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Information Asymmetries as Trade Barriers: ISO 9000 Increases International Commerce

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Abstract

Spatial, cultural, and linguistic barriers create information asymmetries between buyers and sellers that impede international trade. The International Organization for Standardization's ISO 9000 program is designed to reduce these information asymmetries by providing assurance about the product quality of firms that receive its certification. Based on analyses of a panel of 140 countries from 1994 to 2004, we find that ISO 9000 certification levels are associated with increases in countries' bilateral exports, particularly for developing countries' exports, which may be due to their more severe quality assurance challenges. © 2009 by the Association for Public Policy Analysis and Management.

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... Information asymmetries regarding quality attributes are likely to be more severe for companies operating in international markets due to the distance from the customers as well as institutional differences (Potoski and Prakash, 2009). ISO 9000 is a well-recognised international standard and the third party certification can reduce asymmetric information (Terlaak and King, 2006;Cao and Prakash, 2011). ...
... In a study on North American manufacturing, Anderson et al. (1999) report that exporting companies are more likely to certificate compared to company active in national markets. Positive effects of ISO 9000 on international trade are detected empirically and they are particularly significant for developing countries (Potoski and Prakash, 2009) where the information asymmetries are more severe (Hudson and Jones, 2003). Pakistani companies perform better in export markets if ISO 9000 certified (Masakure et al., 2009). ...
... Cao and Prakash (2011, p.112) note that "the higher the level of competition is, the greater the incentives are to adopt quality signaling mechanisms". More generally, previous studies suggest that global competition is likely to promote ISO 9000 diffusion (Guler et al., 2002;Potoski and Prakash, 2009). In this study, the competition environment is described by a set of dichotomous dummy variables measuring the intensity of threats from competitors, costumers focus and price competition, as self-assessed by the survey respondents. ...
Article
This empirical study compares the drivers of ISO 9000 certification between services and manufacturing by adopting a signalling framework. The econometric analysis is based on a representative dataset for the service-intensive Luxembourgish economy, which provides original and relevant settings for the comparison. Probit model estimates show that ISO 9000 certification in services, unlike manufacturing, neither has quality signalling effects on the international market nor signals superior quality intangibles connected to innovation activities. The presence of co-terminality in services may explain the lack of effectiveness of ISO 9000 as a signalling device for service companies. The findings contribute to the debate on the general applicability of ISO 9000 across sectors, suggesting that services peculiarities should be considered for ISO 9000 customisation. Results also indicate that certification is not an effective quality signal in consumers markets and that it does not fill reputation gaps for newly established companies.
... Being increasingly important in international transactions, over the last few decades of globalisation, the development of international standards and the adoption of standards by companies have steadily increased (ISO, 2014). 1 The most widely diffused standards are ISO 9000 for quality management and ISO 14000 for environmental management. The literature on standards certification and its diffusion has shown that international management standards improve firms' managerial and operational efficiency (Sampaio, Saraiva, & Rodrigues, 2009) and reduce transaction costs in trading relations by signalling a firm's superior quality performance (King, Lenox, & Terlaak, 2005;Potoski & Prakash, 2009;Terlaak & King, 2006). Firms can voluntarily implement standards by way of self-regulation, requiring firms to take action beyond what domestic government regulations and institutions stipulate. ...
... The role of standards adoption and certification in international trade has been the subject of recent research using macro data. Potoski and Prakash (2009) find that ISO 9000 certification levels are associated with increases in countries' bilateral exports, particularly in the case of developing countries, which may be due to the relative severity of their quality assurance challenges. In a similar way, Clougherty and Grajek (2008) find that ISO diffusion has no effect in developed nations but enhances exports from developing countries. ...
... Signalling and disciplined behaviour become important when information asymmetries exist between sellers and buyers in vertical relationships or when important characteristics of the firm or product are not directly observable. Especially in international transactions, the information problems that raise uncertainty and transaction costs may be substantial, since spatial, cultural and linguistic barriers complicate the buyers' ability to acquire information and assess product quality (King et al., 2005;Potoski & Prakash, 2009). ...
Article
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This paper analyses the impact of International Standards Certification (ISC) on the export participation and the scale of exports of firms based in 89 developing or transition countries. We conceptualise ISC as an endogenous institutional advantage, which bridges institutional voids in the country and helps firms to export. The empirical results show that certified firms are more likely to export, and to export on a larger scale. The impact of ISC runs through two channels: productivity and transaction cost economies. We show that certification plays an important role in bringing down transaction costs in international markets, while also maintaining and raising efficiency. This finding is reinforced by additional evidence, suggesting that ISC matters more for the export participation of domestic firms than for foreign firms and is of greater importance for firms based in countries characterised by severe institutional voids.
... The emergence of supply chains, in which suppliers in one country produce intermediate inputs shipped to many countries, has been accompanied by the global diffusion of certifiable international management standards, such as ISO 9000, which focuses on quality, ISO 14000, which addresses environmental management , and recent ethical standards (Prado and Woodside, 2015). These types of voluntary standards help to overcome barriers related to information asymmetries among different actors in the supply chain (Potoski and Prakash, 2009;Cao and Prakash, 2011). ...
... Companies use ISO 9000 as a tool to signal their investment in quality upgrading and quality performance (King et al., 2005;Potoski and Prakash, 2009;Terlaak and King, 2006;Ferro, 2011). Signaling quality characteristics, which are difficult to be observed by customers, are especially important for developing countries because information asymmetries between developed and developing countries are larger than those between countries of a similar level of development. ...
... Macro-level studies focus initially on the diffusion of ISO 9000 (Guler et al., 2002). Clougherty and Grajek (2008) and Potoski and Prakash (2009) investigate the effect of global diffusion of ISO 9000 on FDI and international trade. In particular, Clougherty and Grajek (2008) examine whether ISO 9000 certifications have a 'push' or 'pull' effect on FDI and trade. ...
Article
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Companies use standards as a tool to signal their investments in quality upgrading and performance. We argue that the impact of this signal depends on the trust in the accreditation system and the development status of a country. Representing the workhorse of research in international trade, we use a gravity model to examine the trade effects of ISO 9000 diffusion and cooperation in accreditation. The model is estimated by applying a country-pair fixed effects regression approach with instrumental variables and multilateral resistance terms to a panel data set covering a 13-year period from 1999 to 2012. This allows us to test our hypotheses with respect to the moderating role of international cooperation in accreditation on the trade effects of ISO 9000 diffusion. We show that certification promotes trade and that signatories to the Multilateral Recognition Arrangement of the International Accreditation Forum (IAF MLA) trade significantly more. The IAF MLA is of particular importance to the trade among developing countries. For policy makers, our results highlight the importance of support for accreditation institutions in developing countries.
... Employing these two databases allows us to work on a larger representative sample of French firms and so control for a very detailed set of firm characteristics and features in order to properly isolate the effects of the quality standards on different forms of firm export activities-such as the logarithm of exports per employee, the logarithm of exports per employee destined for EU countries, the logarithm of exports per employee destined for non-EU countries, and the share of exports of total sales-to address reverse-causality issues and to correct for the potential selection bias. Moreover, the few studies (e.g., Volpe Martincus, Castresana, & Castagnino, 2010;Potoski & Prakash, 2009) that have carried out the analysis are mainly focused on the impact of quality standards on exports regardless of firm size, or only focus on large firms, and so almost completely neglect the role of quality standards in small and medium firms. Nevertheless, the strategies employed by the small and medium enterprises (SMEs) to enter international markets may be quite different from those employed by the larger firms (Ogbuehi & Longfellow, 1994). ...
... From a signaling perspective, quality standards can provide information on the general capability of a firm to meet the quality expectations of customers and thus make unobservable characteristics more public (Pekovic, 2010;Grolleau, Mzoughi, & Pekovic, 2007;Spence, 1973). Since buyers face high transaction costs in identifying quality exporters, quality standards could help to reduce information costs and thereby make it easier to conclude transactions or to establish inter-firm buyer-seller relationships (Volpe Martincus et al., 2010;Potoski & Prakash, 2009;Clougherty & Grajek, 2008;Terlaak & King, 2006). Therefore, internationally recognized certification such as the ISO 9000 standard may play a strong role in signaling unobservable characteristics and generating customer trust (Pekovic, 2010). ...
