From Linear to Circular Organization: The Political Economy of Sustainable Strategy

Abstract

Ownership and control have been the strategic focus of organizational analyses aimed at achieving performance. Yet, the emergence of sustainability has challenged conventional organizational theory. Sustainability as a performance concept has become a complex idea containing both social elements and environmental dimensions, together with the traditional economic measures. Furthermore, the exploitation of non-renewable resources has produced market failures and environmental uncertainties, challenging existing organizational structures. Increased climate change, temperature risk, and environmental hazards, as well as the intertwined social consequences, have created a need for new theoretical insights. Understanding the circular organization of networks call for new theoretical perspectives. Insights from political-economy theory facilitate the analysis of the transformation from linear to sustainable integrated circular networks.

Full text

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From linear to circular organization
The political economy of sustainable strategy16
Arne Nygaard
Kristiania University College
Abstract17
Ownership and control have been the strategic focus of organizational analyses
aimed at achieving performance. Yet, the emergence of sustainability has chal
lenged conventional organizational theory. Sustainability as aperformance con
cept has become acomplex idea containing both social elements and environmen
tal dimensions, together with the traditional economic measures. Furthermore,
the exploitation of nonrenewable resources has produced market failures and
environmental uncertainties, challenging existing organizational structures.
Increased climate change, temperature risk, and environmental hazards, as well
as the intertwined social consequences, have created aneed for new theoretical
insights. Understanding the circular organization of networks call for new theore
tical perspectives. Insights from politicaleconomy theory facilitate the analysis of
the transformation from linear to sustainable integrated circular networks.
16 This paper is dedicated to my mentor and long-time colleague Professor Torger Reve. I would like
to express my sincere appreciation to Professor Reve for his lifetime support and allied research, for
his enthusiasm, and for immense expertise that have inspired generations of students in Norway and
worldwide.
17 The author thanks Professor Robert Dahlstrom, Professor Ragnhild Silkoset, and colleagues
at Norwegian School of Economics and at the University of Oslo for their comments and insights
related to this project. A previous version of this paper was presented at the Conference in 2017 on
“Sustainable business models? Historical and institutional dynamics of corporate (ir)responsibility”
at the University of Oslo, Faculty of Law and at the 2018 FIBE Conference at the Norwegian School of
Economics.

132    :  , ,  
Introduction
In 1987, the Brundtland Report was the first report to define sustainable develop-
ment as ‘development that meets the needs of the present without compromising
the ability of future generations to meet their own needs’ (World Commission
on Environment and Development, 1987: 43). During the aftermath, there has
been agrowing consensus that sustainability is aserious challenge and that
the corporate sector provides the essential entrepreneurial tools for sustain-
able change. Management can encourage, nurture, and safeguard sustainable
development. The failure to facilitate asustainable organizational structure will
undermine long-term sustainable economic growth. Still, we must acquire more
insight into how organizations can foster institutional change that promotes
sustainable development. The political-economy framework offers perspectives
on the relationship between the assessment of sustainability and inter-organi-
zational design. The evaluation of sustainable institutions cannot be isolated to
asingle transaction but includes the network of dyadic formations responsible
for the product life cycle in the new circular economy (Ellen MacArthur Foun-
dation, 2015; Ellen MacArthur Foundation and McKinsey & Co, 2013; Kumar
& Putnam, 2008; Opara, 2003). Asustainable institutional structure therefore
requires inter-organizational management from the exploration, development,
and production of raw materials to the post-consumption reversed distribution
operation, primarily of unsold products and product recirculation. Consequently,
the organization of sustainability requires an inter-organizational nexus-of-con-
tracts approach to management that can assess the sustainability performance
(Reve, 1990). For instance, the transnational consumer goods company Unilever
roots its strategy ‘Sustainable Living, Lifecycle Assessments’ (2014) of the entire
life of aproduct from its conception, through its design and manufacturing to its
service and disposal (Stark, 2011). An evaluation of sustainability requires firms
to document, control, and monitor operations throughout the exploration and
production processes in the distribution chain. The extent to which distribution
systems are monitored therefore exceeds intra-organizational and inter-orga-
nizational transactions in an increasingly large and complex global business
environment (Achrol, Reve, & Stern, 1983). Monitoring, however, is grounded
in the contract that controls the product or service functions in an international
multi-agency network context. One example of the emerging network approach
is that of the sportswear industry, which responded to Greenpeace’s ‘Detox
Challenge’ aimed at the operations of Nike and Adidas in third-world countries.
The campaign stopped their worldwide network of contractors from dumping

