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Paper to be presented at the Summer Conference 2009
on
CBS - Copenhagen Business SchoolSolbjerg Plads 3
DK2000 FrederiksbergDENMARK, June 17 - 19, 2009
THE DIFFUSION OF ISO 9000 AND ISO 14001 CERTIFICATION, CROSS SECTORALEVIDENCE FROM EIGHT OECD COUNTRIES
Isabel Maria Bodas Freitas
Grenoble Ecole de [email protected]
Abstract:
This paper examines the impact of industrial structure and performance, as well as of the configuration ofindustrial trade networks on the level of certification with ISO 9000 and ISO 14001, in manufacturing industries,in eight OECD countries. Taking into consideration the national and industrial fixed effects, we find thatgenerally certification supports entry in international markets, by signalling conformity with international rulesof control product quality and environmental impact, especially in domestically sourced, low labourproductivity, and to a lesser extent in industries that put efforts in innovation. Moreover, the national andindustrial trading relationships affect the levels of industrial certification. In particular, industrial tradingrelationships with British partners favour certification with both standards, with European partners supportcertification with ISO 14001, while those with German partners foster ISO 9000. Being part of EU marketenhances certification with ISO 9000, but not of ISO 14001.
JEL - codes: F, D, A
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The diffusion of ISO 9000 and ISO 14001 certification, cross sectoral evidence from
eight OECD countries
Abstract
This paper examines the impact of industrial structure and performance, as well as of the
configuration of industrial trade networks on the level of certification with ISO 9000 and ISO
14001, in manufacturing industries, in eight OECD countries. Taking into consideration the
national and industrial fixed effects, we find that generally certification supports entry in
international markets, by signalling conformity with international rules of control product
quality and environmental impact, especially in domestically sourced, low labour
productivity, and to a lesser extent in industries that put efforts in innovation. Moreover, the
national and industrial trading relationships affect the levels of industrial certification. In
particular, industrial trading relationships with British partners favour certification with both
standards, with European partners support certification with ISO 14001, while those with
German partners foster ISO 9000. Being part of EU market enhances certification with ISO
9000, but not of ISO 14001.
Introduction
From the 1980s, in a context in which outsourcing of production activities, globalisation of
production and markets and more demanding customer bases were gaining relevance,
voluntary process standards and certification schemes become important forms of industrial
and trade coordination. Among others areas, voluntary process/ management standards have
been used to address and signal management behaviours related to environment, personnel
relations, health hazards, ethics, and social responsibility (Larsen and Hversj, 2001;
Terlaak, 2001). This paper focuses on the ISO management system standardsISO 9000 and
ISO 14001. ISO 9000 and ISO 14001 are among the most famous voluntary process standards
in the literature, as they have been published by the International Standard Organisation (ISO)
and they became the most widespread and popular ISO standards ever (ISO, 2001, 2005).
In particular, the adoption of these standards (certification) seems associated with strategies to
access foreign markets as well as to tap organisational and managerial best-practices (Withers
and Ebrahimpour, 2000; Guller et al., 2002; Terlaak and King, 2006). These standards have
however diffused among actors with different objectives, levels of internationalisation and
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needs of control and management of their business activities, from public to private activities;
from services to industrial activities, and from multinationals to small enterprises (Dick et al.,
2002; ISO, 2005; King et al., 2005). Therefore, understanding the main mechanisms that
support the diffusion of voluntary management standards is increasingly important for firms
and policy-makers, which aim at supporting national firms competitiveness. Still, the
literature is not consensual about the main driving forces of their diffusion.
Some authors argue that the diffusion of ISO 9000 and ISO 14001 are characterised by a
bandwagon effect, because in some markets, non-adopters are increasingly at a relative
disadvantage to their competitors (Larsen and Hversj, 2001; Guller et al., 2002; Nelson et
al. 2004; Casadess and Karapetrovic, 2005). Others authors show instead how national
institutions and policies play an important role in the development of appropriated
infrastructures and in the diffusion of a national fashion on the utility of certification (i.e. onthe building of awareness and need in firms) (Delmas, 2001, 2002). The role of national
institutions and policies providing infrastructure, and technical and financial supports are
especially stressed on studies on the diffusion of certification in developing countries (eg.
Vandergeest, 2007).
Trying to measure the importance of different relational links, Guller et al. (2002) show that
multinationals through inward foreign direct investment and the national cohesive trade
relationships between counties explain the world diffusion of ISO 9000 between 1993 and
1998. Albuquerque et al. (2007) argue that cultural similarity was instead more important on
the diffusion of ISO 14001 than bilateral trade relationships. Focusing instead on certification
at firm level rather than at national level, some authors show that structure factors are also
important, such as the size of the firm, the firms export intensity, the firms industrial activity
and the level of certification in the industry explain adoption of certification (eg. Curkovic
and Pagell, 1999; Blind and Hipp, 2003; Corbett, et al. 2003; King et al., 2005). Therefore, on
the one hand cross-national mechanisms related to the national trading network on the other
hand specific structural characteristics and performance of firms and their industries seem to
influence the process of diffusion of ISO 9000 and ISO 14001. Studies on the diffusion of
ISO 9000 and ISO 14001 have concentrated on firm level analysis of survey and case studies
data or on country-level analysis of national aggregated panel data. The analysis of the
structure, performance and relational characteristics on the industrial diffusion of ISO 9000
and ISO 14001 across countries has not been done yet.
This paper is an attempt to examine the impact of cross-industry and cross-national forces on
the process of diffusion of certification. It focuses on the effect of the structure and
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performance characteristics of industries, as well as the configuration of industrial trade
networks on the industrial level of certification with ISO 9000 and ISO 14001. In particular,
the paper analysis the impact of the level of industrial openness to international markets,
innovativeness and productivity, as well as of certain national and industrial trade
relationships on the level of certification in 15 manufacturing industries, in eight varied
OECD countries, for which relevant data was available. In particular, we analyse industrial
certification with ISO 9000 and ISO 14001 in Check republic, Finland, Italy, Japan, Korea,
Portugal, Spain and Switzerland.