... For instance, using a unique firm-level dataset for Argentina over the period 1998-2006, Volpe Martincus et al. (2010 find that ISO 9000 certification is associated with increased exports along the extensive marginprimarily in terms of destination countries. Based on analyses of a panel of 140 countries from 1994 to 2004, Potoski and Prakash (2009) find that ISO 9000 certification levels are associated with increases in countries' bilateral exports, particularly developing countries' exports. Additionally, the literature argues that there may be significant efficiency gains in the form of reduced trade costs from operating within an established system of standards (e.g., Raballand & Aldaz-Carroll, 2007). ...
Article
Using original data from French firms, this study explores the relationship between quality standards and four indicators of export activities: the logarithm of exports per employee, the logarithm of exports per employee destined for EU countries, the logarithm of exports per employee destined for non- EU countries, and the share of exports of total sales. The results indicate that the sign of the relationship between quality standards and export activities is positive and statistically significant for all four indicators, supporting the view that quality standards provide information on the general capability of a firm to meet the quality expectations of customers and thus make unobservable characteristics more public. Moreover, we examine whether the quality standards–export activities relationship is firm size dependent. The findings indicate that while quality standards improve the logarithm of exports per employee and the logarithm of exports per employee destined for non-EU countries for all categories of firm size, they do not influence logarithm of exports per employee destined for EU countries among large and small firms. Additionally, the effect is insignificant for the share of exports of total sales when we look at the medium size firms.
... The International Organization for Standardization's main objective is to provide a set of harmonized worldwide technical standards in order to facilitate international exchanges and promote global trade (Clougherty and Grajek 2014). In the early years, international standards like ISO 9000 had proven significant in acting as the determinants of international trade, indeed, more than that of national standards (Clougherty and Grajek 2014;Potoski and Prakash 2009). Specifically, the ISO 9000 Quality Assurance Standards were published by the Technical Committee (TC176) of the International Organization for Standardization in 1979 to provide universal quality management standards and to rectify information asymmetry issues in international trade. ...
... Specifically, the ISO 9000 Quality Assurance Standards were published by the Technical Committee (TC176) of the International Organization for Standardization in 1979 to provide universal quality management standards and to rectify information asymmetry issues in international trade. It has been proven that ISO 9000 can act as an effective driver to increase trade (Potoski and Prakash 2009;Terlaak and King 2006). However, in recent years many experts find that the effectiveness of quality management standards are deteriorating due to a process of institutionalization. ...
... Before the establishment of the ISO 9000, information asymmetry appeared to be an unrecognized barrier within international trade agreements (Potoski and Prakash 2009). In fact, lack of certainty in the credibility of quality impedes international trade and thus should not be an overlooked issue (Grossman 1981;Lavissiere and Rodrigue 2017;Munim and Schramm 2018). ...
Article
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Abstract Although the original purpose for quality management standards such as ISO 9000 was to facilitate international trade, their effectiveness is widely questioned recently. In the literature, it has been commonly argued that institutionalization of quality standards as time goes by is a major reason behind their ineffectiveness. We explored this issue by using recent data from stock-listed firms in China. Following previous studies in this area, we examined the impact of quality management standards on the cost-efficiency and sales performance of adopting firms from 2000 to 2014. We explored if such an impact is contingent on the level of institutionalization as evidenced by the time of certifications. We show that the time of quality certifications in China has a negative impact on the effectiveness of standards in improving cost-efficiency. However, we did not find a similar weakening impact on sales performance. Overall, we find evidence of the deteriorating effects of quality management certifications in more recent years.
... To reduce uncertainty in transactions, institutions are the important "rules of the game" that shape economic interactions (North, 1991) and they can be either formal institutionsincluding laws, regulations, property rights -or informal rules, such as norms and values, habits and practices, social conventions, reputations and trust. Some authors view certification as a decentralised institution, whereby the certificate represents a low-cost instrument capable of signalling a firm"s superior but unobserved quality performance (King, Lenox, Terlaak, 2005;King, 2006, Clougherty andGrajek, 2008;Potoski, Prakash, 2009). The certificate thus opens up international markets and growth perspectives, improves the marketability of the product and raises the competitiveness of the firm. ...
... We found one micro-evidence based study demonstrating different effects of certification, comparing the effect of certification for businesses in the US and Thailand (Ussawahanitchakit, 2002). Equally interesting are the studies by Clougherty and Grajec (2008) and Potoski and Prakash (2009) who use macro data to find that ISO diffusion has a positive effect on exports, particularly from developing countries, yet no effect in developed countries (Clougherty and Grajec, 2008). ...
... Obviously, for firms who intend to sell products to wider markets, the information problem may be more serious, as spatial, cultural and linguistic barriers complicate the buyers" capability to assess product quality (Potoski and Prakash, 2009). Firms will have an incentive to use quality standards to signal their commitment to deliver a reliable product and provide the necessary sales service. ...
Article
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This paper builds on a rapidly developing literature showing the importance of quality certificates, in particular ISO standards, for the efficient development of firms. The novelty of this paper is that it systematically tests if the effects of quality certification on productivity and sales performance of firms is differently affected in countries where markets are missing or institutions are weak, in supporting the efficient use and allocation of inputs and outputs. We find evidence that quality certification is indeed more important for the productivity and sales growth for firms in institutionally less developed (ILD) countries. In testing whether ISO certification has an extra signalling role to buyers in foreign markets, we tested whether, in addition to productivity gains, ISO certification contributes to export. The tobit estimation results indicate that ISO certification triggers firms to export and significantly raises the export intensity of firms.
... The benefits to local industrial development are twofold [41,[46][47][48][49]. Firstly, international quality standards promote productivity (see section 3.2.). ...
... We apply insights from economic theory on quality uncertainty and adapt it to the context of solar PV auctions [46,47,50,[67][68][69]. As mentioned in section 3.1, compliance with international quality standards has been shown to overcome the buyer's insufficient information or lack of trust, for example in international trade [47,67,69] and foreign direct investment [48,68]. ...
... We apply insights from economic theory on quality uncertainty and adapt it to the context of solar PV auctions [46,47,50,[67][68][69]. As mentioned in section 3.1, compliance with international quality standards has been shown to overcome the buyer's insufficient information or lack of trust, for example in international trade [47,67,69] and foreign direct investment [48,68]. International quality standards create trust, as they signal use of state-of-the-art production processes. ...
Article
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Solar technology diffuses across the globe as countries transition from fossil to renewable energy. Little solar-specific experience and capacity in newly adopting countries can result in technical failures and lower solar plant performance. This contributes to making the investment in solar plants in newcomer countries risky and may undermine political targets of solar energy deployment. One solution suggested by international organizations is for policymakers in adopting countries to include international quality standards as technical requirements in public auctions. Here, we develop a conceptual framework on how international quality standards could help build a solar sector. As a case study, we analyze the explanatory factors of technical requirements in 100 public auctions of utility-scale solar photovoltaic plants carried out in India between 2013 and 2019. Our findings suggest that more international quality standards are required in auctions in which the government rather than a private actor ultimately carries the commercial risk. On the other hand, local content requirements and attracting foreign investors do not correlate with technical requirements. We argue that using minimal quality standards is unlikely to promote local technological catch-up or attract long-term foreign investments but transfers the techno-commercial risk from the government to the private sector.
... Erosleek ez duten informazio baliagarria dute ekoizleek, eta ondorioz desabantaila egoeran aurki daitezke ekoizle horien aurrean (Toffel, 2005). Dena den badirudi enpresen arteko harremanetan borondatezko erregulazio programen erabilera garrantzitsuagoa dela, enpresek erabiltzaile edo azken kontsumitzaileekin izaten dituzten harremanetan baino (Hudson eta Jones, 2003;Prakash eta Potoski, 2009;Toffel, 2005). ...
