EMERGING FOCUS ON QUALITY SYSTEMS REGISTRATION ENHANCES MARKET PROSPECTS FOR THE U.S. INSTRUMENTS INDUSTRY ISO and ISO 9000 standards ISO registration Registration process and costs World growth of ISO 9000 registration U.S. growth of ISO 9000 registration Current international standards activities Conclusion Endnotes EMERGING FOCUS ON QUALITY SYSTEMS REGISTRATION ENHANCES MARKET PROSPECTS FOR THE U.S. INSTRUMENTS INDUSTRY Refined customer expections due to advances in technology and manufacturing processes increasingly set the pace of international competition among manufacturers, particularly in high-technology industries. Manufacturers and vendors are finding that in addition to price and performance, instilling a high standard of quality in their organizations is a definitive way to distinguish themselves from competitors. Additionally, harmonization of standards within certain trading blocs, such as the European Union (EU), strengthens the trend for buyers to insist on compliance with international quality standards. Consequently, U.S. managers must determine the level of quality standard documentation and the auditing procedures necessary not only to increase internal efficiency and service quality, but also to enable the firm to export effectively to target markets. As a result, many firms recognize that they need a quality system program[1] consistent with accepted international product, safety, health, environmental, and quality standards. This article analyzes developments in quality system management worldwide, as exemplified by the global trend to adopt International Organization for Standardization (ISO) quality standards, and the effects on one high-technology market sector--the measuring, testing, controlling and analyzing instruments industry.[2] ISO and ISO 9000 Standards The standards for quality systems registration established by the ISO[3] set the benchmark in the world market as more countries adopt them. Based in Geneva, the ISO is a specialized organization that promotes "the development of international standards and related activities, including conformity assessment to facilitate the exchange of goods and services."[4] At present, the ISO is composed of member bodies from over 90 countries. Each country participating in ISO has an official member body representative at meetings in Geneva; the U.S. member body to the ISO is the American National Standards Institute (ANSI). The hierarchy of the ISO standards bodies and registrars is shown in figure 1. Figure 1. Hierarchy of ISO 9000 registration ISO publishes the ISO 9000 series of quality standards, a consensus standard developed by representatives from participating countries. The ISO 9000 standards include a broad range of quality system elements composed of specific guidance (ISO 9000 and ISO 9004) and conformance standards (ISO 9001, ISO 9002, and ISO 9003) (table 1).[5] Of the 90 country members of ISO, over Table 1. Comparison of elements comprised of ISO 9001, 9002, and 9003 80 have adopted ISO standards to date. Upon adopting an ISO 9000 standard, each country typically assigns it a name and number consistent with its other existing national standards. The variety of foreign nomenclatures for the ISO 9000 standards can be confusing to firms competing for an international project specifying a country's ISO 9000 standard equivalent.[6] Further, some previous U.S. military specifications are being harmonized with certain ISO 9000 standards. An illustration of the currently evolving relationship of ISO standards with other quality program designations is shown in table 2. Table 2. Relationship of ISO standards with other quality programs ISO Registration Increasingly, large buyers of manufacturing inputs are requiring that their vendors comply with ISO 9000 standards. For example, a quality manager in the U.S. instrument industry recently stated that one of the reasons his division had decided to register to ISO 9001 compliance was to protect the status of their supply contract to International Business Machines, Inc. (IBM) domestically.[7] The management of a quality system may be conducted in a variety of ways on an increasingly more formal scale from conducting internal "self-audits," to engaging an accredited registrar to register the firm in compliance with specific ISO 9000 quality standards and to conduct routine audits thereafter. In addition to price and service, a firm will also base its selection of a registrar to perform the ISO 9000 audit and registration procedure upon other factors, such as a previously established laboratory relationship or geographic location within a key export market. For example, a company spokesperson for a U.S. manufacturer of instruments that measure liquid-quality, with a high percentage of its exports going to the United Kingdom, recently stated that the firm chose to apply for ISO 9001 registration through a British registrar because of the perceived beneficial marketing recognition in the United Kingdom.[8] Registration Process and Costs ISO 9000 registration is the process of evaluating a particular business operation's quality management system by an accredited independent registrar.