Using negative binomial regressions and accounting for the national and industrial fixed
effects, this paper shows that the diffusion of ISO 9000 and ISO 14001 is used to deal with
specific industrial structure and performance characteristics. Moreover, national and industrial
trade relationships affect the levels of industrial certification in one country. Consequently,
certification reveals certain market strategies as well as certain positions on the industrial and
national trade networks. Finally, country and industry fixed effects also play a role on the
level of industrial certification.
This paper is organised as follow. Section 2 reviews the literature on the diffusion of ISO
9000 and ISO 14001 certificates, exploring the characteristics of these standards, as well as
the importance of the structural, performance and relational links of users on their diffusion.
Section 3 presents the data and methodology used in this paper to analyse the level of
industrial certification with ISO 9000 and ISO 14001. Section 4 analyses the diffusion of ISO
9000 and ISO 14001 across industries and countries. Section 5 presents the empirical results
of the regression analysis for 15 manufacturing industries in the eight selected OECD
countries. Section 6 concludes the paper.
2. ISO certification, industrial characteristics and trade networks
2.1. ISO 9000 and ISO 14001 standards
In 1979, the International Standard Organisation (ISO) created the Technical Committee 176
to harmonise the increasing international activity in quality management and quality
assurance standards. Departing from the British Standards (BS5750) and the NATO quality
procedures, this committee developed an international quality assurance standard. In 1987,
ISO 9000 was published to replace the national (and private) quality standards that had been
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used until then by large private and public buyers.1
By harmonizing quality terms, systems,
and standards, the ISO 9000:1987 standard was expected to facilitate global trade by ensuring
a customer that an order was to be produced and delivered following explicit and agreed
specifications.ISO 9000 was updated in 1994 and 2000. In particular, only from 1994, the
standard previews third-party certification of the conform implementation by firms.
ISO 14001, the standard of environmental management systems, was developed under the
same philosophy of ISO 9000 (including the same structure, principles and third-party
certification). ISO 14001 was published in 1996 and updated in 2004 (ISO, 2001, 2005). With
the publication of ISO 9000:2000, the combined certification with other standards, in
particular with ISO 14001 became facilitated, and their fit to service sectors was improved.
ISO 9000 and ISO 14001 are process rather than product standards, which means that instead
of focusing on the characteristics of products, they emphasis on the processes of developing,
producing, and marketing the core technology of a firm (Tassey, 1996). They consist of
guidelines to adopt better production management processes as well as to improve them
continuously. The adopting firm needs to build up its quality or/and environmental
management system, to formulate their policy, objectives and practices with these indications
and respecting some controlling rules (Bnzech et al., 2001).
However, certification does not assure a specific quality of the finished product, the
development of a customer-based culture or the use of the most environmental-friendly
technologies and processes. Instead it only assures that the firm implemented and is
complying with a written set of rules to control product quality and environmental impact of
production. One requirement of these standards is that firms document their processes, in the
assumption that firms control better the quality of their products and the environmental
impact of their activities if they have those processes written down (Bnzech et al., 2001;
Larsen and Hversj, 2001).
Certification is nevertheless highly demanding of time of implementation, money,
involvement of top and middle management and capacity to adapt this general standard to the
specific context of the firm (Withers and Ebrahimpour, 2000; Pokinska et al., 2002; Wiele et
al., 2005). Certification was especially difficult in the early times of its diffusion; the rate of
first-time failure of getting certification was very high (Fergunson, 1996; Curkovic and
Pagell, 1999; Withers and Ebrahimpour, 2000; Stevenson and Barnes, 2002). As certification
1 ISO 9000:1987 was quite similar to the French and the British national standards as both national
standardisation authorities were represented on the ISO technical committee (Ringe and Nussey, 1994)
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phenomena became more diffused, there was a substantial decrease in the time required for
adoption and in the failure rate of getting certification. This decrease of efforts to obtain
certification seems due to the substantial increase in the resources available to companies (i.e.
new training courses, published guidelines, more experienced consultants, and so on)
(Casadess and Karapetrovic, 2005).
According to the diffusion literature, evaluation-information (i.e. information on the
benefits/impact of adoption of the innovation) plays a crucial role in the diffusion of
innovation (Rogers, 1995; Geroski, 2000). When engaged in the process of deciding whether
or not to adopt an innovation, firms look for information on its benefits in order to estimate
the costs and benefits from innovations adoption. Similarly, firms are expected to look for
information on the technical efficiency of these standards before adopting.
Despite their wide diffusion, evaluation-information on ISO 9000 and ISO 14001 is unclear.
Indeed, ISO 9000 and ISO 14001 are surrounded by controversy and criticism, which is
mainly related to the fact that they do not set specific performance goals. Moreover, a one-to-
one relationship seems not to exist between adoption motivations and benefits experienced
by adopters or the benefits promoted by certification bodies, national policies and consultants.
The main motivations for firms certification, which are usually associated with entry in
international or contractual markets do not usually translate in market share increase, positive
return on investment, financial performance or stock market gains (Lima et al., 2000;
Stevenson and Barnes, 2002; Terlaak and King, 2006). Indeed, these market or operational
financial benefits are difficult to prove empirically. Some authors argue that the marketing
effect of ISO 9000 might have been greater during the early years of its diffusion when few
companies had adopted it (Ringe and Nussey, 1994; Larsen and Hversj, 2001; Casadess
and Karapetrovic, 2005). Others instead argue that the high costs and time required by
certification might only be covered by the overall enhancement of the firms productivity in
the long-run (Curkovic and Pagell, 1999; Yeung and Mok, 2005).
The most common benefits experienced by adopter of ISO 9000 and ISO 14001 management
systems include higher conformity and reliability of products, and reduction of error rate and
nonconformities, waste and customer complaints (Withers and Ebrahimpour, 2000; Delmas,
2001; Pan, 2003; Casadess and Karapetrovic, 2005; King et al., 2005). Besides improving
conformance and reliability, certification has been acknowledged as enabling firms to
standardise procedures and technologies to control quality and process efficiency, and
consequently to allow bridging over diversity in and between firms (Bnzech et al., 2001;
Lazaric and Denis, 2005).
