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3. Drivers of Adoption of ISO/TS-16949 StandardAn auto component producer may adopt the ISO/TS-16949 Standard for the internal efficiencyreason and/or as a marketing tool to emit quality signal. As reviewed below, the existingliterature indicates broadly two powerful influences of ISO/TS-16949 Standard on the certifiedauto component firms, more so in respect of exports than domestic sales. These effects are:quality signaling and being a facilitator in moving up the value chain; the former role itselfcontributes to the latter. In Section 3.1 we also examine the limited empirical micro-levelevidence on the choice of this certification by auto component producers. In Section 3.2 weexplain what motivates automobile manufacturers to opt for ISO/TS-16949 certification for theirproduction sites.3.1Motives for Auto Component ProducersThe automotive industry is tier-ized, as illustrated in Figure 1. Auto component supplies forfurther processing are made from lower Tiers (upstream suppliers) to higher Tiers and then fromTier-1 to the original equipment (vehicle) manufacturer, OEM. Tier-1 firms supply directly toOEMs; the firms selling assemblies/ modules to OEMs are sometimes called Tier-0.5 suppliers.A component producer may even operate at different Tiers for different items, thus playingdiverse roles. The direct and indirect supplies for original equipment (vehicle manufacturing) areknown as OE supplies. However, the supplies to OEMs may be partly for the aftermarket salesby OEMs, i.e. meant to be sold for vehicle-repair purpose; these supplies have to adhere to theOEM specifications. The total aftermarket/ replacement market, including also the directsupplies of components to it, is quite large in value terms (see Singh, 2010b).6

Figure 1: Auto Components: OEM and Replacement MarketsTier-3 supplier Tier-2 supplier Tier-1 supplier Aftermarket(outside the automotive OEMsupply chains)OEMNote: Adapted from Singh (2010b).Quality Signaling Role of QMSAn important factor motivating a producer to seek QMS certification is its quality signaling rolein the presence of a large number of potential suppliers of the product and their unobservableattributes (see e.g. Terlaak and King 2006). Hence customers prefer the ‘third party QMScertification’ assurance. 5 Without QMS certification, intensive time-consuming second-partyaudits of quality parameters of a prospective supplier are required especially cumbersome forpurchase contracts with foreign suppliers. However, sometimes potential overseas buyers maynot be fully convinced of the integrity and capabilities of an interested supplier’s ISO-9000Certifying Body, if non-accredited. The ISO/TS-16949 certification is credible and universallyrecognized. Moreover, this Standard is ‘ISO-9000 plus’ by way of some additional QMSrequirements for the automotive supply chain. Therefore, ceteris paribus, compared to ISO9000, the ISO/TS-16949 certification signals a superior QMS for automotive operations. Thequality signaling (differentiating) role played by ISO/TS-16949 accredit is stronger for buyersupplier transactions across nations and those between otherwise non-linked firms.5A QMS certification (registration) is usually valid for 3 years, and may be renewed. It being plant-specific, multiplant firms may obtain multiple certifications for identical or different QMS Standards across plants.7

With the formulation of ISO/TS-16949, globally a large number of Tier-1 suppliers, especiallythose exporting to OEMs, have been ‘pressurized’/encouraged by OEMs to adopt this Standard.Stating with a few OEMs in the early 2000s, at present many Tier-1 suppliers differentiatebetween their ISO/TS-16949 accredited and other suppliers. Now the vehicle manufacturersusually ask for ISO/TS-16949 certification or at least the compliance with this QMS of theirdirect (Tier-1) suppliers. For these transactions the general ISO-9000 Standard seems to haveceded the quality signaling/ differentiator role to the industry-specific Standard ISO/TS-16949(Singh 2010a and 2010b). Further, for the sake of consistency major global OEMs are interestedin having their entire supply chain, including their sub-contractors Tier-2 and Tier-3 suppliers,being ISO/TS-16949 certified. Even for international trade in standardized auto components thequality, delivery and logistic parameters have become more important over time. For diversifiedfirms producing components also for related sectors like rail transport and aerospace, beingISO/TS-16949 certified may emit quality signals to those potential customers as well.The case study evidence obtained by Sroufe and Curkovic (2008) indicates: the ISO/TS-16949registration signals a quality image to potential customers, improves on-time delivery, reducesdecline in defective parts per million and increases sales. Bevilacqua et al. (2011) find that theapplication of ISO/TS 16949:2009 yields high-quality products, improves the plant performanceand consolidates market position of the firm. Ostadi et al. (2010) in an empirical study of asample of thirty six ISO/TS-16949:2002 certified auto component SMEs in Iran – 4 producershaving 50 to 100 employees and the others even less – examine the motives and effects of thiscertification as perceived by the implementing managers. The motive was ‘to improve thecompany quality image’ (78%) and ‘to strengthen the quality management system’ (69%).Adopting the ISO/TS-16949 Standard brought the registered Iranian plants significant gains, likeenhancing the status of the organization, systematic documentation, better quality control,increased competing ability in sales, verifying the internal auditing system, etc.Moving up the Supply ChainThe potential rewards associated with higher Tier like Tier-1 sales have been mentioned inSection 1. Globally a significant proportion of automotive Tier-suppliers seem to haveprogressed over time to a higher Tier of the supply chain and have changed their product profile8