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toxic chemicals into waterways (Birch, 2012). Similarly, the Volkswagen emission
scandal damaged other units in the VAG Group (i.e., Audi, SEAT, ŠKODA, Bent-
ley, Bugatti, Lamborghini, Porsche, Ducati, Scania, and MAN) along with the
suppliers and sub-suppliers, distributors, and retailers in its worldwide network
of organizations (Milne, 2015). Sustainability management that safeguards the
network against such eco-opportunism requires an extended level of analysis that
moves from the isolated dyadic approach embedded in the classic transaction
cost economics (TCE) analyses of transactions to the network-of-transactions
level within the system of economic agents (see Table8.1). Consequently, the
theoretical focus on dyadic analysis must be supported by the macro-level aspects
of the network “nexus-of-contracts” level of analysis, considering the coming
evolution regarding sustainability (Reve, 1990).
Table 8.1 Dimensions of Eco-opportunism and the Classic Form of Opportunism
Organizational
Model
Opportunism Conditions Focus Context18
Linear Model Classic
Opportunism
Conditions isolated
to the null-sum game
conditions between dyadic
partners in an exchange
relationship.
Dyadic level in one
phase of exchange
throughout the verti-
cal chain that finally
ends when products
are consumed.
Linear economy: ‘Take, Make,
Dispose’ that follows the line
of industrial vertical chains
downstream towards the con-
sumers. Consumerism that
leads to the development of
products that finally wind up
in landfills or in incinerators.
Circular Model Eco-
oportunism
Life cycle transaction
costs incurred by dyadic
conditions of opportu-
nism because of isolated
cumulative phases of the
product life cycle. Network
partner opportunism can
affect, for example, the
third or fifth network part-
ner and not necessarily the
dyadic bilateral partner.
Nexus of contracts
throughout the
circular product life
cycle network.
Circular economy:
Aframework that imports
insights from living systems
into the understanding of pro-
duction and market systems.
Production and distribution
should work like organisms.
Like organic systems, compa-
nies process nutrients that
can be recycled back into the
network, whether biological
or technical.
18 World Economic Forum, “Towards the Circular Economy: Accelerating the scale-up across global
supply chains”, prepared in collaboration with the Ellen MacArthur Foundation and McKinsey &
Company. January 2014.

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Sustainable management
Sustainable performance is acomplex, three-dimensional concept that leads
to an ambiguous evaluation of performance. Performance ambiguity produces
difficult and costly performance evaluations (Holmström, 1979). Consequently,
asustainable performance evaluation increases the cost of revealing the true
value of inter-organizational exchange (Ouchi, 1980). Sustainability not only
expands the performance ambiguity of the inter-organizational dyad but also
increases the performance ambiguity throughout the network of contracts. The
received TCE theory, however, is the framework in which to define, monitor,
and enforce contracts. Through the traditional TCE lens, afirm has the ‘right
to benefit or harm oneself or others’ (Demsetz, 1967: 347). This is the profound
reasoning behind mainstream management theory, economic exchange, and
strategic change. Still, the management literature presents different options
from inter-organizational structures, such as franchising (the right to represent
another company and brand), sales agents (the right to represent acompany),
and salespersons (the right to transfer ownership of an item), which can operate
in the market. Thus, the traditional level of dyadic analysis avoids potentially
harmful eco-opportunism and the subsequent transaction costs, safeguarding
the interests of all parties within the network ‒ consumers, stakeholders, and
society in general (Table8.1). The received theory on inter-organizational
relations illustrates the normative interests of the firm, which might have the
right to harm the environment through both economic and social relationships
(Stern & Reve, 1980). The waste markets in the computer industry lead to haz-
ardous and dangerous recycling processes, for example in West Africa (Vidal,
2013). Oil spills resulting from oil industry exploration, development, and
production along the Niger Delta are another example (Vidal, 2014). Increased
global warming has intensified the problem of incomplete contracts among
the various parties within the network of businesses from production to retail
units. The new era of environmental protectionism constrains contracts and
brings new contextual aspects to its theoretical offspring. Therefore, transaction
cost theory must support its dyadic level of analysis with anetwork approach
that includes the combined elements of ecological, social, and financial per-
formance. Antecedents, such as cultural, political, and legal constraints, add
transaction costs to the network of businesses in the supply chain. Sustainability
creates performance ambiguity, both dyadic and within the entire network

