for green products and services and positions itself as an esteemed environmental steward (Kumari, 2024; Akhtar et al., 2023). Thus, the following alternative hypothesis is suggested.

Greening of processes and products

There is a name known as eco-efficiency, which is the capacity that organizations have to provide goods and business processes that meet customer needs but generate a small amount of environmental impact (Güngör et al., 2023; Hongyun et al., 2023). Furthermore, it highlights the alignment of environmental appraisal to the planning of production, design, and supply to balance sustainable economic development and environmental protection. A phase of reducing hazardous substances or pollutants always accompanies the phase where processes and products are greened. In addition to this, businesses can achieve this by applying cleaner production techniques, replacing harmful materials with safer alternatives, and adding pollution prevention techniques to minimize their impact on air, water, and soil quality (de Mello Santos et al., 2022; Sohu, Hongyun, et al., 2020; Sohu et al., 2019). It originates from the Resource-Based View (RBV), which postulates organizational competitive advantages resulting from the proper use of internal resources. Firms gain two notable benefits through greener processes and products: They establish sustainable practices and workplaces where employees become more active in ecological actions. Employees will adopt sustainable practices in their organization because they become part of the company identity, which leads them to align their behaviors. The unified approach between the strategic mission and firm goals automatically creates an environmentally responsible culture, boosting results for sustainability initiatives.

As a result, companies will benefit from improved environmental performance. Eco-designing goods means creating products with some green characteristics and making them efficient in their energy consumption, recycling, or overall environmental footprint. The hypothesis is compatible with the RBV because innovative practices are critical strategic elements for creating robust environmental results. By adding sustainable processing systems and green product design, an organization can reach its resource optimization goals and decrease ecological footprints. Such innovations deliver operational improvements and positively affect the firm’s reputation and market standing. RBV indicates that organizations strengthen environmental performance. By providing eco-friendly alternatives to the market, corporations can cater to consumers' demand for environmentally friendly goods, build their sustainable brand reputations, and contribute to attaining optimum environmental performance (Reddy et al., 2023; Mirani et al., 2021; Dakhan et al., 2021). Thus, the following alternative hypothesis is suggested.

Mediating role green employee behavior

The Social Cognitive Theory states that these are not the only ones that affect an individual's behaviour, but also personal factors, environment and cognitions (Schunk & DiBenedetto, 2020; Sohu et al., 2022). Thus, according to the green self-crafting theory, employees' attitude, beliefs, and confidence in environmental sustainability issues might influence their organisational behaviour. The environmental performance of organizations depends heavily on green employee behavior, which acts as a key linking factor between resource reduction strategies. Through their active commitment to eco-friendly actions such as waste minimization, energy conservation, and sustainable initiative promotion, employees boost the effectiveness of resource reduction strategies already adopted by their organization. Proactive employee practices strengthen the effect of resource reduction efforts and create sustainable workplace cultures. Employees’ understanding of their significant role in environmental protection drives them to adopt green practices that enhance their organization’s ecological results. Organizations must develop green employee behavior since it allows them to maximize resource reduction initiatives while advancing sustainability targets. When employees become involved or act actively on the green side, such as saving some resources, reducing waste, and promoting environmental sustainability, such acts' contributions help improve environmental performance (Dakhan et al., 2020; Malik et al., 2021; Iqbal et al., 2023). The green behaviour of the employee is formed by the societal standards in the company, which define what is considered correct and acceptable. When peers watch other employees at work implementing resource reduction and environmentally friendly practices, a normative expectation develops that people should behave the same way to be part of this group (Zacher et al., 2023; Sohu et al., 2020). Based on the Resource-Based View. Eco-friendly employee conduct, which involves recycling activities alongside energy conservation and sustainability program promotion, creates a systematic awareness of environmental stewardship throughout the organization. Collected organizational involvement increases individual dedication and the organization’s ability to successfully conduct and support environmentally friendly procedures. Enabling everyone to see the good results caused by being sustainability-oriented and peer support among employees can create a work environment where most employees will start to adopt green behaviour.

