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Article Excerpt
1. Introduction
Managers in many leading firms are increasingly concerned about practices in place at their suppliers and other trading partners. Poor management systems at suppliers can lead to poor quality of incoming products, which in turn will cause problems for the firm and its own downstream customers. Firms are also concerned about unreliable shipments from suppliers with poor internal procedures, and about the potential damage to a firm's reputation if its suppliers do not behave responsibly in an environmental or social context. These concerns, combined with the difficulty involved in monitoring suppliers' internal processes, led to the emergence of, at first, the ISO 9000 series of quality management systems standards, later followed by standards for issues that are not immediately related to quality, such as the ISO 14000 environmental management systems standard.
The ISO management standards are intended to be adopted globally but, partly due to their relative youth, little is known in the literature about how they diffuse across countries. Our goal in this paper is to contribute to knowledge about the mechanisms underlying their global diffusion, about how the adoption rate differs between the two standards and between early-and later-adopting countries, and about the influence that different countries have on the global diffusion process.
Our approach is to use a framework of network diffusion and apply concepts from social interaction theory (e.g., Granovetter 1978) to the understanding of how and why firms in different countries influence each other's adoption behavior. This allows us to formalize the nature and speed of diffusion and to determine cross-country influence in global diffusion processes as a function of between-country proximity and of past adoption behavior.
Empirically, we propose and estimate a diffusion model, in which cross-country influences can follow: (1) geography, where adoption spreads to neighboring countries, (2) trade, where adoption spreads to exporting countries, and (3) culture, where adoption spreads to culturally similar countries, or (4) any combination of these. We estimate the model using Bayesian methods on data tracking the diffusion of ISO 9000 and ISO 14000 certification across countries and years.
Our results indicate that cross-country influence is important for ISO 9000 and ISO 14000 certification. Interestingly, however, the underlying mechanisms are different. Diffusion of ISO 9000 follows bilateral trade flows and geographic proximity, while for ISO 14000 certification, cultural similarity is also important. This suggests that the diffusion mechanism is driven in part by the nature and objectives of the standard. We also find that ISO 14000 diffuses faster than ISO 9000 and that both standards diffuse faster in later-adopting countries. We argue that the difference in the amount of evidence about the usefulness of ISO standards available to different countries and at various stages in the diffusion process is a driving factor for these findings. Finally, we find that a country's relative influence on the diffusion varies between the ISO standards. For instance, while the United Kingdom is the most influential nation in both cases, Japan and Sweden are more influential in the diffusion of ISO 14000 than ISO 9000. These findings can partly be explained by the different nature (economic versus cultural) of the network along which the ISO standards are found to spread.
Our results are hopefully useful to the wide range of policy makers and institutions involved in ISO standards, specifically in determining where to focus their resources in launching future management standards.
In [section]2, we briefly describe the ISO standards. Section 3 formulates research questions on diffusion of ISO 9000 and ISO 14000. Section 4 introduces the temporal and spatial aspects of the model; the data are presented in [section]5. Section 6 covers estimation and model selection. Section 7 focuses on the results and [section]8 concludes.
2. ISO Management Standards
ISO 9000 refers to a series of quality management systems standards (introduced in 1986), while ISO 14000 refers to the series of environmental management systems standards (introduced in 1996). A "management system standard" is a set of requirements that a management system must meet to receive certification of compliance, usually from a third-party auditor. (1) A firm that has ISO 9000 certification has a well-documented and consistent quality management system; the certification does not, in itself, say anything about product quality. Similarly, an ISO 14000 certification indicates that a firm has a well-documented consistent environmental management system, but again does not in itself say anything about a firm's environmental impacts. Audits are performed by independent firms, that in turn are accredited by various independent agencies worldwide. Firms must be re-audited every three years to keep their certification current.
It is important to note the fundamental difference in scope between the two standards. ISO 9000 focuses on quality management, which makes it relevant primarily for buyer-seller relationships. On the other hand, ISO 14000 is explicitly aimed at a much broader audience, including governments, communities, nongovernmental organizations (NGOs), and others. Both standards have been updated since they were first introduced. As of December 2004, there were 670,399 ISO 9000 certifications outstanding in 154 countries, and 90,569 ISO 14000 certifications in 127 countries (ISO 2004).