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of organizations. Sustainability extends the level of asymmetric information
within global production systems. The sustainable quality of products is diffi-
cult and costly to evaluate. The standardization of sustainable quality through
‘green’ brands produces information asymmetry in the market. Without an
institutional framework that safeguards sustainability for consumers in the
marketplace, the markets for sustainable products will deteriorate into markets
for ‘lemons’, because consumers will no longer be able to separate sustainable
and unsustainable production (Akerlof, 1970). The complexity of the perfor-
mance measurement leads to the cost of evaluating the real effort in the overall
system. Business strategy argues that outcome performance can indicate the
efforts whenever it is less costly to observe and evaluate. This argument explains,
for example, the application of sales-based monitoring systems in franchising
(Shane, 1998). Sustainability, however, breaks down the observability of effort
and behaviour-based hierarchical monitoring systems, as well as the outcome
performance monitoring systems throughout the network.
TCE defines the market and the hierarchical systems as the two ends of
the governance continuum (Coase, 1960). Ahierarchical system is any form of
centralized decisions, organizational control, and monitoring systems aimed at
influencing agent behaviour. Sustainable management operates in market-based
frameworks, such as quota systems (green certificates or CO2 quotas, taxes,
or transferable permits). One important market-based approach is emissions
trading, for instance the European Union Emissions Trading Scheme (The EU
Emissions Trading System, EU ETS, n.d.). The markets might promote solutions
to environmental problems if it is possible to internalize the negative costs of,
for example, pollution or CO2 emission. When the regulation of pollution to
protect the environment changes the relationships of the polluting companies,
it also triggers an innovative process to scale up the development of low-carbon
technology to lower the costs of reducing pollution (Porter & van der Linde,
1995). Contracts defined through environmental regulations transfer the costs
to the polluter, along with the entrepreneurial incentive to innovate new tech-
nology. Furthermore, countries that respond to environmental challenges by
defining regulations gain afirst-mover advantage, because the industry, instead
of engaging in incremental product differentiation, will innovate to become
acost leader. In markets in which it is cheap to pollute, industries will continue
to differentiate instead of innovating. Furthermore, the most important coun-
tries in the world when it comes to biodiversity, ecosystems, and vulnerable