In most cases, an employee's environmental sustainability behaviour reflects on dual aspects, which are willingness to learn and improve (Ababneh, 2021). Using the systems of feedback, performance evaluation, and reward for sustainability there, worldwide establishments may prompt workers to improve their behaviour towards nature by looking for better ways to preserve the environment. Human capital is an essential strategic resource element within the Resource-Based View theory. Organizations that establish resource reduction programs heavily rely on employee behavior for the success of their initiatives. Green employee behavior is a mediating element that turns resource reduction efforts into specific environmental performance results. By joining sustainability initiatives, employees increase the effectiveness of managerial plans, which results in better environmental outcomes. This never-ending goal to produce endless improvements may also play an essential part in environmental performance by discovering new ways of reducing the consumption of natural resources or maintaining sustainability (Chien et al., 2023). Thus, following alternative hypothesis is suggested.

Population, sample size and procedure

The data collection was done through cross-sectional research. This design allowed us to investigate relationships between employee behaviour in pursuing environmentally friendly strategies and reducing the use of resources and waste. The role of the researcher in primary data collection entails designing the data collection process, for example, by defining the template for a questionnaire as well as choosing the sample size and number of samples. Next, the researcher is directly involved in data gathering from the participants or sources. The current research analysis is based on primary data, which involves the top management employees of manufacturing companies in Sindh, Pakistan. The sample size of 211 participants was selected using a non-probability, convenience, and snowball sampling approach. Initial appointments were set up over phone calls, and the participants were instructed to be available for the print out questionnaire during the time frame. Our research procedure was as ethical as possible and carried out according to the principles and guidelines. The participants were informed before and provided with the opportunity to give consent.

Moreover, their private information was secure and anonymous. The study results were reported as a group, with the addition that no identifying information exists on individual participants. The structured questionnaire was framed and approved to retrieve information from the participants. The survey consisted of components designed to measure reduction in resource use, greening of processes and products, green employee behavior and environmental strategy.

Ethics and consent

This study “Factors Affecting on Environmental Strategy in SME Manufacturing Firms of a Developing Country: Mediating Role of Green Employee Behavior” was approved by the Ethics Committee of The University of Okara constitutes the departmental Ethics Approval Committee (REBSSH/2024/4-9) in January 03, 2024. All of the informants gave written and oral informed consent to participate in the study. Under the Personal Data Protection Act (PDPA) 2010, the researchers assure that all information collected is kept confidential and merely for the academic purposes. Therefore, they were assured that their responses would be kept in strict anonymity and reported as aggregate results.

Measurements

Independent variable reduction in resources use four research items were adopted from the research of (Čater et al., 2023). Another independent variable greening of processes and products also four items were taken from the study of (Čater et al., 2023). In addition to this, mediating variable green employee behavior four items were taken from the study of (Mi et al., 2020). Lastly, dependent variable Environmental strategy’s four research items adopted from the research of (Čater et al., 2023).

Statistical tool

SEM was used to test the hypotheses based on the data that we obtained from the survey. For the analysis of the data, version SEM 3 was leveraged. Structural equation modelling (SEM), a statistical method for studying highly complicated connections between multiple variables, allows for the analysis of such relationships (Hair et al., 2021). SEM covers testing via confirmatory and exploratory factor analysis and employs path analysis to run tests of hypotheses that deal with a correlation of variables. According to SEM, researchers develop a model of latent and observed variables, which is compared with how the data behaves in the real world.

Reliability and validity (questionnaire)

Data integrity and validity are essential when they are known to be accurate and used as a tool for testing hypotheses (Orsini et al., 2020). As it is observed that with excellent and decisive data, it is possible to obtain valid and authentic results of hypothesis testing, which can lead to some false conclusions. Hence, researchers should, as a matter of priority, begin with identifying and establishing credibility and authenticity in a study methodology before conducting a hypothesis (Hancock et al., 2021). The research procedure is the foundation that determines the credibility of the study. This is why reliability and validity are considerations that need to be implemented before any hypothesis testing is done (Sürücü & Maslakci, 2020). The reliability deals with the continualness and stability of the data collection tool or method used at the time. Reliability represents the degree to which the measurement tool or method used to collect data correctly portrays reality.

