Porter hypothesis
Encyclopedia
According to the Porter Hypothesis, strict environmental regulations can induce efficiency and encourage innovations that help improve commercial competitiveness. The hypothesis was formulated by the economist Michael Porter
in an article in 1995.
The hypothesis suggests that strict environmental regulation triggers the discovery and introduction of cleaner technologies and environmental improvements, the innovation effect, making production processes and products more efficient.[1] The cost savings that can be achieved are sufficient to overcompensate for both the compliance costs directly attributed to new regulations and the innovation costs.
In the first mover advantage, a company is able to exploit innovation by learning curve
effects or patent
ing and attains a dominating competitive position compared to companies in countries where environmental regulations were enforced much later.
The Porter hypothesis has been applied to REACH. In one conclusion [2], companies that adopt a cost leadership
business strategy and have a relatively small product portfolio will fare better than companies that compete by product differentiation
and have a larger number of chemicals that require regulation.
Michael Porter
Michael Eugene Porter is the Bishop William Lawrence University Professor at Harvard Business School. He is a leading authority on company strategy and the competitiveness of nations and regions. Michael Porter’s work is recognized in many governments, corporations and academic circles globally...
in an article in 1995.
The hypothesis suggests that strict environmental regulation triggers the discovery and introduction of cleaner technologies and environmental improvements, the innovation effect, making production processes and products more efficient.[1] The cost savings that can be achieved are sufficient to overcompensate for both the compliance costs directly attributed to new regulations and the innovation costs.
In the first mover advantage, a company is able to exploit innovation by learning curve
Learning curve
A learning curve is a graphical representation of the changing rate of learning for a given activity or tool. Typically, the increase in retention of information is sharpest after the initial attempts, and then gradually evens out, meaning that less and less new information is retained after each...
effects or patent
Patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....
ing and attains a dominating competitive position compared to companies in countries where environmental regulations were enforced much later.
The Porter hypothesis has been applied to REACH. In one conclusion [2], companies that adopt a cost leadership
Cost leadership
Cost leadership is a concept developed by Michael Porter, used in business strategy. It describes a way to establish the competitive advantage. Cost leadership, in basic words, means the lowest cost of operation in the industry...
business strategy and have a relatively small product portfolio will fare better than companies that compete by product differentiation
Product differentiation
In economics and marketing, product differentiation is the process of distinguishing a product or offering from others, to make it more attractive to a particular target market. This involves differentiating it from competitors' products as well as a firm's own product offerings...
and have a larger number of chemicals that require regulation.