136    :  , ,  
environmental aspects are also among the most corrupt countries thus, they
are probably disposed to engage in eco-opportunism. For instance, the five
nations with the most significant rainforests and most diverse biodiversity, like
Congo and Brazil, also have significant crime and serious corruption problems
(Transparency International Corruption Index and Numbeo Crime Index).
Organization for sustainability
The development of global markets reduces switching costs and provides rich
information to buyers and sellers. Consequently, the new era of global mar-
kets has reduced the potential opportunism and transaction costs and facili-
tated economic performance. Giveneco-opportunism, however, sustainability,
combined with information impactedness, encourages more monitoring, con-
tractual relationships, and integration. The network perspective on achieving
sustainability has supported the dyadic forms of traditional opportunism with
anew formula of ‘eco-opportunism’, that is, the combined ecological, social, and
financial ‘self-interest-seeking behavior with guile’ (Williamson, 1985). Iextend
the opportunism concept to include the hidden actions and information (Eisen-
hardt, 1989) that breach the financial, social, and ecological dimensions of the
network of contracts (Carter & Rogers, 2008: 365). But eco-opportunism, like
other opportunistic behaviour, has asocial aspect subject to variation in the
context of social and economic relationships (John & Reve, 1982).
From opportunism to eco-opportunism
The dyadic level of analysis is anecessary, but not asufficient, condition for
sustainable management. The dyadic concept incorporates the potential exploita-
tion of asymmetrical information within the bilateral system. Opportunism
represents calculated behaviour behind hidden information. The classic concept
of opportunism includes efforts to cheat, manipulate, or deceive the other part
of the dyad. In the conventional TCE model, we assume that more opportun-
ism is involved in the transaction the more complex the conditions, because it
boosts informational asymmetry. Opportunism reflects conflicts of interests
between the parties in the relationship. While opportunism relates to dyadic
relationships, eco-opportunism relates to all the information asymmetry within
the entire network of economic agents (Table8.1). Eco-opportunism constitutes
adouble-sided moral hazard in the overall network of contracts (Bhattacharyya

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& Lafontaine, 1995). Eco-opportunism is not only linked to the single dimen-
sion of economic performance but also includes indices in athree-dimensional
sustainability concept. The complexity of the threefold sustainability concept
produces information asymmetry and causes the development of eco-oppor-
tunism (Table8.1).
The IPCC (2014: 9) proclaims that ‘climate-related risks involve deci-
sion-making in achanging world, with continuing uncertainty about the severity
and timing of climate-change impacts and with limits to the effectiveness of
adaptation’. The driving locomotive in the process that develops transaction
costs is the ‘horizon of opportunism’ (Williamson, 1985: 47), which is influ-
enced by external uncertainty in the business environment. The architecture of
the institutional structure should protect the network against such hidden and
costly ‘self-interest seeking behavior’ in the system (Williamson, 1985: 47). The
ownership of the ‘product’, however, will accumulate the external costs related
to its life cycle in the hands of the principal. Not only CO2 emissions, pollution,
and social dimensions will amass the costs associated with the production but
also the costs of opportunism in all stages of the supply chain. The behavioural
uncertainty plagues not only to the inter-firm relationship but also to the entire
network. Sustainable management has directed astrong focus towards the sus-
tainable uncertainty caused by the stakeholder groups surrounding the network.
Myriad interest groups engage in various aspects of the network. The network’s
institutional structure must evaluate the potential risk that they present. The
defensive approach of seeing only the framework presented by the local legal
system is no longer sustainable. Contractors and subcontractors are strong con-
tributors to the institutional structure, but they might have private interests in
acomplex world of free markets. The Nestlé horsemeat scandal in 2013 showed
that the intermediate markets within the institutional structure were invaded by
opportunistic activity from suppliers and sub-suppliers operating under Nestlé
(Lawrence, 2014); this activity imposed transaction costs on firms at the other
end of the institutional distribution network system. H&M, Gap, and Adidas
were scrutinized because of worker rights issues in their production firms in
Cambodia (Bacchi, 2014). Aworkers’ strike in 2014 caused five deaths. In Sri
Lanka, abuilding collapsed in 2013, killing 1200 people inside who were produc-
ing clothes for the fashion industry, for example for eco-certified brands such as
Tesco, Walmart, Benetton, and H&M (Taguchi, 2013). Established brands and
firms are no longer hidden from the transaction costs of the eco-opportunism

