Managing regulations: the integration of the air pollutant emissions limits in the car manufacturers economic activities

Keywords:

Abstract:

Purpose
The aim of this communication is to analyze the organizational process leading to the transformation of product regulations in manufacturing firms’ economic activities and trajectories. On the one hand, product regulations affect the design, specifications of the products, altering then their cost-structure. On the other hand, product regulations are generally amended through time, shaping then the anticipations of industries.
However, only a few contributions in economics try to describe the organizational process behind this transformation of regulations into (future) products. The mainstream theory of capture considers regulated firms as “black boxes”, interpreting regulations according to information and incentives they have. Management scholars in the Corporate Political Activity literature analyze the determinants of the firms’ political choice rather than the concrete decision process.
Design
To go beyond these two limitations, we adopt a socio-economic paradigm inspired by the sociology of fields. On the one hand, firms are economic actors, competing in the market in order to stabilize their positions. On the other, they also participate in the policy field, in engaging in political actions in order to stabilize the regulatory trajectories. Firms manage to compete in the two fields in mobilizing their capitals (not only economic), altering both their economic trajectories and the design of the regulation. This process is seen as an attempt to reduce the uncertainty of (economic and political) competitions.
In analyzing the case of the European air pollutant emissions regulation; this paper analyzes how carmakers manage to interpret the current and future regulations in order to integrate them into their economic activities. Based on 24 semi-structured interviews with key actors involved in regulation-making (carmakers, NGOs, public bodies, experts…), we analyze the successive steps leading to the transformation of regulations into new products.
Findings
This process involves various actors – lobbyists, managers and experts – coordinating and sharing their regulatory knowledge. Through the whole regulatory and product life-cycles, they construct both the concrete compliance and the lobbying activities. At every step of the product-planning, firms integrate both the current state of regulation and the probable future one. Firms then try to combine their product life-cycle to their anticipation.
Also, the interpretation and integration of regulations into firms’ choices is determined by the conditions of demand, competition and supply. In the context of solvent demand contraction, competition through margin and suppliers critical knowledge on clean-up technologies, the containment of production costs and coherency among the product line are seen as key determinants of the firms’ political reactions and pro-actions. We demonstrate that regulations have not intrinsically costs and opportunities, but its management creates such cost and profits.
Finally, we conclude that the integration of regulations into the firms’ economic choices is a socially constructed process, rather than a rational one. Firms try to create value from the regulation in looking for the possible advantage against competitors they can take from regulations, even if they evolve in an uncertain environment.
Practical implications
This study shows that firms constantly reinterpret the policy signals and try to combine the “time of the industry” with the “time of the policy”. Political knowledge and its management are then a critical competency to operate in a murky environment. However, economics generally omit to include such competencies in the firms’ performances analyses. We have strong evidence to consider that policy does not have intrinsically costs or opportunities, but its management produces them.
Considering that, policymakers in Europe could then take some distance with the technical policy-making that analyzes the economic feasibility of policies through impact studies. Indeed, the concrete impact of regulation is an intra-firm institutional and organizational process. The outcome of this process is unpredictable. Conversely, the sense of the regulation provide for managers framework to understand and integrate the rules. Widening debates on regulations should then allow a variety of behaviors and then enhance the competitiveness in the automotive industry.