... Atal honen ondorio gisa, arestian aipatutako Prakash eta Potoski-k (2009) zehazten dute informazio asimetriak murriztu, eta ondorioz jarduera ekonomikoa eta komertziala sustatzera bideratutako borondatezko nazioarteko programen ahalmena gutxietsi dela (Prakash eta Potoski, 2009). ...
Article
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Corporate self-regulation is a phenomenon that has been widely disseminated in recent years. In this contribution we will focus on the analysis of two scholarly perspectives that have analyzed this issue: the theory of clubs and the theory of information asymmetries. The clubs provide valuable information about the activities of their members reducing information asymmetries. Successful clubs induce their members to voluntarily undertake actions for environmental improvement with greater commitment than they would do unilaterally, and very often motivate the adoption of environmental self-regulation tools as the international standard ISO 14001 for environmental management or the EMAS Regulation. This article aims to analyze the general and specific criticism that is made to these private self-regulation tools.
... External benefits result from a reduction of transaction costs, as certificates would signal that the firm is a reliable partner, with a better-quality reputation, raising credentials in the marketplace (Djupdal. and Westhead 2015;Sleuwaegen 2013, 2016;Potoski and Prakash 2009;Terlaak and King 2006). As a result, the external benefits of certification can be seen in sales increases, usually due to the expansion of trade and export activities (Henson and Jaffee 2006;Henson et al. 2011;Maertens and Swinnen 2009;Masakure et al. 2011;Potoski and Prakash 2009). ...
... and Westhead 2015;Sleuwaegen 2013, 2016;Potoski and Prakash 2009;Terlaak and King 2006). As a result, the external benefits of certification can be seen in sales increases, usually due to the expansion of trade and export activities (Henson and Jaffee 2006;Henson et al. 2011;Maertens and Swinnen 2009;Masakure et al. 2011;Potoski and Prakash 2009). ...
... For those with an interest and capacity to export, ISO 9001 certification can signal to potential (foreign) customers that a firm has the internal procedures in place to serve as a reliable supply chain partner. ISO 9001 certification has been demonstrated to offer trade and market access opportunities to firms from developing countries (Potoski and Prakash, 2009) and to increase the value of export sales (Henson and Masakure, 2009). ...
... This result is consistent with findings of previous studies which explored the adoption of ISO 9001 as a signal to international buyers of a firm's commitment to quality (e.g. Potoski and Prakash, 2009). Alternatively, this marketing advantage may be derived from a successful effort to mimic competitors or to respond to competitive pressures. ...
Article
Purpose ISO 9001 can offer users substantial management benefits. For developing country firms, this standard could offer both important management improvements and serve as a quality signal to foreign suppliers and potential buyers. The purpose of this paper is to explore the impact of ISO 9001 on food manufacturing firms in Guyana. Design/methodology/approach A multiple case study approach, using interviews with multiple managers, was used to assess the impacts of ISO 9001 in six registered and non-registered firms. Findings ISO 9001 offers supply chain management benefits. Non-registered firms reported using the standard to formalize their monitoring procedures and improve planning, sourcing, manufacturing, and delivery efficiency. Registration helped firms formalize their quality management systems; it provided guidance on improving their customer/supplier relationships, and offered tools to monitor internal processes. Registered and non-registered firms reported increased customer satisfaction, market share and inventory turnover, and reduced lead times, rework, waste, and customer complaints. Research limitations/implications The number of cases examined in this study is limited. Interview data are based on managers’ perceived experiences; it was not possible to verify this information independently. Originality/value The paper examines management benefits of adopting an international quality management standard in developing country agrifood firms.
... How can we increase the level of trust between trading partners? The application of international standards may very well help to reduce transaction costs and increase trade (Hudson and Jones 2003;Blind and Jungmittag 2005;Swann 2010;WTO 2005;Mangelsdorf 2011;Grajek 2011, 2008;Potoski and Prakash 2009). International standards define common expectations on the product performance, and can increase trust regarding the compatibility of the partners' joint production (WTO 2005 We use an extended gravity model to show how the world-wide diffusion of ISO certificates affects bilateral trade. ...
... Despite the wide diffusion of ISO 9000 certifications the trade impact received relatively little attention. Exceptions are the macro studies from Grajek (2011, 2008) and Potoski and Prakash (2009) However, the macro level study from Clougherty and Grajek (2011) comes to contrary results. The authors study the effect of ISO 9000 adoptions on bilateral trade flows for 91 nations between 1995 and 2005 and find that ISO 9000 standards reduced exports from developing or transition countries to developed countries. ...
Article
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While it is widely acknowledged that international standards facilitate trade, much less is known about certification requirements and mutually recognition of certifi-cation results. In our paper, we examine the impact of ISO 9000 certifications and the multilateral recognition arrangement for international acceptance of ISO 9000 certificates of the International Accreditation Forum (IAF-MLA) on trade in manu-facturing goods. Using a gravity model, we find that certification intensity-the percentage of ISO 9000 certificated establishments in the manufacturing sector-promotes trade. Signatories of the IAF-MLA significantly trade more with each other and the trade enhancing effect has about the same magnitude as regional trade agreements. Our analysis shows that IAF-MLA is most important for ex-porters from less developed countries aiming to access markets in developed countries. For policy makers, our results show the importance of technical assis-tance for accreditation services in developing countries.
... From the general perspective of decentralized institutions and signaling models, quality certification has been claimed to reduce information asymmetries in markets, as certification signals superior performance (e.g. King et al. 2005;Potoski and Prakash, 2009). From this perspective, the value of ISO 9001 in signaling the superior level of service quality of a certified organization has been extensively examined in both the scholarly (e.g. ...
... Similarly, the supposed signaling value of ISO 9001 in showing a superior level of service quality of the certified organizations, which is repeatedly emphasized in the general literature on ISO certification (e.g. King et al. 2005;Potoski and Prakash, 2009;Cao and Prakash, 2011;Han et al., 2012;Tricker, 2013) is called into question. ...
... Due to intense global competition, such incentives are likely to be higher for a developing country, where information asymmetries and reputational problems are critical among firms. In this case, buyers associate the quality of the seller with the generally poor reputation of the country where it is located (Potoski and Prakash 2009;Otsuki 2011;Bangwayo-Skeete and Moore 2015). Encouraging companies to increase transparency regarding their sustainable practices to different stakeholders, including government authorities, investors and insurance companies, is therefore crucial for their trust (Castka and Prajogo 2013;Ikram et al. 2020). ...
... The second set was λ c , which reflected the time-invariant, country-level effects that might impact on certification, such as institutional environment and regulations, as well as financial and human resource constraints that might hinder the general market functioning (Massoud et al. 2010;Ullah et al. 2014;Goedhuys and Sleuwaegen 2016). Moreover, country fixed-effects might reflect the fact that firms in countries with poor reputation would have more incentive to go out of their way to get internationally certified, in order to gain access to external markets relative to the firms located in markets that would not make them look as low quality (Potoski and Prakash 2009;Otsuki 2011;Bangwayo-Skeete and Moore 2015). The third was η t , which reflected any time-specific shocks simultaneously affecting all countries. ...
Article
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Environmental and quality management practices are extremely relevant for a firm’s development and international recognition. However, dealing with the standards required and obtaining an international standards certification involves costs for employee training, procedure documents, and third-party audit fees that must be paid in advance by companies. This paper attempts to analyze the impact of difficulties in accessing external financing on the likelihood of possessing the standards and the certification, for firms based in 64 countries. A crucial aspect in uncovering such a causal effect is the potential endogeneity of financial constraints with respect to international standards certification. I address this issue by adopting a bivariate probit model and a set of firm-level instrumental variables. The empirical results showed that financially constrained firms were less likely to possess the standards required and the associated international certification, and that this impact was more relevant for small and young firms.
