Isabel Maria-Bodas Freitas

8/2/2019 Isabel Maria-Bodas Freitas

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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.


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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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.


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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29

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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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

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