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Benefits from adoption seem dependent on the capabilities of managers and consultants in
integrating quality and environmental concerns into the specific context of the firm (Ringe
and Nussey, 1994; Delmas, 2001; Tari and Sabater, 2004). Limited benefits and some
disadvantages may be expected from non-creative adoptions, which seem particularly strong
in firms viewing certification as an external constraint/burdensome to be only applied to
operational processes rather than a management tool to be also applied to corporate strategy
(Ringe and Nussey, 1994; Larsen and Hversj, 2001; Bnzech et al., 2001; EQF, 2002; Tari
and Sabater, 2004).2
Therefore, the diffusion of these standards is expected to be higher in countries with high
availability of positive evaluation-information and business supports for adoption.
Consequently in countries which invested earlier and/or more intensively on the diffusion of
these standards through the development of infrastructures, services and supportive tools and
in raising awareness of firms to the benefits of such adoption. In particular, in the UK, firms
had advantages towards certification as ISO 9000 and ISO 14001 were developed on the basis
of the widely diffused national standards, and the additional efforts to get an ISO certificate
were made minor by policy-makers and certifiers.
2.2. Users /Adopters of ISO 9000 and ISO 14001
Adoption of ISO 9000 and ISO 14001 seem to vary across firms with different sizes,
industrial activities, foreign capital presence, and export propensity.
Firms with more than 50 employees are found to be more likely to adopt these standards,
which might be related to both the high cost of certification and the presence of greater
information asymmetries within the firm and between suppliers and customers (Ringe and
Nussey, 1994; Blind and Hipp, 2003; Casadess and Karapetrovic, 2005).
Moreover, foreign capital presence and large export propensity seem to be associated withcertification (Ismail et al., 1998; Terlaak and King, 2001; Corbett, 2004). Multinationals and
supply-production chains, which tend to require their suppliers to conform with specific
procedures, including with ISO management systems, may have been the most important
channels for the diffusion of certification. The requirement of certification on suppliers and
external partners is also a form that large buyers, multinationals, group of firms often use to
2Some firms were found to have suffered disadvantages from certification related to unnecessary
documentation, excessive efforts from employees, and consequently crystallisation of knowledge and
negative attitudes from employees towards top management (Curkovic and Pagell, 1999; Blind and
Hipp, 2001; Martinez-Lorente and Martinez-Costa, 2004; Lazaric and Denis, 2005).
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set performance standards to control low-skilled employees as well as to support flexibility
and on-time production.
In technology and capital-intensive sectors (automobile, aircraft, computers and other capital
and technology intensive industries) instead, the technology and product reliability seems to
play a much important role than marketing; consequently product as well as management
systems standards are expected to be more important than private ones or brands (Gereffi and
Korzeniewicz, 1994; Gereffi et al., 2001). Indeed, certification was found to be more likely in
firms that use communication, medical and environmental technologies, which according to
Blind and Hipp, 2003) seems associated with their higher and immediate health and safety
risk. Still, other authors have argued that certification is often associated with internal efforts
to improve the quality and conformity of products, the environmental and safety requirements
of production, process efficiency and reduce costs (Bansal and Roth, 2000; King et al., 2005).
Thus, certification might as well be a sign of the firms effort to innovate and improve
efficiency. Indeed, in the presence of internal rigidities that constrain innovation, the
likelihood of certification seems also to decrease (Blind and Hipp, 2003). An early study on
ISO 9000 shows that high technology firms are the most satisfied with the certification
(Vloeberghs and Bellens, 1996).
Hence, some cross-industry differences in the level of certification ISO 9000 and ISO 140001
may be explained in terms of industrial differences in export intensity, productivity, use of
sophisticated technologies and firm size. Additionally, some of the cross-national levels of
certification may be explained by differences in the structure and characteristics of national
industries.
Trade networks
Researchers of social networks tend to emphasise the importance of networks as source of
learning and diffusion of similar patterns of behaviour. They argue that because actors interact
and share certain number of rules, there might be place for mutual influence. These
relationships may have generated coercive isomorphism through contractual or authoritarian
relationships. For example, In 1994, Chrysler and GM mandated that their first tier suppliers
be certified by the end of 1997. However, by the summer of 1997 only 2,791 locations
certified, leaving roughly 7,000 uncertified. At that time, Chrysler and GM issued an
ultimatum that suppliers become certified or cease doing business with them. Fifteen months
later, 8,645 suppliers were registered (Stevenson and Barnes, 2001:3). Most often firmsimitation tends instead to result from competitive pressure from competitors, as they expect to
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penalised in the market if they did not imitate (Abramhamson and Rosenkopf, 1993;
Haunschild and Miner, 1997, Ahuja, 2000; Nelson et al., 2004 ).
Therefore, the diffusion of ISO 9000 and ISO 14001 may have been a process of imitation
which occurred across countries closely connected by trade relationships. For instance, ISO
9000 was initially adopted by firms in Europe and in countries with close links with the UK
(ISO, 2001; Pan, 2003; Franceschini et al., 2004). The cohesive trade relationships between
countries and foreign direct investment seem to have been crucial for the world diffusion of
ISO 9000 (Guller et al., 2002). The pressure exerted by downstream customers through
global supply-chains on upstream firms in other countries is considered by Corbett (2004:18)
to be behind the great growth of ISO certificates worldwide. In this manner, firms exporting
may also have imported management practices from that region back to their home country
(Guller et al., 2002; Corbett, 2004). Hence, multinationals and governments through national
trade and foreign investment policies significantly influenced the rate at which these practices
were adopted. Therefore, firms motivations for certification across countries are not so
different (Bessde, 2000; EQF, 2002; Corbett et al., 2003; Pan, 2003).
This influence of trading networks on the diffusion of certification might however have been
more important in the beginning of the diffusion process, as most of the existing evidence
refers to that period. Moreover, the influence of trading networks might have been different
for the diffusion of ISO 9000 and ISO 14001. Indeed, Albuquerque et al. (2007) argue that
while bilateral trade relationships have been an important force on the international diffusion
of ISO 9000 across countries, cultural similarity seems instead to have been more important
on the diffusion of ISO 14001. In addition, the influence of trading networks on the diffusion
of certificates might have been different for European and Non-European countries. In the
literature, entry in international markets, mainly common EU market is often suggested as
main reason for certification by firms in non-EU countries (Withers and Ebrahimpour, 2000;
Pan, 2003; Yeung and Mok, 2005). In Europe, diffusion of certification seems insteadassociated with an increased of the ability to charge higher prices or the quality of products
(Aiginger, 2001).