... Indeed, the political economy literature suggests that signaling programs such as voluntary clubs are likely to emerge where nonprofit behavior and the quality of nonprofits' products are hardest to observe. Permissive conditions for this include situations in which customers and producers are separated by large distances (Prakash & Potoski 2006b;Terlaak & King 2006), transactions are not repeated, or goods and services are idiosyncratic or quality is difficult to judge or verify (Potoski & Prakash 2009b). This is the case when nonprofits are charged to supply "credence" or post experience goods whose quality is difficult to verify. ...
Article
The global nonprofit and nongovernmental (NGO) sector has expanded substantially during the past two decades. As a result of this “global associational revolution” – marked by massive infusion of funds from governments, international organizations, foundations, and individuals – the nonprofit sector became a major component of the social service delivery system in most countries (Salamon et al., 2003; Salamon, 1994). This growth also thrust nonprofits and NGOs into the middle of contemporary policy debates over the appropriate role for governments and markets in the provision of public services (Giddens, 1998; Anheier and Salamon, 2006). With this expansion, the nonprofit sector also became a target for increased scrutiny, in part because it appeared to attract “bad apples” along with well-intentioned, principled organizations. Scandals and charges of nonprofit mismanagement and misappropriation have been extensively covered by the media (Fremont-Smith and Kosaras, 2003; Gibelman and Gelman, 2004; Greenlee et al., 2007). As a result, nonprofits face growing demands for accountability from resource providers as well as from the constituents they claim to serve (Edward and Hulme, 1996; Spiro, 2002; Brody, 2002; Ebrahim, 2003). While scandals tend to impose costs on the specific wrongdoers, they can muddy the reputation of all actors with similar sectoral scope or organizational characteristics. Indeed, high-profile cases of governance failure have tended to impose negative reputational externalities on all nonprofits. A recent global opinion survey found that in a number of countries worldwide, the nonprofit sector is now less trusted than government or business (Edelman Trust, 2007).
... Indeed, the political economy literature suggests that signaling programs such as voluntary clubs are likely to emerge where nonprofit behavior and the quality of nonprofits' products are hardest to observe. Permissive conditions for this include situations in which customers and producers are separated by large distances (Prakash & Potoski 2006b;Terlaak & King 2006), transactions are not repeated, or goods and services are idiosyncratic or quality is difficult to judge or verify (Potoski & Prakash 2009b). This is the case when nonprofits are charged to supply "credence" or post experience goods whose quality is difficult to verify. ...
Book
How can nonprofit organizations and NGOs demonstrate accountability to stakeholders and show that they are using funds appropriately and delivering on their promises? Many nonprofit stakeholders, including funders and regulators, have few opportunities to observe nonprofit internal management and policies. Such information deficits make it difficult for 'principals' to differentiate credible nonprofits from less credible ones. This volume examines a key instrument employed by nonprofits to respond to these challenges: voluntary accountability clubs. These clubs are voluntary, rule-based governance systems created and sponsored by nongovernmental actors. By participating in accountability clubs, nonprofits agree to abide by certain rules regarding internal governance in order to send a signal of quality to key principals. Nonprofit voluntary programs are relatively new but are spreading rapidly across the globe. This book investigates how the emergence, design, and success of such initiatives vary across a range of sectors and institutional contexts in the United States, the Netherlands, Africa, and Central Europe.
... A second explanation is the geographic location. Spatial barriers in international trade lead to difficulties for buyers to identify product quality (Potoski and Prakash, 2009). When a North European company receives a product from a South European supplier, they can physically go to the factory to check operations and product quality. ...
Article
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The ISO 9001 standard for quality management has been implemented by more than 1,000,000 organizations worldwide. It has received a high degree of attention in existing literature. However, findings about the impact of ISO 9001 certification on financial performance are not consistent in the literature; researchers found positive, negative, neutral and sometimes mixed effects. This study examines the relationship between ISO 9001 certification and company performance by means of meta-analysis to answer weather ISO 9001 is positively related to improved performance. The study also examines the existence of moderating factors in the relationship between ISO 9001 and performance. An in-depth analysis of 92 studies shows that the ISO 9001 certification helps companies to increase their income and financial performance. We also conducted subgroup analyses and found that variables such as data collection method, the version of the certification, the role of the respondent in the company, geographic location, sector and the size of the company moderate the relationship between ISO 9001 and financial performance. Discussion of the findings, directions for further development of ISO 9001 research and limitations are presented.
... Many authors conclude that, if properly implemented, ISO management standards are likely to increase economic efficiency, reduce costs and promote international trade (Nadvi and Wältring 2004;Potoski and Prakash 2009). Moreover, they tend to replace local standards that are frequently regarded as barriers to international trade and business development (Clougherty and Grajek 2008;Franceschini et al. 2010;. ...
Article
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In the last two decades, we have witnessed an acceleration of the process of standardisation with regard to business management. Standards which correspond to the standardisation of a very wide range of aspects of business activity, such as quality management (e.g. ISO 9001), environmental management (e.g. ISO 14001), the prevention of occupational hazards and the provision of health and safety regulations in the workplace (e.g. OHSAS 18001) and corporate social responsibility (e.g. SA 8000) have been launched. All of these standards tend to have a very similar methodology in relation to their creation, structure, process of implementation and monitoring by a third party. The current work represents an attempt to synthesise and map this class of standards, known as management system standards, also referred to as meta-standards, which have been so successful in recent years.
... Maskus et al. (2005) examine firm-level data from 16 developing countries and determine that adopting foreign product standards adds significantly to firms' fixed and variable costs, the former at the rate of 4.7% of value added on average (Maskus et al. 2005, p. 2). Potoski and Prakash (2009) similarly note that 'smalland medium-sized firms routinely cite auditing costs as an important factor for not pursuing ISO 9000 certification' (Potoski and Prakash 2009, p. 225). Provided such costs are more easily borne by firms of higher underlying quality, private certification may be a credible signal by which firms can distinguish themselves from competitors in the eyes of lenders. ...
Article
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Information asymmetry between Chinese banks and small- and medium-sized domestic private enterprises (SMEs) is a source of credit constraints. This paper investigates whether obtaining an internationally recognized private certification standard can credibly signal unobserved firm quality, reducing information asymmetry and improving access to finance. Examining World Bank survey data, I find that firms that certified firms are 1.68 times as likely as comparable uncertified firms to receive bank loans. This effect is strongest among smaller firms, for whom information asymmetry is likely a more severe constraint. China’s promotion of certification as a tool of regulatory policy has had the unintended consequence of mitigating policy shortcomings in another domain.
... The impact of standards on working conditions can also come indirectly from the influence on firm profitability. While standards increase operational costs through, for example, investments in infrastructure and worker training, the implementation of standards is likely to result in better market access, higher product quality or increased productivity (Henson & Humphrey, 2010;Potoski & Prakash, 2009). Combined, these could yield higher prices and higher returns if the wage share of the increased value added does not go down. ...
Article
Private international standards are commonly applied to improve market access and competitiveness. While most studies focus on trade effects and organizational outcomes, very few studies look at the effect of standards on employees. Using a three-year matched employer–employee panel dataset, this paper finds that the application of management standards improves working conditions in small and medium enterprises (SMEs) in Vietnam. Certified firms pay higher wages on average, implying that the adoption of standards could boost labor productivity. They are also more likely to offer formal contracts, illustrating that benefits from standards also have non-monetary aspects. These effects come from higher investment in employee training, adherence to national labor laws, and engagement of non-technical workforce. There is, however, no systematic impact of standards on the provision of fringe benefits, such as paid sick leave and health, social, unemployment, and accident insurance. The estimation accounts for endogenous matching of workers with firms and unobserved heterogeneity using an instrumental variable approach. The study reveals unexpected benefits from certification.