There are two ways to appraise a study's reliability, one of which is the measurement of Cronbach's alpha, and the other is the utilization of Composite Reliability (Hayes & Coutts, 2020). The researchers favor reporting both of these indices if they are available. Nonetheless, it substantiates the point that reliability is the fundamental part of data quality apart from establishing the validity and accuracy of the instrument or method before the researchers start to make a hypothesis. A Cronbach's Alpha and Composite Reliability of 0.70 and above is usually considered acceptable, although higher values are to be advocated for more excellent reliability. Moreover, all the values for the current are more than 0.70. Cronbach's alpha and Composite Reliability values are given in Table 1 and Figure 1.

Figure 1. Measurement model.

Source: Authors’ own estimations.

Converged A average variance extracted (AVE) is a widely used validity measure of construct validity in SEM models. A CFI value greater than 0.50 is usually deemed acceptable for the construct validity, though this will vary based on the type of research being conducted and the number of items on a scale. They have a positive value for the present day, with all current values being more significant than 0.50. Average Variance Extracted values are given in Table 1 and Figure 1.

Figure 2. Structural model.

Source: Authors’ own estimations.

Hypotheses testing and discussion

H1: The hypothesis of reduction in resource use and environmental strategy. This beta value of 0.502 reflects a positive and significant association on environmental strategy. The t-value of 7.429 is also significant. Hence, hypothesis is accepted and null is rejected (see Table 2 & Figure 2). Many researchers have indicated that saving some resources is now a primary catalyst or momentum as most organizations adopt environmental programs (Sarja et al., 2021). By their dedication to controlling resource consumption, their actions signify the pledge to protect the environment and sustainability. This dedication is illustrated by several implementation strategies, including energy-saving technologies, the optimization of production to eliminate waste and sustainable purchase methods (Hegab et al., 2023). Organizations that minimize resource exportation will have a lower impact on the environment and help them cut costs and become more efficient and effective in the long term. Research evidence suggests that companies keen on the conservation of resources might embed a complete sustainability strategy in that category.

H2: This hypothesis states that green processes and products and environmental strategy. Accordingly, to beta value 0.169, there is a positive association with H1. In addition to this, the value of t = 2.834 is a statistically significant which means green processes and products has positive and significant impact on environmental strategy (see Table 2 & Figure 2). The study result showed that the pro-environment strategy derived from the decision-makers who choose green processes and products is consistent with the earlier conclusion on how organizations can practice sustainability (Xin et al., 2023). In pursuing green processes and products, companies seek to decrease their environmental footprint, cut emissions, and become more environmentally friendly. Such could be through embracing clean technologies, using renewable energy sources, and implementing eco-conscious design (Sengupta & Hussain, 2024).

H3: impact of green employee behavior on environmental strategy. The estimation of the beta value as 0.717 means that there is a significant positive correlation between these variables. The t-value of 22.325 strongly shows a significant relationship with these variables (see Table 2 & Figure 2). The research results back up the arguments that a robust and direct link exists between the greening of processes and products and workplace activity. Organizations that sustain and integrate sustainability will discover environmentally positive employee engagement (Raza et al., 2021). This is a similar result to the previous research that points out the organizational practices and policies that serve how employees conceive and act towards sustainability issues. Promoting an environmental-responsibility culture among organizations could improve their environmental performance and achieve sustainable societal objectives (Channa et al., 2021).

