The following interpretations and analyses presented correspond to the three previously mentioned elements (value proposition, value creation and delivery, and value capture) of sustainable business models:
5.1. Value Proposition
To examine whether a certified forestry firm had transformed from its conventional to sustainable value proposition, this study gauged the changes in product and service value before and after certification, and, furthermore, sought to discover the motivations behind FSC adoption. From the responses of all interviewees, they unanimously responded that product and service values changed after joining forest certification. Before being certified, the firms’ purpose (value proposition) was solely to supply timber/non-timber products to customers. Now, the goal (value proposition) was to provide certified logs, non-timber products (e.g., mushrooms, etc.), and/or ecosystem services (e.g., eco-tourism, water source protection, etc.) from responsibly managed forestlands for the benefit of stakeholders (customers, workers, environmental/social groups, etc.) and communities. However, contrary to the mainstream concept in business models that firms ought to first change their value proposition before aligning their business practices to create and deliver this changed value, our empirical findings suggest otherwise: that transformation begins by adhering to FSC standards. In the process of adopting these procedural changes, business owners, executives, and even some lower-level staff began to realize they were pursuing different values than before. Such a discovery by these personnel is critical, since after the change in practice, less resistance would have been encountered in these changing organizations. Furthermore, stronger support from decision makers could be expected following the value change.
These firms also revealed the reasons why they adjusted their perceptions: (1) to divest themselves of a poor reputation, (2) to differentiate their products and services in the market, and (3) to rekindle public trust. This result is consistent with the views of forest owners in Slovakia who consider certification to be a tool to improve their corporate image [49
]. Ever since the 1990s, Taiwanese residents have regarded logging as a major cause of landslides and ecosystem destruction.
“[…] for the past 20 years, we have been accused of environmental destruction by environmental groups […]”. “[…] we don’t like to be told that our logs were from unattended forestland […]”. “[…] we would like to provide certified logs to alter people’s perceptions of our firm […]”.
Third party certification assures the general public that a forestry operation complies with the principles and criteria of managing forestland in a sustainable way [50
]. Certification alters stakeholders’ negative perceptions while earning public trust. Hence, empirical evidence supports the predicted outcome: certified forestry firms propose the value of sustainable timber/non-timber products and ecosystem services to all stakeholders, including customers.
While certified firms re-oriented their value proposition after adoption, we observed a subtle difference between the private and public forestland owners. Little economic benefit is obtained from forest operation for the private forest firms in our study, but the certification helps to change the image of entire organizations to the public, and potentially increases the popularity of the firms’ non-forest products. With the expectation of future profit, the employees of all levels are motivated to work together during the transformation, which is reflected in the high frequency of communication among employees with different functional roles. Nonetheless, such a scenario did not appear in the public institution of our study. There is no economic motive for this public institution in our study; the demand for FSC adoption is from environmental groups and the public, which urge governmental institutions to take a leading role in sustainable forest management. In response to this demand, the institution head from this public institution commanded his employees to initiate the certification processes. The adoption was carried out by dividing the tasks required by external experts and assigning them to each employee judging by their predesignated functionality (external expertise was also necessary for this small public institution during the adoption), then these tasks were performed passively as additions to their work routines. Contrary to the private firms, no inter-employee collaboration was observed in this institution, in which we doubt there is a consensus among employees as to the value of sustainability.
5.2. Value Creation and Delivery
This section discusses the changes in value creation and delivery by comparing the differences in firms’ activities, partnerships, and channels before and after certification. Difficulties encountered in the transformation process are also discussed.
Previous literature points out that the lack of forest certification education is a barrier for its adoption in Cameroon [38
]. Similarly, managers of small Taiwanese forestry firms have admitted that they had no idea about the meaning of sustainability before certification, not to mention how to implement it. Conventionally, the Taiwan Forestry Bureau has disseminated new technology or practices to private businesses in the forest industry, and this has been the dominant approach to upgrading forestry operations. Unfortunately, very few technicians in the bureau are intimately acquainted with sustainable forest management (i.e., the ability to strike a balance among economic viability, environmental protection, and social equity). The bureau’s promotional ideas of ecosystem management are often incomprehensible because of insufficient engagements with forestry firms and confusing jargon. Furthermore, up-to-date sustainable forest management and certification information is inaccessible due to the absence of FSC branches in Taiwan.
Teece (2007) proposed that large forestry firms (e.g., public/national forest land holders) may conduct their own research and alter their conventional forest operations to meet the standards demanded by the FSC. Their established management systems and procedures possess strong dynamic capabilities in terms of sensing, seizing, and transforming, which allows them to adopt FSC independently without external support [51
]. However, we found that small Taiwanese companies require external expertise during FSC adoption, since they often lack internal resources. The interviewees stated that they learned of the most recent (within the last five years) sustainable forest management information in seminars held by college researchers, and that these seminars offered them an opportunity to overcome their lack of knowledge and their technical barriers.
One forest owner stated:
“[…] what is the meaning of sustainability and forest certification? The government doesn’t promote them, and we have no clue […]”. “[…] after participating in forest certification and sustainable forest management seminars hosted by college experts, we start to have a rough idea […].”