... Firms operating in corrupt countries may fear that their products are tarnished by the country's reputation and may join voluntary programs to offset this reputational damage. Consequently, there is some evidence that joining voluntary programs such as ISO 9001 may allow developing countries that have poor reputations for quality to enhance trade (Potoski and Prakash, 2009). Hence, we do not see reputational benefits of joining a program to be mainly ideational; they have concrete material payoffs. ...
Article
How does strength of domestic NGOs influence participation in the Covenants of Mayors program? Launched by the European Commission in 2008, this program invites local and regional authorities to voluntarily commit to implementing EU climate change and energy policies. We focus on the transitional countries of Eastern Europe and Eurasia to examine whether the strength of their domestic NGOs correlates with cities’ decisions to participate in this transnational program. To operationalize NGO strength, we suggest thinking of it as a stock variable that cumulates over time, instead of a single-year, flow variable. With country year as the unit of analysis, we examine the percentage of urban population covered by the Covenant across a panel of 26 transitional economies for the period 2008–2014. We find that the key variable of interest, cumulative NGO strength, is a statistically significant predictor of program participation, even after controlling for domestic and international factors, including the salience of international NGOs and the years since the country began the formal process to join the European Union.
... Government policies promoting both quality management and an institutional positive attitude to ISO 9001 are likely to be two important factors for this phenomenon [29]. The intensity of trade has also been highlighted as a major reason for a country high ISO 9001 certification intensity [30,31]. For a given country, population and gross national income have been identified as two significant variables that influence the quality management systems certification diffusion [32]. ...
Article
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This exploratory research aims to study the reasons for the low implementation level of Six Sigma within Portuguese Small and Medium Enterprises. The results suggest that ISO 9001 certification, and Lean Management, are still regarded as enough for company success. The descriptive analysis and the statistical tests performed led to the conclusion that there are no significant differences for the motivations not to implement Six Sigma between small and medium companies. The qualitative research with focus groups highlighted that SMEs aiming for fast improvement results focus more on Lean Management and Kaizen, by using Five S methodology, visual management at shop floor level and basic quality tools. However, there are different views concerning Six Sigma applicability and value for SMEs, suggesting the need for further in depth research. Within this context, the edition of ISO 9001:2015 International Standard with an increased emphasis on process approach and the achievement of the quality management system objectives is a relevant opportunity for using Six Sigma to streamline processes and enhance customer satisfaction and business results.
... For many MNEs, their GVCs consist of hundreds of firms with multiple tiers of suppliers, making it difficult to coordinate with suppliers across different countries and regions. However, there are cultural, geographic, and linguistic barriers between developing countries and developed countries that create information asymmetries (Potoski and Prakash 2009). ...
Chapter
Michida, Humphrey and Nabeshima summarize the main ideas in the collection and the contribution of each of the papers. Focusing specifically on food safety standards and product-related environmental regulations (PRERs) adopted in the EU, they argue that these regulations and standards have increased in stringency and have extended the use of the preventive controls. Such controls create challenges for both governments and businesses in Asian countries. If these challenges are not addressed, the regulations may act as barriers to trade. The chapter identifies how the different chapters in the book contribute to analyzing the responses of both regulatory authorities and businesses in developing Asia to these challenges.
... Indeed, some recent work suggests that firms might be more interested in private regulation in areas of limited statehood where the shadow of hierarchy is weak and the shadow of anarchy looms large (Borzel & Risse, 2010;Potoski & Prakash, 2009). In this case, private regulation serves as a substitute for public regulation. ...
Article
Debates about the efficacy of private environmental regimes have been fueled by disparate research findings, such as when the same regime that has been effective in one setting is found to be ineffective in another. In this article, we show that the efficacy of ISO 14001, the most widely adopted voluntary environmental regime in the world, is conditioned by the stringency of countries’ domestic regulations. In doing so, we outline a model of strategic corporate environmentalism wherein firms strategically focus their International Organization for Standardization (ISO) certification to reduce emissions of visible air pollutants as opposed to less visible water pollutants. Our analyses of pollution levels for a panel of 159 countries (73 for water pollution) from 1991 to 2005 indicate that ISO 14001 certifications reduce air (SO2) emissions in countries with less stringent environmental regulations but have no effect on air emissions in countries with stringent environmental regulations. We also find that ISO membership levels are not associated with reductions in water pollution levels (Biochemical Oxygen Demand BOD), irrespective of stringency of domestic law. Our article suggests that the efficacy of global private environmental regimes is likely to be conditioned by the domestic regulatory context in which firms function
... Indeed, the political economy literature suggests that signaling programs such as voluntary clubs are likely to emerge where nonprofit behavior and the quality of nonprofits' products are hardest to observe. Permissive conditions for this include situations in which customers and producers are separated by large distances (Prakash & Potoski 2006b;Terlaak & King 2006), transactions are not repeated, or goods and services are idiosyncratic or quality is difficult to judge or verify (Potoski & Prakash 2009b). This is the case when nonprofits are charged to supply "credence" or post experience goods whose quality is difficult to verify. ...
Article
Nonprofits and nongovernmental organizations (nonprofits, in short) have emerged as important actors across a wide range of policy areas. Along with their contribution to economic growth and democracy (Putnam, 1993), some view them as the key pillars of the emerging world society (Meyer 1997) and world culture. Given their policy potential and the policy hype that has often surrounded them, nonprofits have attracted significant levels of resources from governments, intergovernmental organizations, foundations, citizens, and corporations. The expectations for what nonprofits can accomplish are quite high, especially given the inadequate success of both market-based and government-based approaches in solving pressing policy problems. This increased policy attention and the attendant rise in resource flows to the “third sector” have also led to increased scrutiny. Both practitioners and scholars have raised questions about the lack of appropriate accountability mechanisms to govern nonprofits: if nonprofits are showered with resources, how do we know whether nonprofits are delivering as promised? Nonprofits, as well as the donors that seek to fund them, have sought to address these accountability demands in several ways. This volume examined one important category of accountability mechanisms: voluntary accountability clubs. Theoretically and empirically, this volume explored issues such as how and why such clubs emerge, why nonprofits are willing to participate in voluntary programs that impose costly obligations, who sponsors these programs, and how participation in such clubs might reassure various principals about nonprofits' intentions regarding accountability and governance issues.
... In particular, the impact of certification has been classified as 'external' or 'internal' (Sampaio, Saraiva, and Guimarães Rodrigues 2009;Heras-Saizarbitoria and Boiral 2013). External benefits result from a reduction of transaction costs, as certificates signal that the firm is a reliable partner, with a better reputation, raising credentials in the marketplace (King, Lenox, and Terlaak 2005;Terlaak and King 2006;Potoski and Prakash 2009;Goedhuys and Sleuwaegen 2013;Djupdal and Westhead 2015). ...
Article
Using a rich panel dataset of small and medium scale manufacturing enterprises (SMEs) active in the manufacturing sector in Viet Nam, this paper investigates the drivers of firm productivity, focusing on the role played by international management standards certification. We test the hypothesis that, accounting for technological innovation (product and process) and other variables related to technological capabilities, international standards are conducive to higher productivity, through improved management practices and business organization. In line with the requirement of continuous improvement implied by most international standards, the main findings show that the possession of an internationally recognized standard certificate leads to significant productivity premium. We further find that the effect of certification on productivity is particularly strong for firms with technological innovation, located in southern provinces, and operating in more scale-intensive industries.
... The impact of International Quality Standard Certification on a firm in participating in export participation has been the subject of recent research using macro data. Research done by Potoski and Prakash finds that ISO 9000 certification levels are associated with increases in countries' i atera exports, particularly in the case of developing countries, which may be due to the relative severity of their quality assurance challenges (Potoski & Prakash, 2009). In a similar study, Clougherty and Grajek find that ISO diffusion has no effect in developed nations but enhances exports from developing countries (Clougherty & Grajek, 2008). ...
