EME 805
Renewable Energy and Non-Market Enterprise

8.1 Nonmarket Interactions


8.1 Nonmarket Interactions

The Nonmarket Rationale

The main reason for a company to pursue a nonmarket strategy is to provide it with alternative means for gaining a competitive advantage in a specific market, region, culture, or locale. Transnational and global companies require different strategies for different regional and local contexts, depending on the scope of their business. Nonmarket strategies are an attempt to shape and influence the economic environment from "outside" of the market. For example, while it is unclear as to how much money removing some environmental regulations might actually save companies that emit pollutants, those companies, or associations of companies, will typically fund lobbyists to press the Senate and the House for decreased regulations.

Types of Nonmarket Interactions

Public Politics

Influencing policy at the direct political level is an often used as a nonmarket strategy for most large corporations and advocacy associations (by this I mean representative groups, such as the American Dairy Council, where resources are pooled among members to fund lobbyists). For example, without certain tax incentives for purchase and use of renewables by producers and consumers, it will be hard to sustain the necessary amount of competition required to further drive innovations in efficiency, and growth in the overall sector can slow. Shaping these manner of incentives for companies is something that can occur from a township council to a regional or global agreement. Politics and policy development can be approached through direct lobbying, and/or also working with public opinion to sway public officials and/or votes.

Private Politics

Buyers (versus the companies, i.e., the sellers) are able to bring about a shift in market behaviors much more quickly than through legislation with concerted efforts to shift seller behaviors, most typically by boycotting of the product or company. For example, as opposed to passing legislation requiring companies to stop sourcing materials from Amazonian and Indonesian rainforests, consumers and advocacy groups will send a louder message through boycotting those specific products. Now, with social media, these campaigns can organize and happen quickly. Compare the public awareness of and response to the Exxon Valdez tanker spill (1989) versus the Deepwater Horizon explosion and spill (2010). The image of BP took a significant and immediate hit.

Social Responsibility

Directly working with social groups and investing in social development projects has been another common nonmarket approach. One example of this is philanthropy, when an individual or organization donates money, resources, time, skills, etc., to enhance a specific effort in need of support. Philanthropic actions are intended to contribute to and benefit, at some level, the greater good. Funding nonprofits, research, and services will, arguably, generate social capital for the receiver of the benefits and well as for the company or organization. One might be cynical and point out that philanthropic outreach is simply a different form of positive marketing for the organization's benefactors. While this kind of exposure is very valuable for many companies, it is also a means for the company to establish trust and speak to public interests in the countries in which the company conducts business, particularly where public-private partnerships (PPP) may be part of the context in which business gets conducted. China, for example, would not allow foreign companies to come in to China unless they were partnered with a local Chinese company as joint-ventures. Often, these companies were partially or significantly funded by the Central Government. As such, how a company behaves and is seen to operate by a local government matters. Engaging local and regional social organizations in positive ways enables a form of social entrepreneurship and extends the relationship. The main thing a company should be is reliable and consistent, as the Bach and Allen (2010) article points out, in sustaining their nonmarket engagements. Some companies are even taking this as their direct approach for their entire business.

The Environmental Good

Nonmarket strategies based in improving environmental conditions work in very similar ways as investment into public institutions. The environment generally does not have the capacity to represent itself in stakeholder negotiations. Since it is a silent stakeholder, environmental nonprofit organizations will often attempt to represent those interests and resources. Key ecosystem functions, such as natural groundwater filtration, oxygen production from trees, the explicit and implicit value of protecting biodiversity, etc., are often translated into terms of ecosystem services, which are intended to valuate the resources in terms of market value for the purposes of evaluating potential tradeoffs between harms and benefits. While this is useful in decision analysis, it can miss many of the intrinsic values of ecosystems that are not readily translatable.

Information/Research Driven Campaigns:

Campaigns to change market behavior and influence popular opinion often employ complex models, harmonized process data, life cycle assessments, life cycle costing analysis, emissions data, etc., to make their arguments. Climate change and the IPCC reports are precisely this kind of strategy at work, at a global scale. This approach actually worked for eliminating ozone depleting chemicals from global manufacturing process, resulting in the Montreal Protocol on Substances that Deplete the Ozone Layer, an international treaty then went into force in 1989.