3. Research Framework
3.1. Theoretical Background
In this section, we consider how the diffusion patterns of the ISO 9000 and ISO 14000 standards differ from each other and across countries. Research in economics (e.g., Bikhchandani et al. 1992), sociology (Valente 1995, Granovetter 1978), and marketing (Bass 1969) focuses on descriptions of adoption behavior as a contagion process. This contagion is often portrayed as the result of communication between agents via social interaction networks (Granovetter 1978). In this view, adopting firms are receptive to evidence about the usefulness of an innovation, in our case about the usefulness of adopting the ISO standards. Different firms have different "evidentiary" thresholds that represent the minimum amount of evidence to convince the adopter to act, such as a minimum number of past adopters in one's reference group (e.g., Granovetter 1978). Adoption takes place once the amount of supporting evidence collected by the firm surpasses its threshold. Factors affecting firms' reception of evidence or their evidentiary thresholds can therefore affect the nature of diffusion, the speed of diffusion, and the extent of influence of certain countries in propagating standards. The following sections identify these factors and consider how they affect the diffusion process of the ISO 9000 and ISO 14000 standards.
3.2. Nature of Diffusion
The degree to which firms are exposed to evidence is governed by their proximity, on an inter-firm network, to firms that have already adopted. The nature of the diffusion mechanisms is then related to the definition of proximity. Below, we speculate on whether certification is subject to cross-national influences and, if so, when and why proximity to past adopters in terms of culture, geography, or trade relations carries more weight.
First, it is well documented that geographic proximity to past adopters affects the decision to adopt a new product or service. Geographical proximity of rivals is shown to be linked to knowledge spillovers, innovative activity, and firm development (Audretsch and Feldman 1996, Glaeser et al. 1992), thereby facilitating the transmission of ideas, imitation, and improvement. There is also strong networking between firms of geographic clusters (Baptista 2000), leading to pressures from social contacts and localized competitive environments. Hence, geographic closeness facilitates contacts between any pair of firms, regardless of their sector, but proxies primarily for contacts between rival firms, i.e., for horizontal connectedness.
Because this effect is independent of the specific scope of the standard, geographic proximity of countries is expected to be important to both ISO 9000 and ISO 14000 certification.
Second, another dimension of proximity on an inter-firm network is defined by economic relations, i.e., bilateral trade. It is likely that a stronger business relationship between firms, even across national borders, will lead to a stronger pressure to adopt. "Economic" proximity may therefore be different from geographic proximity. Because it focuses on buyer-seller relations, the bilateral trade mechanism represents vertical connectedness.
Economically-oriented reasons to adopt are commonly found in the diffusion of ISO 9000 but less so for ISO 14000. For ISO 9000, export considerations, quality improvements, and cost reduction are reasons to certify (Anderson et al. 1999, Guler et al. 2002). Certification follows supply chains "upstream" (Corbett 2006) because buyers require foreign sellers to be ISO 9000 certified. Thus, we expect that bilateral trade is relatively more important in the decision to certify for ISO 9000 than for ISO 14000.
Finally, cultural similarity is a third dimension of proximity between firms. Culture plays a multi-faceted role in influencing firms' relations and in shaping cooperation between managers. For instance, culture impacts the importance given to cooperative solutions and creates social barriers to cooperation between people (Nakamura et al. 1997). In general, if groups have the same cognitive framework, they are more likely not to distort the information they receive from others. Thus, the greater is the cognitive and cultural similarity, the better is the flow of information (Triandis and Suh 2002). Culturally similar countries are therefore expected to have more contact.
ISO 14000 is relevant to communities, NGOs, regulators, and other noneconomic parties that need not have any business links with the certified firm (Neumayer and Perkins 2004). In that sense, ISO 14000 affects a broader set of stakeholders, and hence could reflect a country's cultural values more strongly than ISO 9000. For instance, Corbett et al. (2003) report that firms adopting ISO 14000 are more motivated by relations with authorities and communities than firms adopting ISO 9000. Consequently, we expect that cultural similarity is relatively more important in the decision to seek ISO 14000 than ISO 9000 certification.
3.3. Speed of Diffusion
Firms adopt when the current accumulated evidence exceeds their evidentiary threshold. Diffusion speed is therefore adversely affected by the gap between the accumulated evidence and the threshold. Due to the attenuation of adoption risk over time, the evidentiary thresholds of firms in later-adopting countries are generally lower (see, e.g., Valente 1995 for a discussion of the attenuation of adoption risk and its reducing effect on thresholds). In addition, firms in countries where certification starts late are exposed to more evidence of the usefulness of ISO standards in countries where certification started earlier. Using this logic, we...
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