Language can be another obstacle hindering the transformation to sustainable forest management. Almost all materials available are in English, whether in hard copy or on the web. This, of course, creates a barrier for non-English speakers in their attempts to comprehend the material presented. Furthermore, Alemagi et al. (2012) and Naussbaum et al. (2000) indicate that the documents and procedures available on forest certification are also highly technical, and this makes them even more difficult to read, assimilate, and implement [38
During the interviewing process, one of the forestry firms recalled the situation before certification:
“[…] I am not sure who we can consult with […]. they’re (related documents) all written in English and on the internet. We need experts to instruct us what and how to adjust our current forest management practices […].”
In sum, sufficient support from experienced consultants or academic researchers is critical before small forest firms can tackle the issue of sustainability. In some cases, the transformation of small firms is even easier than for large firms, due to their having fewer established assets and procedures [53
Empirical results from our interviews and reviews of internal documents suggest that conventional practice focuses only on harvesting, silviculture, and bio-diversity protection activities. The major changes after the introduction of FSC standards is for adopting firms to devote resources to the management of broader social issues, such as the economic development of the local community, employee training and compensation, and the implementation of health and safety measures, etc. Furthermore, the FSC enables adaptive forest management. In other words, adoption may mean that organizations cultivate dynamic capabilities.
We have categorized the activities required by FSC’s ‘principles and criteria’ into four major steps starting from planning and pre-accessing, to implementing and monitoring practices. Later in this section, we will discuss the changes corresponding to each of the steps.
Respondents stated that before certification, the government only required forest firms to submit a simple harvesting plan before carrying out logging activities. After certification, the first major change was to design a complicated and adaptive forest management plan, which focused not only on the forestland itself, but also on the potential social and environmental impacts caused directly or indirectly by firms’ harvesting activities. The plan, therefore, serves as a set of instructions for managers and workers to attain sustainable management goals with respect to harvesting plans, silviculture planning, endangered species protection measures, soil protection, invading species wide-spread prevention, pesticide controls, labor health and safety implementation, and local community development plans. As a forest owner expressed:
“[…] after certification, we need to assess both the environmental value and social values before cutting logs. We care about our environment which includes bio-diversity and ecosystem, and social equity such as neighborhood villages, and healthy labor and safety […].”
For small organizations, where the majority of employees are field workers, significant effort must be devoted to administrative tasks such as document preparation in the wake of management planning. This framing, writing, and planning of documentation creates tremendous stress for those involved.
The first step of the management plan is to pre-assess impacts before forestry activities occur. This pre-assessment involves gathering concerns from local communities, diagnosing forestland conditions, and estimating the growth rate of tree species. Firms can now execute actions to prevent, mitigate, and/or repair any negative impacts from forestry activities. This practice lessens environmental and social costs and minimizes operational risk. A major change at the implementing stage is to build long-term relationships with stakeholders, in particular with local communities influenced by the effects of firms’ operations. Engaging people who have vested interests and allowing them to express concerns caused by forest activities enhances transparency (i.e., providing forestry activities and data online) and develops mutually beneficial relationships (i.e., helping local economies or protecting natural environments). Even though consulting with stakeholders and communities can prevent negativity and increase positive social impacts, the biggest challenge is that these targeted small-scale certified Taiwanese firms do not regard this move to sustainable forest practice as a critical step, but rather view it as an extra and tedious step, especially in the beginning.
Another significant change after FSC adoption relates to labor rights. Conventional models pay minimum attention to labor issues. The only guideline for executives dealing with these issues is to adhere to the minimum requirements as regulated by government; issues include management of wage rate negotiation, workers’ complaints, and occupational safety insurance. This study observed a huge leap in labor rights after certification. These organizations are required to establish formal rules to process workers’ issues, and are obligated to record all related activities to labor relationship management. The practices to enhance worker health and safety are fine-tuned after adoption. It is at this stage that formal administration regulations for employee safety make their debut, and when employee training is required to ensure the safety of workers.
FSC encourages the adopting firms to proactively engage with local communities and to try to prevent or remedy any potential damage resulting from forestry operations. Therefore, after careful assessment of the impact due to forestry activities, the second stage is to implement actions to improve the wellbeing of local communities. For instance, Taiwan Leader Biotech built a pipeline to secure the supply of clean water for its neighborhood community, and made donations to the church, so that not only physical needs, but also spiritual needs were fulfilled. As another example, Yong-Zai Forestry Co. Ltd. provided employment opportunities for local residents by setting up a wood processing plant onsite.
Environmental quality is also a major issue considered at the implementation stage. In addition to the conventional business model, which only focuses on the production of wood products, the focus is extended to non-wood products and the surrounding ecological system. When implementing its forest management activities, Yong-Zai Forestry Co. Ltd. took a further step in creating a buffer zone around a stream in its forestland to prevent potential landslides. Meanwhile, it identified and developed a highly value-added agroforestry product, wild mushrooms; the harvesting of wild mushrooms in the forestland then provided job opportunities for locals.