138    :  , ,  
of their contractors and subcontractors or of distant partners at the other end
of their global institutional network.
Theoretical implications
Organizing the sustainability of operations and transactions in anetwork system
depends on the ability to monitor and evaluate the performance and to determine
the true value of the objects of exchange (Jones, 1987). Sustainability is acomplex
performance concept; therefore, it is costly to evaluate because of its multidimen-
sionality and the technologies endemic to distribution or production. The nexus
of incomplete contracts throughout the distribution system contributes to market
failures costly to control (Reve, 1990). When the company rewards sustainability
performance and punishes poor sustainability, TCE theory provides some ana-
lytical implications. As the performance ambiguity of sustainability outcomes
becomes more difficult to evaluate, markets will fail, because transaction costs
will exceed the costs of bureaucratic solutions (Williamson, 1985). TCE theory
therefore suggests that the complexity of performance evaluation leads to more
inter-organizational control (Kim, McFarland, Kwon, Son, & Griffith, 2011).
Previous empirical research has, for example, revealed that as unobservable or
unmeasurable non-sales activities become important, firms choose to integrate
their operations (Anderson, 1985). Sustainable performance leads to more inte-
gration of the partnerships in the distribution channel (Stump & Heide, 1996).
Companies’ transformation into acircular economy is reflected in the fuel
mix between coal (non-renewable energy) and renewable energy sources, such
as waterfalls, wind, solar, or other circular energy sources (Table8.2). Enel SpA,
one of the top circular companies and electricity generation companies, pro-
duces 33% with renewable energy, whereas another large electricity company,
RWE AG, is fuelled by 61% coal and Dominion Resources Inc. produces only
3% renewable energy. Like the tobacco industry 50years earlier, the electricity
generation industry has been forced by stakeholders and investors to trans-
form its business models from linear to circular organizational structures. For
example, institutional investors, such as the world’s largest investment fund,
the Government Pension Fund of Norway, have now decided to eliminate coal,
and the second-largest investment fund in the US, the California State Teachers’
Retirement System, has started to evaluate the same possibility (Hovland, 2015).

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Table 8.2.The percentage of renewable energy (circularity) and coal (linearity) of nine of the
largest international power producing companies on 31December 2014. (Norges Bank, 2014
Responsible Investment Government Pension Fund Global report, page61)
Electric Power Company Circular (Renewable) Per cent* Linear (Coal) Per cent Other**
Enel SpA 33 29 38
SSE PLC 19 56 24
GDF Suez 18 22 59
NextEra, Inc. 17 4 80
E.ON SE 12 32 56
Electricite de France 11 9 80
Duke Energy Corp. 9 40 52
RWE AG 6 61 32
Dominion Resources Inc. 3 26 71
*Includes, among others, water, wind, solar, geothermal, and wind power.
**Includes, among others, nuclear-, oil-, and gas-based power generation.
Another example of acircular strategy is that of McDonalds, which fuels its
trucks with its own cooking oil (Wiggins, 2007). Unilever is committed to
transforming from alinear to acircular organization, intending to ‘reduce [its]
environment footprint and increase [its] positive social impact’ as well as ‘double
sales and increase long-term profit’ (The Economist, 2014: 51).
The circular economy is aconcept imported from life science to further the
understanding of production and market systems in anetwork of organizations
(Benyus, 1997). The core idea is that business systems imitate organic mecha-
nisms in nature (Stahel, 2010). The circular organizational model is technically
prepared and designed to exploit the waste produced during the product life
cycle, introducing it back into the value chain. Biological waste should be culti-
vated to circulate back into the environment. The other dimension of acircular
organizational model is the technical components. Technical components, metals
or toxic or other recyclable elements, should be prepared to be entered back
into the production and distribution systems. For instance, both the automo-
bile and the electronics industries recycle many components. New regulations
in the EU hold car and electronics companies accountable for the life cycles of
products (Dubois, 2013). Furthermore, by removing the biological and technical