In sum, this review of the literature suggests that firms may value differently the certification
according to their industrial activity, technology intensity, international openness, and their
trade partners. Still, national efforts to promote the diffusion of standards, to attract foreign
direct investment and to join common market areas might as well explain cross-national
differences in the level of industrial certification. In addition, the functioning of the national
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quality-technical network enforcing the certification rules might also create different national
incentives for certification. Therefore, cross-country as well as cross-industry differences in
the level of certification are expected. Industries have different structures and characteristics
across countries, and firms managerial attitude is very context specific. Moreover, national
governments might have implemented quite different trade and foreign investment policies
and given different emphasis to the diffusion of certification. The study of relative importance
of structure, performance and relational characteristics of industries and countries on the
diffusion on ISO 9000 and ISO 14001 has not been done yet. This paper is an attempt to do it.
3 - Methodology and data
Data
This paper analyses the impact of industrial structural characteristics, as well as of trade
relationships on the diffusion of ISO 9000 and ISO 14001, in 15 manufacturing industries in
eight OECD countries. In particular, the objective is to analyse whether and how trade
networks, as well as industrial performance (input and output) indicators explain the level of
industrial diffusion of certification with ISO management system standards. We focused only
on manufacturing industries due to the non-availability of information on the independent
variables for services sectors across our sample of countries.
To address these issues, we use data from the ISO surveys on the total number of ISO 9000
and ISO 14001 certificates from 2001 to 2004, across 15 industrial sectors in eight OECD
countries. In particular, we focus on Check republic, Finland, Italy, Japan, Korea, Portugal,
Spain and Switzerland. These countries were chosen based on the availability of data at
industry level. Moreover, they represent a diverse group of countries in terms to size, level of
income and being members or non members of European Union.
Industries are expected to have different characteristics across countries, in terms of exposure
to international markets, efforts in innovation development, performance in terms of labourproductivity, trading networks, as well as their relative importance on the national economy.
In order to characterise the structure, performance and trade links of manufacturing industries
in these countries, we use data from the OECD STAN and ANBERD dataset on the industrial
Gross Domestic Product (GDP), Labour productivity, expenditures on Research and
Development (R&D), amount of exports and imports. In addition, we collected data on the
industrial share of trade (exports and imports) to the UK, Germany, to the US and to EU on
the total industrial trade. Unfortunately, data on foreign direct investment at such lower level
of desegregation is not available. Moreover, data on R&D expenditures is not available for
Portugal and Switzerland.
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On the strength of this data, we analyse the impact of industrial characteristics in terms of
structure, performance and trade relationships on the observed level of industrial certification
with ISO 9000 and ISO 14000 in the eight selected OECD countries. For this purpose, we use
a negative binomial model, which allow relaxing the Poisson assumption of equal mean and
variance because the dependent variables are overdispersed (Long and Freese, 2003). The
dependent variables are the number of ISO 9000 and the number of ISO 14001 certification in
15 industries in eight countries from 2001 to 2004.
In particular, we compute two models. Model I takes into consideration the sector structural
inherent characteristics such as relative size, openness to international markets, reliance on
domestic or foreign suppliers, labour productivity, and formal efforts in innovation
development. In this model, we consider the following independent variables: share of
industrial GDP, labour productivity, share of export and imports on the industrial GDP, shareof R&D on the industrial GDP. Moreover, this model takes into consideration the position of
the country and industries on the trade network, as well as information on the preferred trade
partners. In particular, it includes the share of industry trade (import-export) with the UK,
Germany, US and EU on the total industry trade, as well as the dummy variable for countries
that belong to the EU. Model II includes the same independent variables used in Model I as
well as country and industry fixed effects in order to control for other sources of time-
invariant unobserved heterogeneity across countries and industries.
Finally, we explore the forces explaining the industrial ratio of ISO 14001 to ISO 9000
certificates, by running an OLS regression on all the independent variables used in Model II.
In any country, the larger the size of the industry and the higher the export intensity of the
sector, the more certificates a sector is expected to have. Moreover, the variable time is also
expected to be significant and positively associated with the level of certification.
Instead, the existing evidence does not allow us to make clear-cut expectation about the
impact of imports on the level of industrial certification. On the one hand, industries that
import intensively are expected to be more aware of management best-practices, and so to be
more likely to be certified. Even that the adoption of best-practices from suppliers may also
depend on the type of resources (i.e. strategic or basic inputs) on which industries are relying
on. Moreover, a high import rate may reveal a high participation on international supply-
chains, on which certification tends to prevail. On the other hand, firms, which rely more on
domestic sources, are expected to feel a bigger incentive to certify to signal compliances with
international business market rules. This hypothesis is increasingly reasonable as diffusion of
certification is being resulting from adoption by late-adopters and laggards, which partly
coincide with the publication of ISO 9000:2001.
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Similarly, the existing evidence does not allow us to make clear-cut expectation about the
impact of labour productivity on industrial certification. On the one hand, certified firms are
expected to be more likely to achieve higher product conformity and higher control on energy
and resources used, given their chosen technology, and consequently to reveal higher labour
productivity. On the other hand, costs of certification, documentation and formality required
in certified firms may sometimes lead to an increase of costs and consequently to lower
labour productivity. Moreover, if national industries are price competitive, firms may not
have many incentives to certify, as their price competitiveness already allows them to have
large market shares. In particular, this last hypothesis is increasingly plausible as diffusion of
certification is being resulting from adoption by late-adopters and laggards, which partly
coincide with the publication of ISO 9000:2001.
In the same way, the impact of intensity of industrial investment in R&D is not easy to beanticipated. In R&D intensive industries, quality signing, product quality and conformity
seem to be more diffused concerns. Consequently, certification is expected to be higher in less
R&D intensive sectors. However, in R&D intensive industries product quality, technology
capabilities and product differentiation might be more important that quality labels.