The monitoring stage aims to receive instant feedback and helps to adjust a firm’s operation in a timely manner. Frequent on-site monitoring allows forestry firms to adapt implementation plans as a result of unexpected detrimental changes in their environmental and social conditions, as well as the availability of new technology beneficial to their management activities. This signifies a huge leap for these forestry firms, since on-site monitoring has been rare in the absence of forest certification. Without certification, the only monitoring activities conducted by the majority of Taiwanese forestry firms were to observe the survivability of young trees approximately one year after planting. Certified forest firms have now established monitoring procedures and recorded monitoring results in order to practice adaptive forest management as advocated by a sustainable business model. However, the increase in monitoring frequency dramatically inflates operational cost and affects profit margin; it therefore presents a major challenge for certified firms.
One forest manager stated:
“[…] joining forest certification…there are now more jobs to do after we harvest our logs […] we now need to monitor for landslides, record and store that information […].”
Along with the significant changes at each of the four steps, communication among forest firms and their stakeholders is enhanced after certification. Information transparency is vastly improved; forestry firms’ management plans, FSC compliance activities, and monitoring results are published periodically online. Furthermore, personal contacts with affected parties become more frequent, both to enhance their wellbeing and to prevent any conflicts from impeding firm operation. A major task for social entrepreneurship is to achieve sustainability transformation of the market and to improve society. Communication with forest firms’ stakeholders and even societies serves as a tool for these niche pioneers to promote their products and the underlying sustainable value, which is critical for not only expanding their market share, but also for promulgating the idea of sustainability [40
]. The above findings endorse the second predicted outcome: certified forestry firms align with FSC standards and transform their activities, partnerships, and channels to create and deliver sustainable value.
5.3. Value Capture
The third element of the sustainable business model, value capture, contains the economic, environmental, and social components. This section will analyze the impact of FSC adoption on each of these components.
A firm’s financial returns represent economic value capture. Generally, better returns can be realized either by market share expansion or by higher markup. Empirical evidence suggests that certified products are unable to reap higher economic value in the Taiwanese market due to intense competition from other non-certified products. Fortunately, an improved product image through FSC certification has attracted a few niche customers, and has led to the possibility of opening up new market segments or of market expansion. Such scenarios match a study across 117 countries, and show that consumers’ preference for certified wood product increases as their incomes grow. This indicates that certification improves firms’ advantages by expanding their market share, and allowing them to maximize profit. However, there is little evidence to suggest that certified wood products enjoy a price premium over conventional products, and the benefits of certification may not be sufficient to cover the higher costs associated with the new standards, even with the premium [55
One forest owner said:
“[…] we couldn’t charge premium price for our certified logs because the market is filled with non-certified logs. The market is too competitive […]”. “[…]. Instead, we found a niche market. An architecture designer called me once and asked for certified products for the construction of public building […]”.
Social value capture is achieved by providing job opportunities and cultivating new agroforestry products to help the local economy and make a major contribution to local communities. Social value capture is also reflected in improved worker health and safety programs resulting from comprehensive employee training and safety protection measures. A reduced accident rate is the most eye-catching evidence of labor safety improvement. A formal procedure to handle employee complaints and understand their needs is an example of social value that is conducive to employee welfare improvement. The final component, environmental value capture, can be realized through minimizing the negative externality resulting from forestry operations, and through increasing environmental benefits delivered by an improved ecosystem. A comprehensive environmental protection program has been developed in cooperation with the Taiwanese forestry bureau. The program now covers the protection of rare and threatened species, the protection and restoration of the ecosystem, the protection of water resources, and landscape conservation, particularly with respect to the prevention of landslides. One manager stated:
“[…] forest certification label helps increase our firm’s positive image on environment protection to the public. People are discussing about us joining the forest certification. Our company name is recognized and we have expanded in the market […]”.
“[…] after we joined the forest certification, we can now claim that our certified forest products are from well-managed forestlands, which provide benefits to our environment and local community […]”.
In sum, small-scale certified forestry firms are transformed into sustainable business models by adopting forest certification. From the analysis above, we found that their new models incorporated the TBL approach, initially introduced by Elkington in 1997 [56
], and encompassed the proposed sustainable elements. The proposed sustainable business model contains three elements. The first element, value proposition, depicts the benefits of environmental and social values contained in highly differentiated timber/non-timber products. Certified forestry firms not only engage with customers, but also with other affected stakeholders by proposing sustainable products and service value to satisfy their needs. The second element refers to certified forest firms’ use of resources, key operational activities, partnerships, and channels for creating and delivering sustainable value. Armed with knowledgeable people from external institutions, certified firms partner with customers and stakeholders to create and deliver economic values and enhance the social and environmental wellbeing of society. Value capture is the third and final element in the proposed sustainable business model. It gives rise not only to economic worth, but also to positive environmental and social values. In terms of economic value, charging a premium price may not be possible in the short-term for certified forest firms. However, the expansion of sales to niche market consumers has been observed in some cases. Furthermore, long-term economic value may be achieved by eliminating the operational risk from potential boycotts or regulatory burdens due to firms’ rising images and name recognition. Environmental value is created by conserving biodiversity and protecting ecosystem services following the practice of new management planning, and social value is enriched by providing local job opportunities and helping the economic development of communities.