PANEL 2A Standards and Quality Certification: Technology Upgrading & Trading Tools

1. PANEL 2A Standards and Quality Certification: Technology Upgrading & Trading Tools

2. The National Standards and Quality System Jean-Louis Racine The World Bank Cambridge, England April 19, 2007 Knowledge Economy Forum VI Technology Acquisition and Knowledge Networks

3. Outline • An Introduction to Standards • The Standards Development Process • The Conformity Assessment System • Standards and International Integration

4. An Introduction to Standards

5. An Introduction to Standards Types of Technical Standards: by Function M10 x 1.5-6g-S

6. An Introduction to Standards Types of Technical Standards: by Author Formal standards: standards bodies Market standards: industry Sponsored standards (e.g. Adobe ‘pdf’ file format) Unsponsored standards (e.g. computer keyboard layout)

7. An Introduction to Standards Types of Technical Standards: by Enforceability Global supply chains (e.g. ISO/TS 16949 for auto parts manufacturers)

8. An Introduction to Standards Benefits of standards • Diffuse technology • Allow for specialization and economies of scale • Facilitate trade (especially shared standards) • Diffuse market information • Diffuse information on safety, health and environmental regulations • Reduce transaction and search costs • Allow to harness network externalities • Increase competition by promoting interchangeability

9. The Standards Development Process

10. The Standards Development Process • At the national level: Develops technical content Technical committees National standards body/ies Coordinates standards program Submits drafts for public review -Votes on standards -Approves standards -Publishes standards Comments on drafts Propose new standards Public (consumers, industry, government, non-profits)

11. The Standards Development Process • At the international and regional level: • International standards organizations: • ISO, IEC, ITU • Regional standards organizations: • CEN, CENELEC for EU/EFTA • EuroAsian Interstate Council for CIS

12. The Conformity Assessment Framework

13. The Conformity Assessment Framework • Conformity Assessment • Certification, testing, inspection and calibration • Often conducted by an independent third-party • Typically involves a number of competing private certification bodies or laboratories

14. The Conformity Assessment Framework Worldwide total of ISO 9000 certificates (ISO 9001 after 2004) Source: ISO (2006)

15. The Conformity Assessment Framework • Accreditation • Formal recognition that conformity assessment bodies are competent to carry out specific tasks • Accreditation is done against a specific standard • Typically sought on a voluntary basis National accreditation body accreditation Certification bodies, inspection bodies, calibration laboratories, testing laboratories conformity assessment Firms and other organizations

16. The Conformity Assessment Framework • Metrology • A National Metrology Institute • Establishes the national measurement system • Develops and diffuses measurement standards for basic units Measuring length with an interferometer at the UK National Physical Laboratory Source: UK NPL website

17. The Conformity Assessment Framework • The diffusion of measurement units, precision and accuracy in the economy National metrology institute Calibration laboratories Manufacturers, repairers, installers, researchers, universities Retailers, traders, students National and international consumers, public health and safety, natural environment

18. Standards and International Integration

19. Standards and International Integration Standards National standards body Calibrations Regional and international standards & mutual recognition agreements National metrology institute Accreditation National accreditation body • Testing labs • Calibration labs • Inspection bodies • Certification bodies Conformity assessment Firms Exports compliant with regional and global standards Standards Quality, compatibility, safety, health National consumers & the general public

20. Panel 2A April 19, 2007 Standards and Quality Certification: Technology Upgrading& Trading Tools Standards, Markets, and Regulation: The Two Faces of Standards in the Knowledge Economy Paul Temple Department of Economics University of Surrey KNOWLEDGE ECONOMY FORUM VI Technology Acquisition and Knowledge Networks Cambridge, England. April 17-19, 2007

21. The Two Faces of Standards • Standards and regulation: close relationship between • Standards and regulation • Standards as a source of ‘codified’ information about • technology. Today the standards catalogue of the • British Standards Institution contains around 30,000 • documents describing technology – test methods, • reference materials etc. Many documents underpin • Markets by facilitating communication between firms

22. The Economics of Standards: A Brief Review • 1980s growing interest in the role of standards in processes by • which technology is adopted by user population. This was • fuelled by awareness of critical role of standards in ICT • Subsequent work on the microeconomic functions of individual • standards common in literature (case studies/economic models) • Some work has also focused on the broader ‘macro’ economic • outcomes, i.e. in the development of markets and the ‘diffusion’ • of technology

23. Macro studies of standards • first econometric analysis on the implications of the activity of • Standards bodies for broader ‘macro’ economic outcomes • conducted by Swann et al (1996). This work emphasised the • impact of standards ‘catalogues’ for trade. • national standards promoted ‘non-price’ competitiveness • of exports over and above the impact on productivity • also – contrary to common opinion - promoted imports • but what about productivity?