Furthermore, we expect that the more important is the UK as trade partner for industrial trade,
the highest the level of industrial the diffusion of certification, especially with ISO 9000. ISO
standards were based on national British standards, and diffusion there occurred much earlier
than in other countries. Given the long-tradition on developments and inclusion of industrial
environmental concerns on laws and trade agreements to a certain extent alternative to ISO
14001, trade with Germany is not expected to favour the diffusion of ISO 14001. Given
instead the absence of environmental concerns on the foreign and trade US policy in the last
ten years, trade with the US is also expected to have a negative effect on the diffusion of ISO
14001. Finally, intensity of trade with EU is expected to increase the levels of industrial
certification, as Europe represents 51.5% of world ISO 9000 certificates (49.2% of the world
ISO14001 certificates) in 2001 and 48.9% in 2005 (43% of the world ISO14001 certificates).
Still, this effect of industrial trading relationships with specific partners might be different for
EU and for non-European countries.
4 Diffusion of ISO 9000 and ISO 14001 across countries and industries
National differences in the level of certification with ISO 9000 and ISO 14001 exist (ISO
2001, 2004, 2007). However, the ranking of countries with highest number of certificates has
not been static.
Until 2001, the UK was the country with the highest number of ISO 9000 certificates. France,
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instead, lagged behind in third place behind the UK and US until 1994, and fifth from 1997 to
1999 following the US, Germany and Italy. In December 2001, the UK is followed
immediately by China, followed by Italy, Germany, and the US. Following the publication of
ISO 9000:2000, there was a shift in the ranking of countries concerning the total number of
ISO 9000 certificates. In December 2005, China and Italy were the leaders in the number of
ISO 9001:2000 certificates, followed by Japan, Spain, UK, US and then Germany. Graph 1
represents the total number of valid ISO 9000 certificates, in 2001 and 2005, among a sample
of countries with the highest levels of certification as well as the countries used for our
regression analysis in section 5.5
[Insert Graph 1 about here]
Contrary to ISO 9000 and despite the existence of a previous national standard, the British
leadership in the number of ISO 14001 certificates was short. In 1997, Japan became the
leader, and from 2001 the UK is no longer the European country with the highest number of
ISO 14001 certificates, Germany took the European leadership. Some changes on the ranking
of countries with more certifications were also observed from 2001 to 2005 even that fewer
than the ones observed in the ranking of ISO 9000 certificates. In particular, Japan is still in
2005 the leader in ISO14001 certification. In 2005, Japan is followed by China, Spain, Italy
and the UK. From 2001 to 2005, Germany lost its second place to occupy the eighth position,
and Sweden lost its fourth place to occupy the eleventh. Graph 2 represents the total number
of valid ISO 14000 certificates, in 2001 and 2005, among countries with the highest levels of
certification as well as the countries used for our regression analysis in section 5.
[Insert Graph 2 about here]
Graph 3 shows the ratio of ISO 14001 to ISO 9000 certificates for a sample of countries with
highest number of certificates, as well as the countries used for our regression analysis in
section. The graph suggests the existence of three main groups of countries with different
ranges of ISO 14001 to ISO 9000 ratios. The first group refers to Finland, Japan, Korea,
Brazil, Spain, and Czech Republic that have about one ISO14001 certificate for five ISO 9000
certificates. These countries seem to have high environmental concerns diffused among their
businesses. Opposite to this green-country group is the group composed by India, Italy,
China, and Portugal for which the number of ISO 14001 certificates is less than one to ten.
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[Insert Graph 3 about here]
Concerning the industrial distribution of certificates, in 2005, the ten largest adopting
industries of 9000 are the same as the largest adopting industries of ISO 14001 certificates.
They include construction, basic metals, electrical and optical equipment, and basic metals.
These industries have been the largest adopters of certification since the late 1990s (ISO,
2001, 2005). Laggards are water, gas supply, publishing, shipbuilding, aerospace, wood
products, publishing and nuclear fuels. Graph 4 presents the number of certificates by
industry, for the 10 industries with the highest number of certificates.
[Insert Graph 4 about here]
Results from the ratio of ISO 14001 and ISO 9000 across industries suggest that cross-
industrial differences on the business environmental concerns exist. In particular, nuclear fuel,
and recycling show a higher number of ISO 14001 than ISO 9000, followed by water, gas and
electricity supply, coke, mining, other social services, public administration and
pharmaceuticals. This group shows a ratio of ISO 14001 to ISO 9000 certificates between one
to two, and one to five. These industries are however, as we saw before, the least adopters of
both certificates.
In the group of industries with lowest ISO 14001 to ISO 9000 certificates (1 to 50 to 1 to 12),
we find health and social work, education, engineering and other services, information
technologies, financial intermediation, construction, concrete, leather and textiles. With
exception of building and other business services, the ten largest adopting industries are in the
middle group with a ratio of ISO 14001 to ISO 9000 certificates between one to six and one to
eleven.
In sum, the number of ISO 9000 and ISO 14001 certificates are not similar across countries or
industries. In the next section, we will analyse the relative importance of national and
industries fixed effects and explore the importance of cross-country and cross-industries
factors, such as openness to international trade, productivity, investment in R&D, or trade
networks, in explaining the industrial level of certification.
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5. Reasons for diffusion of certification in manufacturing
In this section, we will analyse the impact of industrial structure and performance
characteristics in terms of openness to international markets, productivity, location of
suppliers, innovativeness, as well as of trading relationships on the level of certification of
different manufacturing industries. Table 1 presents the results of the negative binomial
models of the number of ISO 9000 certificates (first two columns), and the number of ISO
14001 certificates (last two columns).
[Insert Table 1 about here]
5.1. ISO 9000
Model I, without the country and industry fixed effects, suggests that industrial certificationhas increased over time, as the coefficient of variable time is significant and positive.