140    :  , ,  
components (i.e., the metals), it is also possible for the network to eliminate the
risk arising from toxic elements.
Towards an ecological theory of transactions
Iargue that only aone-dimensional dyadic perspective will marginalize the
future relevance of the transaction cost theory. The traditional concepts of
the received theory must be brought into an ecological context to explain the
development of future institutional structures. Sustainability causes new forms
of market failures as well as new forms of market contexts based on social and
environmental dimensions. Avital new approach adds two essential aspects to
the received theory: 1. amacro network level for strategically analysing supply
chains, and 2. athree-dimensional performance concept (Carter & Rogers, 2008)
that includes economic, ecological, and social elements.
Sustainability and performance ambiguity
Ipropose that the multidimensional concept of sustainability increases the level
of performance ambiguity. Performance ambiguity is the difficult and com-
plex measurement of the exchange in question (Bowen & Jones, 1986; Ouchi,
1980). Despite formidable work aimed at measuring and analysing the three
basic dimensions of sustainable development – economic, environmental, and
social conditions – those indices have been criticized on the basis that they
‘fail to fulfil fundamental scientific requirements, making them rather useless
if not misleading’ (Böhringer & Jochem, 2006: 1). Sustainable strategies relate
to the triple-bottom-line performance of the ecological, social, and economic
dimensions, which together produce avague and complex concept (Phillis &
Andriantiatsaholiniaina, 2001). Systematically finding and applying adequate
information to assess sustainable strategies is difficult. Sustainability therefore
leads to increased performance ambiguity.
Ecological uncertainty and informational asymmetry
Ecological uncertainty is one of the driving components of the ecological theory
of organizations. The River Nile is an ancient example of how uncertainty affects
institutions. Egypt has one of the oldest and most stable civilization in world
history perhaps because of its long-standing steady access to sustainable fresh
water from the River. The uncertain water supply upstream in the other nine

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countries in the Nile Delta has produced environmental uncertainty, leading to
problems in the stability of their governance systems. Egypt has therefore been
portrayed as having astable institutional structure, while the upstream civili-
zations, although they are culturally similar, have historically been considered
unstable (Mikhail, 2011). Several external factors contribute to environmental
uncertainty.
Table 8.3 Intergovernmental Panel on Climate Change (2014 part2) Risk Dimensionalization of
Ecological Uncertainty
Uncertainties External consequences to organizational structures
1. Unique and threatened
systems:
Some unique and threatened systems, including ecosystems and cultures, are
already at risk from climate change (high confidence). The number of such
systems at risk of severe consequences is higher with additional warming of
around 1°C. Many species and systems with limited adaptive capacity are subject
to very high risks with additional warming of 2°C, particularly Artic-sea-ice and
coral-reef systems.
2. Extreme weather events: Climate-change-related risks from extreme events, such as heat waves, extreme
precipitation, and coastal flooding, are already moderate (high confidence) and
high with 1°C additional warming (medium confidence). Risks associated with
some types of extreme events (e.g., extreme heat) increase further at higher
temperatures (high confidence).
3. Distribution of impacts: Risks are unevenly distributed and are generally greater for disadvantaged peo-
ple and communities in countries at all levels of development. Risks are already
moderate because of regionally differentiated climate-change impacts on crop
production in particular (medium to high confidence). Based on projected
decreases in regional crop yields and water availability, risks of unevenly
distributed impacts are high for additional warming above 2°C (medium
confidence).
4. Global aggregate
impacts:
Risks of global aggregate impacts are moderate for additional warming between
1 and 2°C, reflecting impacts on both Earth’s biodiversity and the overall global
economy (medium confidence). Extensive biodiversity loss with associated loss
of ecosystem goods and services results in ahigh risk around 3°C additional
warming (high confidence). Aggregate economic damages accelerate with
increasing temperature (limited evidence, high agreement), but few quantitative
estimates have been completed for additional warming around 3°C or above.
5. Large-scale singular
events:
With increasing warming, some physical systems or ecosystems may be at
risk of abrupt and irreversible changes. Risks associated with such tipping
points become moderate between 0 and 1°C additional warming, due to early
warning signs that both warm-water coral reef and Arctic ecosystems are already
experiencing irreversible regime shifts (medium confidence). Risks increase dis-
proportionately as temperature increases between 1 and 2°C additional warming
and become high above 3°C, due to the potential for alarge and irreversible sea
level rise from ice sheet loss. For sustained warming greater than some threshold,
Greenland ice sheet would occur over amillennium or more, contributing up to
7m of global mean sea level rise.

