Quality Management System and Firm Performance in an Emerging Economy: The Case of Colombian Manufacturing Industries

Research output: Working paper

Abstract

Over one million firms around the world have adopted a Quality
Management System (QMS) that conforms to ISO 9001 certification in 2015
and recent figures show that certifications have rapidly increased in
emerging economies. ISO 9001 is considered a signal of high quality for
products or services in markets with large imported competition or firms
competing in international markets. However, implementing ISO 9001
certification entails large costs to companies for documentation of operating
procedures, training, internal auditing, and corrective action. The impact of
QMS on firm performance is unknown in developing economies and is still
under-researched for more developed countries. This paper takes
advantage of unique data on the status of certified and non-certified
manufacturing firms in Colombia (an emerging economy) and matches it
with firm performance. In 2006, the Colombian government launched
policies to reduce the cost of adopting certification. We use this change to
implement a difference-in-differences specification on panel data of certified
and non-certified firms by matching samples at the year 2003, three years
before the policy change. This is the most comparable data possible. Our
findings suggest that firms that adopt ISO 9001 certification increase labor
productivity (measured as added value over labor) by 12 percent, and sales
per employee and wages by 8 percent. The effect is larger for firms that
adopted certifications two years after the new policies compared with firms
that adopted them immediately. The potential mechanism to explain gains
in firm performance is human capital because, prior to the changes, firms
with more temporary workers could not take advantage of certification.
Original languageEnglish (US)
Number of pages28
StatePublished - 2017

Fingerprint

Quality management system
Firm performance
Emerging economies
Manufacturing industries
Certification
Costs
Government
Difference-in-differences
Documentation
Colombia
Developing economies
Human capital
Wages
Temporary workers
Employees
Developed countries
Labour productivity
Internal auditing
Panel data
Manufacturing firms

Cite this

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title = "Quality Management System and Firm Performance in an Emerging Economy: The Case of Colombian Manufacturing Industries",
abstract = "Over one million firms around the world have adopted a QualityManagement System (QMS) that conforms to ISO 9001 certification in 2015and recent figures show that certifications have rapidly increased inemerging economies. ISO 9001 is considered a signal of high quality forproducts or services in markets with large imported competition or firmscompeting in international markets. However, implementing ISO 9001certification entails large costs to companies for documentation of operatingprocedures, training, internal auditing, and corrective action. The impact ofQMS on firm performance is unknown in developing economies and is stillunder-researched for more developed countries. This paper takesadvantage of unique data on the status of certified and non-certifiedmanufacturing firms in Colombia (an emerging economy) and matches itwith firm performance. In 2006, the Colombian government launchedpolicies to reduce the cost of adopting certification. We use this change toimplement a difference-in-differences specification on panel data of certifiedand non-certified firms by matching samples at the year 2003, three yearsbefore the policy change. This is the most comparable data possible. Ourfindings suggest that firms that adopt ISO 9001 certification increase laborproductivity (measured as added value over labor) by 12 percent, and salesper employee and wages by 8 percent. The effect is larger for firms thatadopted certifications two years after the new policies compared with firmsthat adopted them immediately. The potential mechanism to explain gainsin firm performance is human capital because, prior to the changes, firmswith more temporary workers could not take advantage of certification.",
author = "Juan Gallego and Guti{\'e}rrez, {Luis H}",
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type = "WorkingPaper",

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N2 - Over one million firms around the world have adopted a QualityManagement System (QMS) that conforms to ISO 9001 certification in 2015and recent figures show that certifications have rapidly increased inemerging economies. ISO 9001 is considered a signal of high quality forproducts or services in markets with large imported competition or firmscompeting in international markets. However, implementing ISO 9001certification entails large costs to companies for documentation of operatingprocedures, training, internal auditing, and corrective action. The impact ofQMS on firm performance is unknown in developing economies and is stillunder-researched for more developed countries. This paper takesadvantage of unique data on the status of certified and non-certifiedmanufacturing firms in Colombia (an emerging economy) and matches itwith firm performance. In 2006, the Colombian government launchedpolicies to reduce the cost of adopting certification. We use this change toimplement a difference-in-differences specification on panel data of certifiedand non-certified firms by matching samples at the year 2003, three yearsbefore the policy change. This is the most comparable data possible. Ourfindings suggest that firms that adopt ISO 9001 certification increase laborproductivity (measured as added value over labor) by 12 percent, and salesper employee and wages by 8 percent. The effect is larger for firms thatadopted certifications two years after the new policies compared with firmsthat adopted them immediately. The potential mechanism to explain gainsin firm performance is human capital because, prior to the changes, firmswith more temporary workers could not take advantage of certification.

AB - Over one million firms around the world have adopted a QualityManagement System (QMS) that conforms to ISO 9001 certification in 2015and recent figures show that certifications have rapidly increased inemerging economies. ISO 9001 is considered a signal of high quality forproducts or services in markets with large imported competition or firmscompeting in international markets. However, implementing ISO 9001certification entails large costs to companies for documentation of operatingprocedures, training, internal auditing, and corrective action. The impact ofQMS on firm performance is unknown in developing economies and is stillunder-researched for more developed countries. This paper takesadvantage of unique data on the status of certified and non-certifiedmanufacturing firms in Colombia (an emerging economy) and matches itwith firm performance. In 2006, the Colombian government launchedpolicies to reduce the cost of adopting certification. We use this change toimplement a difference-in-differences specification on panel data of certifiedand non-certified firms by matching samples at the year 2003, three yearsbefore the policy change. This is the most comparable data possible. Ourfindings suggest that firms that adopt ISO 9001 certification increase laborproductivity (measured as added value over labor) by 12 percent, and salesper employee and wages by 8 percent. The effect is larger for firms thatadopted certifications two years after the new policies compared with firmsthat adopted them immediately. The potential mechanism to explain gainsin firm performance is human capital because, prior to the changes, firmswith more temporary workers could not take advantage of certification.

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