Moreover, the larger the industry is, the higher its level of certification. The lower the labour
productivity, the greater the number of certificates is the industry expected to have. Industries
with greater share of trade with Germany and the UK and lower share of trade with EU have
larger number of certificates.3
The EU countries are more likely to have a higher level of
certification, ceteris paribus. The R&D and import intensity of industrial activities are not
significant. Contrary to the expected, the export intensity of an industry has a negative impact
on the level of industrial certification.
Model II, which considers country and industry country-effects, provides a somewhat
different picture from the previous model.4
In this model, the impact of time, labour
productivity, EU countries, and share of trade with Germany and the UK are still significant
and with the same sign as in the previous model. Contrary, the relative size of the industry,
and the share of trade with the EU are not anymore significantly explaining the number of
ISO 9000 certificates. Moreover, industrial export and R&D intensity now positively and
significantly explain the number of industrial certificates, while the industrial import intensity
is significantly and negatively explaining the number of certificates. Compared to transport
equipment industry, which is our reference category, all the industries show a significant
higher level of certification with ISO 9000, except for pharmaceutical industry which has a
significant negative coefficient. In particular, basic metals, electrical and optical equipment,
3When we run the same models without R&D intensity, for the same observations, the sign and
significance of coefficients are equal. When we include observations from Portugal and Switzerland,
labour productivity becomes non-significant.4 The Backward and the Enter model provide similar results in terms of the significance and sign of
variables. If something, export is now significant at 5% rather than at 7%.
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and machinery and transport, and food industries have a much higher propensity to
certification with ISO 9000 than the other industries. Compared to Spain, Finland provides
fewer incentives to ISO 9000 certification, while Japan, Korea and Italy provide more
incentives.
Results of the Model II without the variable R&D intensity, which allow including
observations from Portugal and Switzerland, are similar to these ones, except for some trade
networking variables.5
Difference refer to the fact that the industrial share of trade with the
UK and Germany become non significant, while the share of trade with EU becomes positive
and significant. Moreover, the coefficient of EU countries becomes negative and significant.
These differences are not explained by the drop of the R&D intensity as independent variable.
Our results suggest that despite the existence of industrial and countries fixed effects, some
identifiable cross-country and cross-industries strategies that favour certification with ISO
9000. In particular, industrial certification with ISO 9000 seems enhanced and
complementary to the industrial efforts to increase presence in international markets and
innovativeness, as well as to overcome low levels of labour productivity. Moreover,
certification is associated with strategies to supply domestically. Certification seems also, to a
certain extent, to be fostered by the level of industrial penalisation for non-certification.
Additionally, industrial trading networks and national trade location affects the level of
industrial certification with ISO 9000. Trading with Germany and with the UK seems to
provide incentives for certification. Countries within the EU reveal a higher propensity to ISO
9000 certifications that the third countries.
5.2. ISO 14000
Model I, without the country and industry fixed effects, suggests that certification with ISO
14001 increased over time, as the coefficient of variable time is significant and positive. Thelevel of ISO 14001 certificates is expected to be higher among the more R&D intensive
industries as well as among industries with low labour productivity. The more an industry
trade with UK and the US, and the less it trades with countries from the EU, the more an
industry is expect to have a high number of ISO 14001 certificates. Contrary to the expected,
industries with greater export intensity are less likely to have a great number of ISO 14001
5 The Backward and the Enter model provide similar results in terms of the significance and sign of
variables.
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certificates.6
Model II, which includes country and industry fixed-effects, provides a different picture from
the previous model.7
In this model, the impact on the level of ISO 14001 certification of the
variables time, labour productivity, and the share of trade with the UK maintains. Contrary,
the R&D intensity, the share of trade with the US are not anymore significantly explaining the
number of ISO 14001 certificates. Export intensity is now supporting significantly the number
of certificates, while import intensity is limiting certification. Moreover, intensity of trade
with the EU is now significantly and positively affecting the level of industrial certification.
However, the fact that a country belongs to the EU countries influences negatively the level of
certification. Compared to transport equipment industry, which is our reference category, all
the industries show a significant higher level of certification, except for the pharmaceutical
industry which has a significant negative coefficient. In particular, basic metals, electrical and
optical equipment, and food industries have a much higher propensity to certification with
ISO 14001 than the other industries. Compared to Spain, Finland provides fewer incentives to
ISO 14001 certification, while Japan, Korea and Italy provide more incentives.
Results of Model II without the variable R&D intensity, which allow including observations
from Portugal and Switzerland, are similar except for trade with UK that becomes non
significant.8
This does not seem to be related to the dropping of variable R&D intensity.
Hence, our results suggest that certification with ISO 14001 is fostered by industrial
management strategies to supply domestically, to increase export propensity and to overcome
lower levels of labour productivity. Moreover, the industrial trade relationships also play a
role. Trading with the UK, and to a lesser extent with EU provide incentives for certification
with ISO 14001. Countries within the EU have fewer incentives for certification with ISO
14001 than the third countries to EU. Industrial and countries fixed effects also affect the
level of industrial certification with ISO 14001.
6 When we run the same models without R&D intensity, for the same observations, the sign and
significance of coefficients are equal. When we include observations from Portugal and Switzerland,
the coefficients from labour productivity becomes non-significant, and the share of trade with Germany
becomes significant (positive sign).7 When we run the same model using the Backward rather than the Enter mode, the significance and
sign of variables are the same, except for the dummy EU-countries that becomes positive and
significant.8 When we run the same model using the Backward rather than the Enter mode, the significance and
sign of variables are the same.
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Ratio ISO 14000/ ISO 9000
Table 2 presents the results of the OLS regression on the ratio of ISO 14001 to ISO 9000
certificates.9
Results suggest that the ratio of ISO 14001 to ISO 9000 is higher in industries
with higher export intensity and lower R&D intensity. Trade with the UK has the highest
positive impact on the ratio, followed trade with the EU and the US. Trade with Germany
instead seems to be associated with a lower ratio. The ratio is higher for chemical and other
manufacturing industries, ceteris paribus. European countries are more likely to have a lower
ratio of ISO 40001 to ISO 9000 certificates, except Finland, ceteris paribus. Time does not
seem to explain differences in the ratio ISO 14001 to ISO 9000 across countries and
industries.