142    :  , ,  
An increase in the oceans’ temperatures and expanded weather variations will
substantially change the physical conditions of the infrastructure within the
inter-organizational networks. The speed and impact of change in the busi-
ness environment vary between industrial sectors and geographical areas. The
inter-organizational response to ecological uncertainties must face ‘the dynamics
of vulnerability and exposure and their linkages with socio-economic processes,
sustainable development and climate change’ (IPCC, 2014). The IPCC considers
five crucial ecological risks, which are presented in Table8.3 above. Ecological
risks produce an inter-organizational response to uncertainty. The IPCC (2014)
dimensionalizes the ecological risks to which inter-organizational networks
must actively respond as: 1)unique and threatened systems, 2)extreme weather
events, 3)distribution of impacts, 4)global aggregate impacts, and 5)large-scale
singular events. The development of integrated inter-organizational networks
leads to ecological uncertainty, which single agents in this global system must
confront.
Organizations must handle ecological uncertainty, which affect the complex-
ity and dynamics of their structures (Thompson, 1967). Ecological uncertainty
is an external force that constrains the availability of resources and affects the
internal power structures in organizations. Organizations strive to absorb and
neutralize ecological uncertainty within the global network of exchange (Pfeffer
& Salancik, 1978). The internationalization of inter-organizational networks
therefore expose local businesses that are part of the networks to the serious
effects of climate change. The global nature of sourcing and producing compo-
nents expands the impact of climate change, as we have seen, for example, during
the flood in Thailand in 2011, which hit the distribution chains of Toyota, Honda,
Samsung, and Lenovo (Kate & Kim, 2011) and led to negative downstream
effects on their marketing channels. Investors in specific assets must consider
not only potential behavioural opportunism but also the changing external
conditions caused by climate change and the resource depletion that follows
potential eco-opportunism. The lack of asustainable institutional structure
leads to ecosystem loss and resource depletion because of eco-opportunism.
Ecological uncertainty might lead to irreversible damage to biological diversity
and to extreme long-term climate effects caused by CO2 emissions. Uncertainties
change the factual aspects of the inter-organizational relationships and contracts
throughout the network. Both implicit and explicit contracts become incomplete
or obsolete. Part 2 of the report on climate change by the Intergovernmental

:      143
Panel on Climate Change (IPCC, 2014: 28), regarding impacts, adaptation, and
vulnerability, pointed out that ecological uncertainty has led to limited evidence
and that ‘studies estimating the global cost of adaptation are characterized by
shortcomings in data, methods and coverage’. Ecological uncertainty therefore
develops informational asymmetry, which decision-makers must overcome
(Williamson, 1975).
Conclusion
Future impact and responses of dynamic social and environmental systems will
be substantial. Thus, it is crucial to investigate the interactive political-economy
between social systems and potential external uncertainties (Arndt, 1983). The
inter-organizational nexus of contracts of supply chains is crucial catalysts to
promote economic growth and change in the new context of acircular economy.
Sustainability as abusiness strategy implies an intertwined management of
political-economy dimensions (Stern & Reve, 1980). Management research must
focus attention on the circular interaction between human and environmental
systems. For solving future environmental challenges, the linear business model
is an obsolete, outdated, simplistic, and dangerous instrument.
The strategic implications, based on transaction cost theory, require extend-
ing the level of analysis beyond the exclusive consideration of dyads and instead
promote long-term sustainable inter-organizational circular systems, from explo-
ration to recycling. The political-economy model offers aframework of analysing
how the institutional organization safeguards the parties against the potential
risk of eco-opportunism. Furthermore, we must respond to the increased per-
formance ambiguity produced by the new concept of sustainability. The recent
development of environmental hazards in biological ecosystems, water supply,
resources, and the atmosphere, and the related social problems, is closely inter-
woven with the strategic problems involved in institutional formation. Specific
sustainable assets are aligned with the social structures, the environment, and
the economy, and they should form future circular institutions. The network is
the essential level of strategic analysis to understand sustainability in the context
of supply chains (Reve, 1990). Iconclude that the TCE presents aconstructive
approach, along with the political-economy framework, which responds to the
eco-opportunism, eco-uncertainty, information asymmetry, transaction costs,
and performance ambiguity produced by sustainability.

144    :  , ,  
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