[9] To prepare for an ISO 9000 registration, a firm must complete a series of steps. First, the firm should perform a cost/benefit analysis of obtaining a registration given the current and expected mix of its export sales revenue ratios, as well as legal and customer requirements in a particular target country. For example, if a firm wishes to sell in the EU, it must determine to which directives it must comply and whether ISO 9000 registration is mandatory or voluntary.[10] Once a firm determines to proceed with the ISO 9000 registration process, it would usually follow the next six steps (with the aid of a registrar): (1) application, (2) document review, (3) pre-assessment, (4) assessment, (5) registration, and (6) surveillance. The three possible results of an audit are: approval, conditional or provisional approval, or disapproval.[11] In addition to improved market accessibility, a significant benefit provided by ISO 9000 registration is improved consumer acceptance and marketing potential because the registrar's mark (i.e., proof of "quality assurance") may appear on the firm's brochures, stationery, and other advertising materials. Costs for developing and implementing a quality system leading to ISO 9000 compliance and registration are relatively high (averaging approximately $245,000) and may vary greatly.[12] However, some firms find the expense worthwhile, as one U.S. analytical instrument manufacturer executive noted: "the benefits of our ISO 9001 registration were not limited to increasing export sales revenues. They included increased internal productivity, improved production processes and boosted employee morale."[13] World Growth of ISO 9000 Registration ISO 9000 registrations are currently increasing exponentially worldwide, reflecting a growing global business community perception that ISO 9000 compliance facilitates product sales and enhances corporate images. Further, in a quality-oriented global marketplace with intensive competitive bidding, ISO compliant firms appear to have an added advantage over their ISO noncompliant competitors. The TQM Department of Mobil Europe, Ltd., for example, estimated this year that at least 45,000 ISO 9000 registrations had been issued globally, up from 26,400 at the beginning of 1993, a 70-percent increase in the number of registrations issued during 1993. As figure 2 illustrates, the United Kingdom and Europe showed significant increases in the number of registrations issued last year (figure 2).[14] Registrations also increased in Australia, New Zealand, North America, and the Far East. During 1993, the number of countries in which certificates were issued increased 25 percent, from 48 to 60 countries. Countries experiencing the most rapid growth in ISO registration in that time period include: Japan, the United States, Singapore, Malaysia, and Germany. Figure 2. Approximate growth of ISO 9000 registrations worldwide in 1993 The trend toward the use of ISO 9000 standards has been accelerated by recent market developments in Europe, where the regional harmonization of de facto quality standards is historically intertwined with the evolution of de jure regulations (often based on national and industry standards) within EU countries to address safety and other concerns. Establishing a unified market without physical, technical, and fiscal barriers to trade among EU nations has expanded horizons for competitive European firms and created greater market access for non-EU firms as well. With over 350 million consumers, the EU accounts for more than a fifth of all world trade and is the world's biggest economic region.[15] Although ISO 9000 standards are generally not legally required within the EU, more and more European customers require their vendors and suppliers to comply with European norms and standards equivalent to them.[16] For example, an instrumentation firm in Boston recently confirmed that it had sought ISO 9000 registration "due to requirements from its customers in Europe."[17] U.S. Growth of ISO 9000 Registration Despite initial resistance by U.S. businesses to adopt emerging international quality systems standards, studies show that more and more U.S. high-technology firms are becoming ISO 9000 registered. In 1992, a Grant Thornton survey of mid-size U.S. firms found that 48 percent of respondents "hadn't heard of ISO 9000," only 8 percent "planned to become certified by the end of 1992," and only 11 percent "thought ISO 9000 would affect them a great deal."[18] Yet by 1993, the number of ISO 9000 registrations in the United States experienced more than a fourfold increase from third quarter 1992 to third quarter 1993.[19] As a result of greater awareness of international quality standards, demand is increasing for technology-intensive measuring and testing instruments, of which the United States is the leading world producer. According to an industry executive, the quality movement has had a significant impact on two major sectors of the instrument and controls business: companies that develop and manufacture measurement and control equipment, and companies in processing and manufacturing that depend on measurement and control equipment in their production processes to produce consistently high- quality, reliable ISO 9000 compliant products.