[Insert Table 2 about here]
We run the same model without variable R&D intensity to allow including observations for
Portugal and Switzerland (Table 2, column 2). The coefficients of the variable labour
productivity turns out positive and significant, while industrial import intensity turns out
negative and significant. Moreover, trade with UK and US becomes non-significant.
5.3. Discussion
Our results suggest that there are some identifiable cross-country and cross-industries
strategies that favour certification. The level of industrial certification with ISO 9000 and ISO
14001 seems associated with strategies to increase presence in international markets, to
manage domestic supplies, as well as to overcome the market penalisation for not certifying
and for presenting low levels of labour productivity. The level of industrial certification with
ISO 9000 is also associated with R&D intensive production activities. Therefore, our results
suggest that ISO 9000 and ISO 14001 can be seen as a management tool to expand presence
in international markets by signalling control and conformity of quality and the sustainability
of production of domestically supplied industries with low levels of labour productivity, but
making some serious efforts towards innovation. This pattern of diffusion seems to reflect the
fact that certification is reaching late-adopters and laggards, which aim at participating in
global markets despite their lower productivity, at avoiding penalisation in their industry, and
at tapping forms of improving their efficiency and innovative performance.
Moreover, our results suggest industrial trading networks and national trade location affects
the level of industrial certification. Trading with the UK seems to create incentives for
9 Results presented refer to the Backward method model.
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certification with both ISO 9000 and ISO 14001. Trading with Germany provides incentives
for certification with ISO 9000, and trading with EU encourages certification with ISO 14001.
Moreover, trade with the UK, and, to a lesser extent, with the EU and US is associated with
an high ISO 14001 to ISO 9000 ratio, while trade with Germany is associated with a low
ratio. Consequently, trading relationships also affect the levels of industrial certification in
one country.
However this effect is not to be unique for EU and non-EU countries. Indeed, our results
suggest that different countries have put different efforts towards the diffusion of certification
with ISO 9000 and ISO 14000. In particular, non-EU countries seem to have put in place
more efforts towards the adoption of ISO 14001 certification, while EU countries have put
more efforts on the diffusion of ISO 9000. Hence, EU countries, expect Finland are expect to
have a lower ratio of ISO 14001 to ISO 9000. This might be related to the fact that ISO 9000,
which has been developed after the British BS5750 standard, has been until 2001 a mark of
European business attitude. As seen in section 4, the UK has been the world leader until 2000,
when the ISO 9000:2000 was published. Instead, Japan has been the world leader on ISO
14000 certification since 1997. Thus, the ratio ISO 14001 to ISO 9000 seems mainly
disadvantageous to the traditional European business model, and favourable to the business
attitude of Scandinavian, Japan, and to a lesser extent Korea and some developing countries.
Industrial fixed effects seem as well to play a role on the level of industrial certification.
Compared to transport equipment industry, our reference category, basic metals, electrical and
optical equipment, food industries, and machinery and transport have a much higher
propensity to certification with both ISO 9000 and ISO 14001 than the other industries.
Instead, pharmaceutical industry shows a significant negative propensity when compared to
transport equipment industry. All the other industries show a higher propensity than transport
equipment but not as high as the referred above.10
These results suggest that ISO 9000 and
ISO 14001 may play different roles as co-ordination mechanism of business relationships, andeventually as source of enhancing product conformity and reliability, in different industrial
manufacturing sectors.
In particular, ISO 14001 certification is relatively more important than ISO 9000 in industries
with higher export and labour productivity and lower R&D intensity, consequently on capital
intensive industries with slow technical change, as well as in industries that source-
10Textiles, wood, paper and printing, and other manufacturing present the lowest positive additional
propensity to certify when compared to transport equipment.
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domestically. Additionally, the environmental concerns are particularly high in chemical and
other manufacturing ceteris paribus, which seem to reveal the effect of final demand
environmental concerns, and the importance of brands.
6. Conclusions
This paper has aimed at exploring the importance of structure and network dynamics in
explaining innovation diffusion, focusing on the case of ISO 9000 and ISO 14001
certification. In particular, it analysed the impact of industrial openness to international
markets, innovativeness and productivity, as well as of the configuration of industrial and
national trade networks on the level of certification with ISO 9000 and ISO 14001, in 15
manufacturing industries, in eight OECD countries.
Our findings suggest that ISO 9000 and ISO 14001 supports entry in international markets by
signalling compliance with international management rules for assurance of product quality
and environmental impact of production, especially in domestically sourced industries and in
industries with low labour productivity. ISO 9000 seems also to be a sign for efforts towards
innovation. This pattern of diffusion seems to reflect the fact that adoption of ISO 9000 and
ISO 14001 have extended to late adopters and laggards firms, industries and countries. In this
sense, adoption is not anymore related to maintenance of performance advantages, but instead
it is driven by the aim to access markets and to signal compliance with international rules of
local production.
Besides these structural characteristics of industries, the national and the industrial specific
configurations of the de networks also explain cross-industry and cross-industry differences in
the levels of certification. In particular, the more British trading partners are important for an
industry, the higher the level of industrial certification both with ISO 9000 and ISO 14001 is
expected to be. Similarly, the more European trading partners are important, the higher theindustrial level of ISO 14001 certification. Trading with German actors seems instead to
favour certification with ISO 9000. In addition, being part of the EU market favours adoption
of ISO 9000, but not adoption of ISO 14001.
Cross-country and cross-industry differences are also found on the relative role of ISO 9000
and ISO 14001. Ceteris paribus a management culture stressing environmental concerns
seems particular important in Scandinavian countries, Japan, Korea, as well as chemical and
other manufacturing.
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In sum, this paper contributes to the debate on the importance of structure and network
positioning in explaining diffusion of ISO 9000 and ISO 14001 certification. The diffusion of
ISO 9000 and ISO 14001 seems to depend on the network configurations, on the national and
industrial context, however the inherent characteristics of actors also influence the firms
estimation of adoption benefits. The specific industrial and national management attitude
might influence the relative importance of ISO 9000 and ISO 14001 certification in the 2000s.