24. Based on earlier German research, a study for the DTI in London suggested that.... Standards contributed to about 13% of the UK’s long run productivity growth in the post-war period 1948-2002

25. Standards and Regulations: The ‘new EU approach’ • Since 1985 ‘national’ standards have increasingly • been replaced by harmonised European standards • ‘new approach’ directives allow products to be tested • for conformity against a harmonised standard developed • by the European standardization bodies – • CEN/CENELEC/ETSI – which are then marketed through • member bodies – AFNOR, BSI, DIN etc. • European standards focus on product specifications • Efficiency aspect: firms minimize costs to achieve conformity

26. The Internationalisation/Harmonisation of European Standards Catalogues

27. The EU ‘Harmonisation’ of the standards Catalogue of the BSI

28. Standards and Markets • the use of standards is not uniform across economies • manufacturing and in particular the engineering sectors • of economies are particularly intensive in the use of • standards • many standards assist market entry by providing the • Infrastructure through which product characteristics can be • measured - test methods, reference materials etc. • Many standards ‘link’ different sectors of the economy • particularly in respect of capital investment

29. Standards in UK Manufacturing Metal Manufacture Chemicals Other Manufacture Metal Products Food, Drink, Tobacco Mechanical Engineering 4919 Electrical and Instrument Engineering 5940 Textiles Paper Printing Transport Equipment 2419 <50 50-99 100-250 250+

30. Standards as a source of knowledge: Research using the Community Innovation Survey (CIS) • The CIS has proved to be an important tool for the analysis • of both technological innovation (new to world) and the • diffusion of innovation (new to firm) • The survey can be used to assess the role of standards in • providing accessible ‘codified’ information about technology • and providing both information and constraining innovation • Research by Peter Swann using CIS3 established a positive • correlation between the information content of standards and • their potential role in constraining innovation

31. CIS4: importance of information sources for innovation in UK Professional associations Technical standards scientific journals Internal 55% 51% 53% conferences ENTERPRISE 26% 64% Suppliers government research 68% 26% 69% 25% universities 40% 62% Clients competitors consultants competitors % rating each source at least of some importance (low//medium/high)

32. Standards and Innovation Outcomes Relative Probabilities: for the range of innovation outcomes covered in CIS3, for those enterprises that cite standards as being relevant are 2-3 times a likely to rank an outcome as ‘high’ Relative probabilities computed as: Pr (Innovation outcome = high | standards regarded as relevant) Pr (Innovation outcome = high | standards regarded as of no relevance)

33. Some conclusions: The paradox of standards • Research suggests standards promote trade and competition • Standards associated with regulation/bureaucracy/red-tape • Standards an important and low cost source of codified information on an international basis and hence not an immediate source of competitive advantage for firms. • However standards may be associated with human capital formation at the level of the firm • Relationship with innovation complex but innovators rate • standards as an innovation source more highly than non-innovators

34. Quality and Standards Matter:Implementing Effective Quality Systems to Support Trade and Competitiveness Initiatives José-Luis Guasch World Bank and University of California, San Diego

35. Quality and its effects: • On exports , FDI performance • Long term growth and productivity • Quality: long term growth • Quality and Standards as entry points to innovation • Quality and standards as instruments for mainstreaming of SMEs into supply chains • Government role: policies and programs to support quality and standards use and adoption

36. IMPACT

37. Figure 5: Contribution to output growth in the UK (1948-2002) Source: BSI 2005

38. Table 4: Partial productivity elasticities by country Source: DTI 2005

40. Source: The ISO Survey. Numbers on top indicate ISO 9000 Certifications

41. CHILE

42. CHILE

43. Figure 6

44. ISO 9000 standards can bring benefits due to both internal and external factors to the organization (but they are costly). Benefits due to internal factors include: Lower costs and shorter cycle time due to more effective use of resources. Higher quality processes, leading to fewer costly inspections, warranty costs and reworking. Greater customer focus, resulting in flexible and fast responses to market opportunities. Greater management involvement in improving quality performance and control over employee performance. Better working conditions and motivation for employees. Benefits due to external factors include: Greater consumer confidence that products will meet their requirements or regulations, leading to an increase in customer base. Greater consumer satisfaction, leading to repeat purchases. Better image of the organization.

45. Table 10: Summary of studies evaluating the effect of certification on firm performance Notes: 0 = no effect, + = slight positive effect, ++ significant positive effect

46. Brazil Average Coefficients (% Changes in TFP corresponding to a Unit Increase in the Explanatory Variable, ceteris paribus) for Selected Variables, by Groups of TFP Models and Firm’s Size (con’t)

47. IC Economic Performance:

48. Entry Point to Innovation and to Supply and Value Chains

49. The Innovation Cycle for SME’s R&D Business Intelligence Product Development + Innovation Technological Audits Prototyping Quality Product & Systems Certification Lab Tests Training Legislative Surveillance

50. From a Survey of LAC Firms • Firms that secured quality certification were 10 times more likely to innovate/tech adoption than those firms that did not, within five years of event • Firms which products complied with standards domestic or international were 5 times more likely to innovate than those that not within five years of event