[20] As a result, exporters of measuring, testing, analyzing, and weighing instruments are increasingly likely to consider ISO 9000 registration in the near term to satisfy increasing customer demand and in the long term to maintain their competitive edge globally. Countries that are experiencing an increased level of ISO 9000 registration, including Canada, Japan, Mexico, Germany, the United Kingdom, and Korea, have been the largest and fastest-growing export markets for the U.S. precision instruments industry. U.S. instrumentation manufacturers are currently experiencing growing competition in markets where ISO 9000 activity is on the rise, especially from Japanese, German and British firms. In fact, U.S. firms in the instrument industry are increasing ISO 9000 registration, albeit at a relatively slow pace. Less than 2 percent of the approximate 3,200 U.S. firms in these instrumentation industries are estimated to have received ISO 9001 or ISO 9002 registration (or both) within the last 2 years.[21] Due to the high degree of reliability necessary for precision instrumentation products, U.S. firms that register to an ISO 9000 quality system standard tend to register in conformance to either ISO 9001 (the most rigorous) or to ISO 9002 standards.[22] To date, several large U.S. firms in the instrumentation industry have been able to justify the expense of registering for ISO 9000 compliance, due to lucrative domestic and foreign contracts. However, many small- and medium-sized firms have not yet pursued this apparent marketing advantage due to financial concerns. This trend should rise, as more small- and medium-sized firms tap into export markets. Current International Standards Activities The evolution of ISO 9000 standards activities will continue to impact businesses in the future. Recently the ISO and the International Electrotechnical Commission (IEC) established a special committee to propose, create, and implement an international accreditation network of quality systems to provide international recognition of registrars in participating countries.[23] Expected to become a reality in the relative near future, the international adoption of quality systems assessment recognition (QSAR) would create a worldwide mechanism for recognizing the competence of quality system assessment and registration activities in relation to ISO 9000 standards. Eventually this could permit reciprocal acceptance internationally of ISO registrations issued by accredited registrars. In practical terms this would mean that a firm in New Jersey that had been registered by a U.S. registrar such as Underwriter Laboratories, Inc. (UL), for example, should find it easier and less expensive to sell its products and services in participating countries. A similar effort on a national level called the American National Accreditation Program sponsored jointly by the American National Standard Institute (ANSI) and the Registrar Accreditation Board (RAB) was recently announced to provide U.S. industry with a nationally recognized program for accrediting registrars. Another current development is the formation of the International Accreditation Forum. Composed of international peer member bodies, the International Accreditation Forum's task is to develop the framework for harmonization of the processes used by accreditation bodies in each country to recognize registrars as competent. Further, a variety of U.S. government efforts are underway to assist U.S. manufacturers to meet foreign regulatory requirements on a cost-effective basis and to help small- to medium-size companies attain ISO 9000 registration.[24] Conclusion The harmonization of conformity assessment standards, such as the ISO 9000 series quality systems standards, is ultimately expected to improve the quality of goods and services available globally, and to decrease nontariff barriers to trade. In addition to improving discipline and efficiency in internal operations, ISO 9000 registration appears to have resulted in broadened market potential for firms both domestically and abroad. In the past, U.S. businesses without such certification have been primarily affected when seeking to sell goods or services within the EU or to supply large multinational firms. The increasing global level of ISO compliance required of suppliers by both private and public sector contractors is currently encouraging a growing number of U.S. firms to register and, in turn, demand the same of their domestic suppliers. However, given the time and expense involved and the limited recognition of registrations, in the near term only advanced technology firms that see a justifiable return on invesment or are required to so to maintain current vendor contracts, such as those in the instrument industry, will likely pursue the process. In the longer run, however, even U.S. businesses focusing mainly on the domestic market will increasingly be expected to comply with ISO 9000 standards. Harmonization of requirements for registrar accreditation, increased international recognition of registrations, and government outreach efforts are all hoped to broaden access to the process on a more cost-effective basis for small and midsize U.S. manufacturers. Danna Blattmann (202) 205-2160 ENDNOTES: 1. A quality system is defined as "the process, organizational structure, procedures, and resources that manufacturers and suppliers use to control variables to produce a product of consistent quality which meets defined specifications." U.S. Department of Commerce (USDOC), National Institute of Standards and Technology (NIST), "Questions and Answers on Quality, ISO 9000 Standard Series, Quality System Registration, and Related Issues," Apr. 1993, p. 2. 