Still, the strategies underlying diffusion of both standards are similar: signalling conformity
with international management rules of domestically-sourced production activities with low-
productivity in order to be allowed in international markets. The only difference between ISO
9000 and ISO 14001 as management tool seems to refer to the fact that ISO 9000 may also be
used as a tool to sign innovative efforts.
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Table 1 Results of the negative binomial estimation of the number of industrial
ISO 9000 and ISO 14001 certificates
ISO 9000 ISO 14001
Model1 Model 2 Model1 Model 2
0.18*** 0.14*** 0.44*** 0.36***year1
(0.07) (0.03) (0.06) (0.05)
24.66** 1.50 6.54 0.13sharegdp
(10.66) (2.26) (5.08) (2.43)
labprod -0.01*** -0.01*** -0.01*** -0.01***
(0.00) (0.00) (0.00) (0.00)
-2.1*** 0.65* -2.18*** 1.81***export_p
(0.71) (0.36) (0.66) (0.50)
-0.49 -0.42** 0.03 -0.95***import_p
(0.36) (0.20) (0.31) (0.26)
2.63 3.77*** 3.83** 1.65rdgdp
(1.75) (0.79) (1.53) (1.17)
1.11*** 1.99*** 0.06 -1.19**eu
(0.37) (0.36) (0.38) (0.53)
3.22*** 2.4*** 1.38 0.03trade_ge
(0.92) (0.67) (1.12) (1.12)
7.65** 5.29*** 7.45** 5.37**trade_uk
(3.95) (1.54) (3.39) (2.21)
-0.65 0.36 1.41** -0.01trade_us
(0.91) (0.42) (0.71) (0.50)
-2.0*** 0.19 -1.19** 0.98*trade_eu
(0.60) (0.40) (0.62) (0.57)
Significant SignificantCountry
dummies
Significant Significantindustry
dummies
6.63*** 1.37 3.99*** 1.54***_cons
0.67 0.52 0.43 0.53
0.48 -1.10 0.34 -0.49/lnalpha0.07 0.12 0.08 0.12
1.61 0.33 1.40 0.61alpha
0.11 0.04 0.11 0.07
Observations 321 321 306 306
Df 11 27 11 27
Wald test 115.90*** 3961.78*** 291.45*** 1349.52***
Log likelihood -2427.07 -2128.43 -1741.55 -1600.09
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Table 2 Results of the OLS model of the ration of ISO 14001 to ISO 9000
certificates (Backward method)
ratio ISO 9000 to ISO 14001
(with R&D intensity)
ratio ISO 9000 to ISO 14001
(without R&D intensity, including
observations of Portugal and Switzerland)
0.03 0.03year1(0.02) (0.02)
-1.18sharegdp
(1.04)
0.00 0.002***labprod
(0.00) (0.00)
0.29* 0.41**export_p
(0.16) (0.18)
-0.16*import_p
(0.09)
-1.04***rdgdp
(0.41)
-0.67*** -0.24**eu
(0.22) (0.11)
-0.47*** -0.48**trade_ge
(0.46) (0.24)
1.65** 0.68trade_uk
(0.80) (0.56)
0.48*** 0.21trade_us
(0.18) (0.17)
0.49* 0.23*trade_eu
(0.25) (0.14)
country
0.60*** 0.54***Finland
(0.11) (0.08)
0.49***Japan
(0.09)
industry
dummies
0.22** 0.14*
Chemical (0.10) (0.08)
0.31*** 0.28***Other manuf.
(0.11) (0.09)
-0.03 -0.14_cons
(0.22) (0.13)
Observation 305 355
F-test F( 15, 289) = 9.37*** F( 14, 340) = 11.39***
R-squared 0.3273 0.3192
Adj R-squared 0.29 0.29
Root MSE 0.4445 0.42016
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Graph 1 Number of ISO 9000 certificates in 2001 and 2005 (thousands)
(both ISO 9000:1994 and ISO 9000:2001)
Note: The graph relative to 2001 refers to both ISO 9000:1994 and ISO 9000:2001.
2001
0 10 20 30 40 50 60 70
Finland
Portugal
India
Czech Republic
Switzerland
Brazil
Netherlands
Korea
Spain
France
Japan
United States
Germany
Italy
China
United Kingdom
2005
0 20 40 60 80 100 120 140
Finland
Portugal
Brazil
Netherlands
Switzerland
Czech Republic
Korea
France
India
Germany
United States
United Kingdom
Spain
Japan
Italy
China
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Graph 2 Number of ISO 14001 certificates in 2001 and 2005 (thousands)
Note: The graph relative to 2005 refers to both ISO 14001:1996 and ISO 14001:2004.
2001
0 1 2 3 4 5 6
Portugal
Czech Republic
Brazil
India
Finland
Switzerland
Korea
Netherlands
China
France
Italy
United States
Spain
SwedenUnited Kingdom
Germany
Japan2005
0 5 10 15
Portugal
Finland
Netherlands
Switzerland
India
Brazil
Czech Republic
France
Sweden
Germany
Korea
United States
United Kingdom
ItalySpain
China
Japan
-
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31/32
30
Graph 3 Ratio between ISO 14001 and ISO 9000 certificates in 2001 and 2005
0.0 0.1 0.2 0.3 0.4 0.5
China
Italy
Czech Republic
Portugal
Brazil
United Kingdom
United States
Korea
France
India
Netherlands
Germany
Switzerland
Spain
Japan
Finland2005
2001
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Graph 4 The ten industries with higher levels ofISO 14001 and ISO 9000 certificates in
2005
ISO9000
0 10 20 30 40 50 60 70 80 90
Transport, storage and communication
Chemicals, chemical products &fibres
Food products, beverage and tobacco
Rubber and plastic products
Other Services
Wholesale &retail trade; repairs
Machinery and equipment
Electrical and optical equipment
Basic metal &fabricated metal products
Construction
ISO14001
0 1 2 3 4 5 6 7 8
Transport, storage and communication
Food products, beverage and tobacco
Other Services
Rubber and plastic products
Machinery and equipment
Chemicals, chemical products &fibres
Wholesale &retail trade; repairs
Construction
Basic metal &fabricated metal products
Electrical and optical equipment