Article
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Export is considered the backbone of a country's economy. Export plays a vigorous role in the economic growth of a country. But a company's decision of becoming an export firm has certain constraints. This paper examines The International Quality Standard Certification (IQSC) and the firm's participation in the export market of Egypt and Ethiopia. By considering the volume, Egypt is one of the top exporters in Africa, while Ethiopia is considered an average exporter. We tend to find why some countries' firms try to export more while others are less. Does the International Quality Standard Certification (IQSC) matter for firms' participation in the export market? How different are the characteristics of exporting firms in different countries? What other factors determine the firms' participation in the export market. We found that firms having IQSC export more than the firms that don't have IQSC and they have a comparative advantage. Due to economies of scale and higher efficiency, large firms have an advantage over small and medium firms in exporting to international markets. The firm's age is not an important factor for the probability to export. Productive, aged, foreign-owned and large firms usually export more than their counterparts.
... These private governance initiatives allowed firms, NGOs and developed country governments to address some of the negative consequences of economic integration, without significantly limiting its scope (Bartley 2007;Fransen 2011;Knudsen and Moon 2017). 1 Some brands, including Knights Apparel, Apple, Levi Strauss & Co. and Nike, sought to define themselves as leaders in responsible production (Bartley et al. 2015;Berliner et al. 2015b). Firms based in developing countries used participation in global voluntary schemes to signal commitments to protecting workers and the environment (Berliner and Prakash 2014;Cao and Prakash 2011;Potoski and Prakash 2009). Indeed, Distelhorst and Locke (2018) find that manufacturing firms' compliance with labor and environmental standards is associated with a significant increase in purchases by supply-chain partners (also see Görg et al. 2016). 2 Research on effectiveness of these voluntary private governance schemes typically finds that they fall short in protecting workers, for a variety of reasons (Applebaum and Lichtenstein 2016, Berliner and Prakash 2015). ...
Article
Full-text available
Most research on private governance examines the design and negotiation of particular initiatives or their operation and effectiveness once established, with relatively little work on why firms join in the first place. We contribute to this literature by exploring firms’ willingness to participate in two recent, high-profile private initiatives established in the aftermath of the Rana Plaza disaster in the Bangladesh ready-made garment (RMG) sector: the Accord on Building and Fire Safety and the Alliance for Worker Safety in Bangladesh. Using novel shipment-level data from U.S. customs declarations, we generate a set of firms that were “eligible” to join these remediation initiatives. We are able to positively attribute only a minority of US RMG imports from Bangladesh to Accord and Alliance signatories. Firms with consumer-facing brands, publicly-traded firms, and those importing more RMG product from Bangladesh were more likely to sign up for the Accord and Alliance. Firms headquartered in the USA were much less likely to sign onto remediation plans, especially the Accord.
... The certification obtained from ISO 9001 can convince a potential or foreign customer that a company has internal procedure to serve as a reliable supply chain partner and for those with the capacity and an interest to export. Market and trade access has been offered as demonstrated by the ISO 9001 certification and to maximize the values of the sales of export (Henson & Masakure, 2009;Potoski & Prakash, 2009). ...
Thesis
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There have been inconsistent findings in the literature concerning the relationships between quality management and sustainable performance. Hence, this research has prompted a further investigation of the effect of other variables that may better explain the nature of these links. The main purpose of this study is to investigate the mediating and moderating effects of organizational excellence and environmental regulation and policy (ERP), respectively, on the relationship between total quality management (TQM) and sustainable performance (SP). Human resources management (HRM), service design (SD), information and analysis (IA), continuous process improvement (CP), benchmarking (BM), management leadership (ML), and quality assurance (QA) as TQM elements considered in this study were mediated and moderated with their respective relationships with sustainable performance. Questionnaires were distributed to 303 Malaysian food and beverage companies. 98 questionnaires were returned and used in the analysis using the PLS-SEM. The results of this study revealed that effective BM, CPI, SD, QA, and IA as TQM elements have a positive and significant effect on sustainable performance on one hand and organizational excellence as a significant mediator of ML, CPI, SD, HRM, and IA to sustainable performance on another hand. In contrast, the results indicated an insignificant moderating effect of environmental regulation and policy on the relationships between TQM practices and sustainable performance. This study supported the premises of the contingency and the institutional theory by reaffirming the importance of excellence for any successful strategic implementation in enhancing sustainable performance through the implementation of quality practices. The developed framework of this study can be employed by policy and decision-makers. Managers in the industry should consider the importance of this model when implementing any practice in the future. For future research, it is recommended that a longitudinal study is carried out to evaluate the impact of TQM, organizational excellence, and ERP on SP.
... Looking at benefits, reducing information asymmetry is one of the main expected advantages of having a certificate: the larger the information gap, the larger the potential benefits from its reduction, the more likely a firm is to find it strategic to become certified (King et al., 2005). This can be the case in industries where capabilities and quality are hard to observe, such as in technology-intensive sectors (Terlaak & King, 2006), or when parties are physically, culturally, and linguistically distant, as in the case of firms engaging in international trade through export or participation into global value chains (Potoski & Prakash, 2009). ...
Article
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Using two waves (2013, 2015) of the Micro, Small, and Medium sized Enterprises (MSMEs) survey of Vietnamese manufacturing firms, this paper first explores what drives firms’ decision to have a domestic standards certificate, taking into account a rich number of factors related to the cost and expected benefits of certification as well as institutional factors. It further explores the presence of a positive and significant effect of domestic certificates on firm growth, testing whether these serve as signalling devices for desirable attributes under information asymmetry. Evidence is indeed found for a signalling effect of domestic standards certification, being stronger for female-run businesses. Results hold even when controlling for international certifications.
... Standards are especially essential for global supply chains and international trade: governments negotiate Mutual Recognition Agreements (MRAs) based on internationally agreed standards; international auctions (e.g., wool) require products to be tested by accredited laboratories. Firms need to comply with various product and process standards and in doing so gain access to international markets [4,5] and signal their capabilities [6]. The opening quote of this paper introduces yet another important aspect of standardization: standards can also impact the acceptance of new and innovative products (such as sustainable products), or, more broadly, affect the competitiveness of firms. ...
Article
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The progress towards sustainable development could be accelerated by the adoption of progressive technologies and the development of new “green” products. The anecdotal evidence suggests that the acceptance of these products is, in part, affected by the development and acceptance of new standards as well as by the management of standardization in firms. Yet, there is a lack of a clearly focused research agenda that would systematically address the management of standardization in firms–particularly from a sustainability perspective. This paper addresses this gap and develops a research framework that is organized in three areas—intrafirm capabilities (the role of standards in the development of firms’ capabilities in—and through—standardization-related activities), interorganizational relationships (the role of standards in the development of interorganizational relationships) and accountability (the role of standards for accountability in firms and supply chains). Each area provides a set of representative research questions for future research. The paper also aims to encourage scholars in the field to address standardization from a strategic perspective, to develop an understanding about the complex nature of the management of standardization and trace its economic and sustainability consequences.
... The impact of International Quality Standard Certification on a firm in participating in export participation has been the subject of recent research using macro data. Research done by Potoski and Prakash finds that ISO 9000 certification levels are associated with increases in countries' i atera exports, particularly in the case of developing countries, which may be due to the relative severity of their quality assurance challenges (Potoski & Prakash, 2009). In a similar study, Clougherty and Grajek find that ISO diffusion has no effect in developed nations but enhances exports from developing countries (Clougherty & Grajek, 2008). ...
Research
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Export is considered as the backbone of a country's economy. Export plays a vigorous role in the economic growth of a country. But a company's decision of becoming an export firm has certain constraints. This paper examines The International Quality Standard Certification (IQSC) and the firm's participation in the export market of Egypt and Ethiopia. By considering the volume, Egypt is one of the top exporters in Africa, while Ethiopia is considered an average exporter. We tend to find why some country's firms try to export more while others are less. Does the International Quality Standard Certification (IQSC) matter for firms' participation in the export market? How different are the characteristics of exporting firms in different countries? What other factors determine the firms' participation in the export market. We found that firms having IQSC export more than the firms that don't have IQSC and they have a comparative advantage. Due to economies of scale and higher efficiency, large firms have an advantage over small and medium firms on exporting to international markets. The firm's age is not an important factor for the probability to export. Productive, aged, foreign-owned and large firms usually export more than their counterparts.