H4: The hypothesis proposes that green employee behavior on an environmental strategy. Beta 0.198 encourages a positive relationship. The t statistic of 3.055 is also suggested a significant role of green employee behavior and environmental strategy (see Table 2 & Figure 2). It could imply a meaningful relationship. The discovery of a positive association between eco-friendly employee activities and the consideration of the green strategy within business contexts complements the assumption that the employee's participation is one of the leading factors that foster the implementation of meaningful sustainability programs in companies. This result is proof of the fact that the previous studies have brought out the role of employee conduct in the organizing of sustainability activities and the development of sustainability policies (Al-Swidi et al., 2021). Organizations can step up to the challenge of environmental awareness by creating an “eco-friendly employee” culture. This will make their contribution to protecting the environment and broader sustainability goals more significant.

H5: This study's hypothesis concerns the mediating role of green employee behavior between green of processes and products 0.142, the beta value and t-value=2.991, indicates a positive and significant relation (see Table 2 & Figure 2). The positive connection between greener products and employee behaviour with adopting an environmental strategy, which aligns with the approach to sustainable actions that should use all means from organizational practices and individual behaviours, supports the assumption that combining the positive inputs gives the best result. Organizations attempting to do both develop green processes and products while encouraging green employee behaviour, create a ripple effect which can, in turn, be used to drive holistic environmental policies (Fernandes et al., 2021). The studies that were conducted agree with the previous research; they affirm that both organizational mechanisms and employee activities have a role to play in the sustainability objectives (Lu et al., 2023; Ren et al., 2022). By incorporating green activities and eco-awareness for employees, organizations' environmental actions can strengthen, improving their sustainability achievements.

Practical implication

Organizations should give forests the top value in the durability of resources during their operations. It may encompass using energy-saving technologies, taking an in-depth look into production processes, reducing water consumption, and reducing waste production. Emphasizing the streamlining approach in these institutions can improve cost-efficiency, lower costs, and minimize environmental influence. Therefore, businesses should not wait but rather play leading roles by embracing eco-friendly practices and technologies to green their processes and products. This comprises, among others, the adoption of renewable energy, green production processes, recycling, waste reduction, and sustainable materials. By being environmentally friendly and adopting green technologies, businesses can minimize risks to the ecosystem, profile sustainability, and meet the eco-conscious consumer's requirement for green products and services. Organizations should develop an all-inclusive environmental policy with specific goals and an outline of the achieved aims, measures, and policies. This activity stream should fully agree with the company's general strategic map and should align with the functional areas. Moreover, for the company to have a clearly defined environmental policy, it provides a pathway for sustainable actions, communicating accurately, and designing a system that helps to develop the organization's environmental performance.

Theoretical contribution

The study brings substantial theoretical value to environmental management research and organizational behavior by analyzing Pakistani developing country SMEs. The Resource-Based View (RBV) approach provides enhanced knowledge about internal assets that firms can use to improve their environmental results. The study reveals concrete data that proves decreasing resource utilization transforms into more than mere economic savings since it produces sustainable competitive benefits. The findings support RBV principles because effective resource management at firms enables better environmental results.

The analysis confirms how green employee behavior autonomously affects operations while connecting resource reduction to environmental performance, thus providing detailed knowledge about these relationships. Organizational environmental outcomes receive dual influence through employee behavioral resources that operate directly and indirectly. This study contributes essential findings regarding SME operations in emerging markets whose organizations experience limited resources alongside environmental concerns. The research contribution strengthens RBV literature by using specifics from the Pakistani SME context to present measurable data representing the realities of such businesses operating in comparable settings. The study adds essential theoretical value by revealing the complete, interconnected relationship between resource management and employee conduct with small and medium enterprises’ environmental performance through the resource-based perspective.

Limitations and future research directions

One possible limitation of such research is that it is one where manufacturing companies are the key players, potentially limiting the approachability of its outcomes to other categories or sectors. Further, it does not give details on how these environmental practices' side effects or price balancing could work together to identify the best cases to achieve sustainability in manufacturing companies. The role of mediation can be observed in the times to come via measures like environmental education and environmental approval, etc., in a developing country like Pakistan. Eventually, this research should be confirmed and expanded to verify the more precise causes and to explore the broader contextual factors that play a role in environmentally friendly practices in different industries and sectors.

Availability of data and material: is available with the manuscript.