Growing exports by signaling product quality: Trade competition and the cross‐national diffusion of ISO 9000 quality standards

Abstract

Trade policy is an important topic in global public policy. It is recognized that trade is hampered when buyers have incomplete information about the offered products, a problem accentuated in the international markets by the physical and cultural distances between buyers and sellers.Buyers look for proxies to assess product quality, and exporters that can provide assurance about quality gain a competitive advantage. Our paper focuses on voluntary or private regulatory programs that have emerged as important instruments to correct policy failures. We examine how trade competition motivates firms to signal quality by joining ISO 9000, the most widely adopted voluntary quality certification program in the world. Methodologically, our study is novel because we observe trade competition at the bilateral and the sectoral levels. Structural equivalence, the measure of competition we introduce in this paper, captures competitive threats posed by actors that export similar products to the same overseas markets. We study ISO 9000 adoption levels from 1993 to 2002 for 134 countries, and separately for non-OECD countries and non-EU countries. Across a variety of specifications, we find that trade competition drives ISO adoption: The uptake of ISO 9000 is encouraged by ISO 9000 adoption by firms located in countries that are "structurally equivalent" trade competitors.Given that information problems about product quality are likely to be more salient for developing country exporters, we find that trade competition offers a stronger motivation for ISO 9000 adoption in non-OECD countries in relation to developed countries.voluntary, or decentralized solutions, along with government-sponsored initiatives, can mitigate a core governance problem, namely information asymmetries between consumers and producers, and between governments and citizens.Our paper also engages with another major literature in global and comparative public policy: trade-driven policy diffusion (

Adoption of Iso 9000 Management Standard in Eu's Transition Economies: The Case of the Baltic States

“…A set of studies stress that there exists a positive correlation between the number of certificates and macro-economic variables such as the volume of direct overseas investment, the tendency to export to the EU and the country's public expenditure (see Table 1). Research by Cao and Prakash (2007) concluded that the adoption of ISO 9000 in a given country is likely to be encouraged if its salient export markets have high levels of ISO 9000 adoptions. Alburquerque et al (2007) pointed out that the diffusion of ISO 9000 is driven primarily by geography and bilateral trade relations.…”

Do Developing Countries Invest Up? The Environmental Effects of Foreign Direct Investment from Less-Developed Countries

“…Cao and Prakash (2011) suggest that trade competition induces firms to adopt ISO 9000, the most widely adopted voluntary quality certification program in the world, in order to signal commitment to quality and to increase exports. This logic can extend to ISO 14001 as well.…”

How green is my firm? Workers' attitudes and behaviors towards job in environmentally-related firms

“…From a signaling perspective, the firms that have distant customers may choose to strategically implement institutional devices such as quality and environmental-related standards as this type of registration renders a firm's investments visible to the public and demonstrates the firm's contribution to satisfying the customers' quality and environmental expectations. Cao and Prakash (2011) show that the degree of trade competition increases the likelihood that firms join ISO 9000 standard while Bellesi et al (2005) and King et al (2006) illustrated how firms with potential foreign customers were more likely to registered with ISO 14001 standard. Moreover, as indicated by Grolleau et al (2012), there should be no influence of exports on workers' attitudes and behavior.…”