... In this regard, Cao and Prakash (2011) found that the pressures that emanate from commercial competitors that have adopted ISO 9001 induce exporters located in less developed countries to join this quality certification system. They argued that the problems of information on product quality are likely to be more important for developing exporting countries (Chiang and Masson, 1988;Potoski and Prakash, 2009;Cao and Prakash, 2011). Martincus et al. (2010) studied the ways in which certification affects the exports of companies, and found that ISO 9001 certification is associated with an increase in exports in terms of countries-destination, which means that there is a relationship but only with certain destination countries. ...
Article
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Purpose This study has the main aim of analyzing the influence of six factors on ISO 9001 implementation: Economic Development, Exporting to Europe, Reputation, Competitiveness, Innovation and Business Sophistication. As a complement, a new factor relating to quality by country has been added: the World Quality Scoreboard. Design/methodology/approach Hypotheses are proposed that establish a (positive or negative) linear relationship between the diffusion of ISO 9001 and the indicators of the different factors analyzed in each country. The SPSS program was used to evaluate the hypotheses using data from 2009 to 2018. Findings The results indicate strong positive relationship for the country's economic development only when countries with low levels of income are considered. For the rest of the variables, the results indicate that their behavior varies according to the degree of development of the countries. When only developed countries are considered, significant and negative correlations are obtained for reputation, competitiveness, innovation and business sophistication, while considering the group of less developed countries, the results are reversed. The new World Quality Scoreboard has the same behavior whereas regarding exports; we did not obtain conclusive results. Originality/value This study adds important information on the studying of ISO 9000 phenomenon diffusion/evolution by analyzing the effect of six variables on the degree of implementation of the ISO 9001 standard in different countries. This information is interesting for companies and certification bodies across the world because it allows a better understanding of the reasons and conditions of implementing a quality management system.
... The decision to adopt a management system standard is driven by internal or external reasons [8]. The benefits of certification include regulatory compliance [32], meeting customer requirements [33], internal improvements [34], [35], access to markets [36], and innovation performance [37]. Although the motives for seeking certification to ISO 9001 and ISO 14001 are quite similar, the adoption of the latter is often determined by the regulatory environment [38]. ...
Article
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In the light of digitalization and recent EU policy initiatives, information is an important asset that organizations of all sizes and from all sectors should secure. However, in order to provide common requirements for the implementation of an information security management system, the internationally well-accepted ISO/IEC 27001 standard has not shown the expected growth rate since its publication more than a decade ago. In this article, we apply web mining to explore the adoption of ISO/IEC 27001 through a series of 2664 out of more than 900 000 German firms from the Mannheim Enterprise Panel dataset that refers to this standard on their websites. As a result, we present a ‘‘landscape’’ of ISO/IEC 27001 in Germany, which shows that firms not only seek certifications themselves but often refer on their websites to partners who are certified instead. Consequently, we estimate a probit model and find that larger and more innovative firms are more likely to be certified to ISO/IEC 27001 and that almost half of all certified firms belong to the information and communications technology (ICT) service sector. Based on our findings, we derive implications for policy makers and management and critically assess the suitability of web mining to explore the adoption of management system standards.
... Standards and certification schemes assure credibility of the production process and inform about product quality and safety, as well as about the social and environmental conditions of the production process. This illustrates the signalling role of standard certificates, which are used strategically to raise the firm's credentials in the marketplace by indicating to external parties that the firm is a reliable supplier and partner (Goedhuys and Sleuwaegen 2013;Henson and Jaffee 2006;Potoski and Prakash 2009;Terlaak and King 2006). One of the signalling benefits is the reduction in transaction and search costs, that is, the time and resources customers need to identify eligible suppliers. ...
Chapter
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This chapter investigates the scope for international private standards to play a role in reducing business risk among the small and medium enterprises in Vietnam. Business risk is measured as variability in revenue, variability in customer base, practice of making informal payments, and temporary firm closure. The results show lower levels of business risk among certified firms, especially for firms in the middle deciles of the risk distribution. This finding is robust to the use of different business risk measures. Certification also correlates negatively with risk for technologically advanced firms, as well as firms located in rural areas and northern provinces of Vietnam. The results suggest that firms could find protection from business downsides by investing in internationally recognized quality management tools.
... Second, the rise of transnational private standards stipulates that businesses include particular safety features in their products, maintain certain financial reserves, or keep records about their chemical inputs or labor conditions at every step along the entire supply chain (Potoski and Prakash 2009;Buthe and Mattli 2011;Buthe 2004;Cutler 1999). In accordance with a similar logic as the global supply chains, if businesses are already engaged in beyond-compliance activities because of their adherence to transnational private standards, it becomes less costly to participate in other forms of voluntary compliance (Arimura et al. 2011). ...
Article
This article demonstrates the explanatory power of an expanded policy stream, as part of Kingdon’s Multiple Streams Framework. Product substitutes, corporate social responsibility, the global economy, and the market maverick rationalize the incentives under which regulators, consumers, businesses, and environmental NGOs interact to explain the formation of two landmark voluntary programs on mercury and arsenic use, respectively. Arsenic and mercury are ranked first and third, respectively, on the US Environmental Protection Agency’s priority list of hazardous substances. In both cases, the existence of a product substitute that performed on par with the original product but generated less negative environmental impact motivated the private sector to go beyond compliance in their environmental management. Notwithstanding, the push and pull of variables in the problem, politics, and policy streams, and the interplay of diverse actors led to the emergence of diverse forms of voluntary programs. In the mercury case, an industry association steered the technocratic process of the chlor-alkali industry’s voluntary stewardship program, which led to marginal reductions in toxic chemical use, as part of the global phase-out of mercury already under way. By contrast, in the arsenic case, an environmental activist campaign successfully compelled the pressure-treated wood industry to concede to a voluntary cancelation of chromated copper arsenate, an arsenic compound, in residential uses. Subsequently, arsenic use fell to levels not seen since the 1920s. In both cases, strong coalition building—the former by businesses and the latter by environmental NGOs—combined with a fragmented or nonexistent opposing side shaped the final form of each voluntary program.
... Standards and certification schemes assure credibility of the production process and inform about product quality and safety, as well as about the social and environmental conditions of the production process. This illustrates the signalling role of standard certificates, which are used strategically to raise the firm's credentials in the marketplace by indicating to external parties that the firm is a reliable supplier and partner (Goedhuys and Sleuwaegen 2013;Henson and Jaffee 2006;Potoski and Prakash 2009;Terlaak and King 2006). One of the signalling benefits is the reduction in transaction and search costs, that is, the time and resources customers need to identify eligible suppliers. ...
... Boys and Grant (2010) found that ISO 14001 certification was associated with larger export volumes from the international level. Similar studies regarding the adoption of ISO 9001, such as Neumayer and Perkins (2009) and Potoski and Prakash (2009) also stressed the important role of trade in the international diffusion of certification. ...
Article
This article aims to investigate the influences of trade and environmental issues on ISO 14001 certification in developing countries, focusing on how ISO 14001 certification is affected at macrolevel. Based on the panel data from 65 developing countries over the period 1999-2016, this study confirms the existence of long-run cointegrating relationships between ISO 14001 adoption, trade openness, and environmental pressures by using panel estimation techniques. The results from fully modified ordinary least squares (FMOLS) reveal the positive impacts of trade openness and environmental pressures on ISO 14001 adoption. The results from causality analysis show no causal relationship between ISO 14001, trade openness, and environmental pressures in whole panel; instead the relationship varies for different regions of developing countries.