2. Much of the information discussed in this report is increasingly applicable to all types of industries. 3. The exception to this is in areas related to electrical and electronic engineering, which is handled by its sister organization, the International Electrotechnical Commission (IEC). 4. USDOC, NIST, p. 2. 5. ISO 9000 and ISO 9004 are descriptive documents called guidance standards. Companies register to one of the conformance standards only, in other words, to ISO 9001, ISO 9002 or ISO 9003, which are models for quality systems. 6. For example, the United States has adopted the ISO 9000 series as the American National Standards Institute/American Society for Quality Control (ANSI/ASQC) Q90 series, labeled as ANSI/ASQC Q90, Q91, Q92, Q93, and Q94. The EU has adopted the ISO 9000 series as European Norm (EN) 29000, while the United Kingdom designates the ISO 9000 series as BS 5750. 7. Quality manager, U.S. instrument firm, USITC staff telephone interview, July 1994. 8. Spokesperson, U.S. manufacturer, USITC staff telephone interview, July 1994. 9. The registrar evaluates a firm's quality system for conformity specifically to ISO 9001, ISO 9002 or ISO 9003. Each firm must determine the appropriate ISO 9000 standard based on its particular product/service specialty, current and expected export-market mix, and budgetary considerations. 10. However, not all products and services are currently subject to a directive. For example, in the instruments field, to date only one council directive has been adopted by the EU and this relates to "nonautomatic weighing instruments." This particular directive requires not only that conformity assessment procedure be documented for this category of products, but also that the manufacturer complete EU product type-approvals and the European Community mark of conformity and inscriptions. From Official Journal of the European Communities, No L 189/1, 20.7.90, 90/384/EEC. Additional information may be obtained in U.S. International Trade Commission, Implementing the European Community Single Market: Sixth Followup Report (investigation No. 332-367), USITC publication 2723, Jan. 1994. 11. The duration of the registration period may vary, but is usually 3 years, with semiannual surveillance audits. 12. A recent survey conducted by Deloitte & Touche Tohmatsu International for CEEM Information Services' Quality Systems Update concluded the average costs incurred by all companies polled to be approximately $245,200 for internal and external expenses. Further, preparation for the initial registration audit often takes between 18 and 30 months. The cost of the actual registration audit depends on the size and type of facility, usually ranging between $10,000 and $30,000 initially in the United States. Ongoing semiannual audits cost in the range of approximately $5,000 to $10,000 each. Further, for additional fees firms may elect to contract with consultants to coordinate development and/or implementation of ISO 9000 compliant quality systems. 13. Executive, U.S. analytical instrument manufacturer, USITC staff telephone interview, July 1994. 14. In addition, even countries with a mature certification experience, such as Australia and the United Kingdom, still exceeded their large starting bases by over 50 percent. "45,000 ISO 9000 Certificates," ISO 9000 News, The International Journal of the ISO 9000 Forum, vol. 3, No. 1, Jan./Feb. 1994, pp. 1-3. 15. "The ISO 9000 Research Guide & Sourcebook," vol. 2, 1992, p. 3-1. 16. Further, ISO 9000 standards refer only to quality system management. Established norms, product testing standards, safety, environmental, and other regulations must be adhered to in each individual EU member country, unless an EU mandatory umbrella directive exists for that particular good or service, which would take precedence. 17. Company representative, Hewlett-Packard Analytical Products (Wilmington, DE), USITC staff telephone interview, Aug. 4, 1994. 18. "Business Bulletin: A Special Report on Trends in Industry and Finance," Wall Street Journal, Sept. 17, 1992, Sec. A, p. 1. 19. "Is ISO 9000 for You?," CEEM Information Services, 1993, p. 2. 20. Quentin S. Clark, Director of Standards and Technical Services at the Instrument Society of America (ISA) as reported in "What's Ahead for Instruments and Controls?," QUALITY, Dec. 1993, p. 39. 21. Data compiled by USITC staff from CEEM Information Services reports from Aug. 1, 1994. 22. Various reports of CEEM Information Services as of Aug. 1, 1994. 23. Registrars are evaluated by accreditation organizations. Examples of such international organizations include: the Dutch Council for Certification in the Netherlands (RvC) and the National Accreditation Council for Certifying Bodies (NACCB) in the United Kingdom. In the United States the Registration Accreditation Board (RAB), an affiliate of the American Society for Quality Control (ASQC), was established in 1989 to develop a joint ANSI/RAB American National Accreditation Program for registrars of quality systems. 24. USDOC, NIST, "Federal ISO 9000 Related Activities-Factsheet No. 4," 3/94, p. 1.