... Standards have direct and indirect impacts on competition and an industry's technology development trajectory. They increase competition by enlarging markets through reduction of inter-firm transaction costs and reducing barriers to entry, facilitating development of complementary and compatible products (Albrecht et al., 2003;Clougherty & Grajek, 2008;David & Greenstein, 1990;Farrell & Saloner, 1986;Hussinger & Schwiebacher, 2015;Potoski & Prakash, 2009;Simcoe et al., 2009). Setting a standard ''freezes'' the technology, codifying a generation of development and precluding competing approaches until the standard is supplanted by another (Ernst, 2011). ...
Article
Research since the 1980s has considered the economic and innovation impacts of technology standards policies. This paper extends the research on the impact of standardization policies to consider how the policies themselves, as they govern how the standards are created, determine standards’ impact on emerging economies’ economic performance and innovation capabilities. Using four cases of digital technology standardization in China, this paper finds that combinations of government financial and market support and openness to domestic and foreign contributors determines how and when digital standardization begets positive technological and economic impacts for firms. This paper contributes to our understanding of international technology upgrading in emerging economies, as well as suggesting policies for successful economic upgrading in large emerging economies.
Article
I consider the effect of global supply chain production – in contrast to directly owned overseas production – for labour rights in low- and middle-income countries. I develop a set of hypotheses regarding the conditions under which supply chain workers are most likely to experience improvements in their working conditions and procedural rights. In doing so, I highlight the importance of host country governments in the protection of labour rights: while private governance efforts have intensified in recent years, their success is conditional on local political actors’ interests in the protection of workers’ rights. Put differently, appropriate protections for labour require that the incentives of participating firms (foreign or domestic) and host country governments align. I also suggest how future research might best explore these dynamics, by focusing its attention at the firm and supply chain (rather than at the country) level.
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The integration of the world economy and the internationalization of companies have resulted in consumers' demand for high quality goods. Standards have emerged as a way of reducing the information asymmetries that consumers face when purchasing a product, and have gained importance in the processed food industry as they allow them to assess the quality of goods and may influence the export performance of certified firms (An & Maskus, 2009). Certifications may act as promoters of international trade, but they can also constitute a barrier when the costs associated with the certification process exceed the potential benefits (Jarasueiya et al., 2006). The present study aims to compare the export performance of certified vs. non-certified firms in the Colombian processed food industry. A Mann-Whitney Test was used to analyze the difference of exports value for the selected companies, and then, non-structured interviews to the quality managers of these companies were conducted to gain greater understanding about the impact of standards certifications on their export performance.
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Research since the 1980s has considered the economic and technological impacts of technology standards policies. This paper extends the research on the impact of these policies to consider how the policies themselves, specifically how the standards are created, to determine the technological and economic impact of standards in emerging economies. Using four cases of technology standardization in China, this paper finds that a combination of government support-financial and implementation commitment-and openness-to domestic and foreign contributors-is essential for ensuring positive technological and economic impacts for firms. This paper contributes to our understanding of international technology transfer and upgrading, as well as policies for economic upgrading.
Article
Labor Rights and Multinational Production investigates the relationship between workers’ rights and multinational production. Mosley argues that some types of multinational production, embodied in directly owned foreign investment, positively affect labor rights. But other types of international production, particularly subcontracting, can engender competitive races to the bottom in labor rights. To test these claims, Mosley presents newly generated measures of collective labor rights, covering a wide range of low- and middle-income nations for the 1985–2002 period. This book suggests that the consequences of economic openness for developing countries are highly dependent on foreign firms’ modes of entry and, more generally, on the precise way in which each developing country engages the global economy. The book contributes to academic literature in comparative and international political economy, and to public policy debates regarding the effects of globalization.
Article
This study investigates signaling value of internationally-recognized quality certification in improving firm’s access to external finance for 39,638 mostly small and medium-sized firms in 137 countries. We find that certified firms have better access to external finance as compared to otherwise equal uncertified firms. Certified firms use more bank finance and equity capital while uncertified firms rely more on informal sources of finance. Quality certification helps firms to credibly signal their unobserved quality to creditors and investors, reduce informational asymmetry, and have better access to external finance. We also find that the signaling value of quality certification is stronger in presence of greater information asymmetry. Smaller firms and firms in less developed economies and financial systems benefit more from certifications by gaining better access to external finance.
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This paper contributes to the home (market) bias literature where administrative or political borders limit trade across borders. Home bias is well documented at the national and subnational level. To sort out macro (e.g., location characteristics) and micro (e.g., enterprise characteristics) factors behind home bias, we use small‐ and medium‐sized enterprise (SME) data from Vietnam. Using the fractional multinomial logit model, we find that the proportion of SME sales outside of their home markets is positively associated with enterprise size, age, number of business association memberships, and the distance of SMEs' most important supplier. In contrast, the proportion of SME sales to neighboring provinces is negatively associated with the share of SME production for final consumption. Besides enterprise‐level frictions, market characteristics matter too. The proportion of SME sales to customers in their home markets is negatively associated with home or neighboring provinces' governance quality while the proportion of sales to customers in neighboring provinces is positively associated with these areas' governance quality. These suggest that good governance frees SME resources for use in selling to less familiar markets.
Chapter
Chapter 10 examines the relationship between the diffusion of the quality management standard, ISO 9001, and the adoption of the environmental management standard, ISO 14001, in Vietnam and Malaysia. It shows that businesses in both countries that received requests from customers about their usage of chemical substances were also more likely to have adopted ISO 9001. If these requests from customers arise from Product Related Environmental Regulation on Chemicals (PRERCs), this suggests that PRERCs promote the diffusion of ISO 9001 in developing countries. In addition, given that businesses that have adopted ISO 9001 are more likely to adopt ISO 14001, then PRERCs also indirectly promote the diffusion of ISO 14001 in developing countries. This link may have important implications for the pollution haven hypothesis.
Article
Using a comprehensive dataset of firm-level export transactions from China Customs, this paper investigates whether mandatory International Financial Reporting Standards (IFRS) convergence promotes Chinese firms’ export activities. We find that compared with private firms which were not immediately required to comply with the new accounting standards in 2007, listed firms experienced a significant increase in their exports after converging with IFRS. The positive effect of IFRS convergence on exports only occurred when firms traded with IFRS countries and when they were non-state-owned enterprises. The findings are robust to a battery of sensitivity tests. We contribute to the literature on the real economic effects of IFRS harmonisation by documenting its role in enhancing international trade and global product market integration.
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The adoption of ISO management standards has significantly increased over the last decade in developing countries, especially in Africa. Between 2014 and 2015, the number of certifications in the African continent increased by 20% for ISO 9001 and 19% for ISO 14001. Despite this rapid increase in absolute terms, ISO certifications in Africa remain relatively underdeveloped with about 1% of the total number of ISO 9001 and ISO 14001 certifications worldwide. The objective of this study is to highlight the barriers to the adoption of ISO management standards in the African context and to analyse their appropriateness with the specificities of African cultures and organizational practices. Several barriers are highlighted: the weak institutional framework, the ineffectiveness of donor-funded programs, the lack of human and financial resources, the low participation in the development of ISO management standards, and corruption. In addition, certain specificities of the local cultures in African countries, particularly oral tradition, paternalism, hierarchical distance, collectivism, strong tolerance to uncertainty, and attachment to traditions, may be in opposition to the values embodied in ISO management standards. These specificities require an effort to adapt ISO management systems to African realities in order to promote their substantial rather than symbolic integration within organizations. This work contributes to the existing literature by analyzing the institutional, economic and cultural barriers to the adoption of ISO management standards in Africa. Implications for both professionals and public authorities are also discussed.
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I. Introduction, 1.—II. Context of the model, 3.—III. Consumer specifications and market equilibrium in the case of fixed breakdown probabilities, 5.—IV. Breakdown probabilities set by profit considerations, 11.—V. Conclusion, 19.—Appendix, 20.
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I. Introduction, 488. — II. The model with automobiles as an example, 489. — III. Examples and applications, 492. — IV. Counteracting institutions, 499. — V. Conclusion, 500.
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