accordingly. Again the automotive purchases for vehicle or ‘Tier-1 Level’ production consist ofcritical/ key as well as other components. For a component producer-supplier at any given TierLevel, increasing the relative production of critical components which have more exactingquality and delivery requirements, is an implicit progress. Holding of ISO/TS-16949 certificate through its quality signaling role and the likely favourable influence of this QMS Standard on theproductivity and delivery schedule performance, as alluded above is expected to facilitatemoving up the supply chain. For export sales, this certification may play a far greater role inthese upward journeys, also because many global OEMs and even some Tier-1 auto componentfirms consider the ISO/TS-16949 certification of their vendors as mandatory or stronglypreferred, especially for purchase of key components.However, this expected facilitative role of ISO/TS-16949 Standard has been hardly investigatedempirically. Singh (2010b) provides supporting evidence relating to exports. She examines theexport behavior of auto component firms operating in India in terms of the type of QMS andother quality related factors, firm size, foreign financial and technical collaborations, isolationand cluster location variables, etc. She analyzes separately the determinants of different Levelsof exports – probability of being exporter to OEMs, to OEMs and/or Tier-1 firms, or at anyLevel (even to the aftermarket). Ceteris paribus, ISO/TS-16949 certified and bigger firms arefound to be far more likely to be exporters to OEMs, and to be exporters to ‘OEMs and/or highTier’ firms. Having a Quality-Incharge and having an internationally recognized Quality-Awardincrease the likelihood of being an OEM-Level exporter. Though the probability of exportparticipation (being an exporter) is unaffected by the ISO/TS-16949 certification, amongexporters the ISO/TS-16949 certified firms have a larger value of exports.As mentioned above, the major global OEMs now want even their Tier-2 and Tier-3 suppliers tobe ISO/TS-16949 certified. The OEMs are also intensifying their sales efforts in the aftermarketsegment. Hence for SMEs being ISO/TS-16949 certified would enhance their exports toautomotive Tier-1 and Tier-2 firms as well as for the aftermarket supply, particularly for thereplacement supplies to OEMs.9

Firm Characteristics and the choice of ISO/TS-16949 StandardThe decision regarding QMS certification Yes/ No and the Type is taken at the firm-level,weighing the various additional costs and benefits (Singh 2010a). We have not come across anyeconometric study explaining these choices made by vehicle firms. For auto componentproducers in India in 2005, Singh (2010a) investigates the factors affecting the probability ofbeing ISO/TS-16949 certified. The logistic estimates indicate that a bigger firm-size and foreign‘pure’ technical collaboration have large positive impacts on this probability. The foreignfinancial collaboration has a small favourable effect, only for SMEs. Gurgaon, Chennai andBangalore (now called Bangaluru)-Hosur clusters are ahead of other locations in respect of theISO/TS-16949 certification. The firm’s age has an inverted U-shaped impact; a negative effect isimplied for the pre-1980s commencement of production.3.2Motives for Vehicle ManufacturersThe producers of vehicles, a finished product, may adhere to the ISO/TS-16949 Standard forenhancing the productivity of their manufacturing operations. The benefits are also in terms ofimproving the quality consistency of their own processes and developing a common languagewith their vendors for an understanding of the QMS requirements. Again, for any automobilemanufacturer there is a distinct possibility of vehicle recall and of accident lawsuit. Having theISO/TS-16949 certification renders it easier to insure against/ face such eventualities. Both theproduct liability insurers and the courts take cognizance of the quality management system.During the 2000s, several emerging nations, e.g. China and India, apart from having boomingautomotive exports, have experienced the phenomenon of rising outward FDI by their largeautomotive firms in the vehicle and component segments. They are even venturing intodeveloped host nations (e.g. Pradhan and Singh 2009). Having the ISO/TS-16949 certificationfor their domestic automotive manufacturing sites is expected to boost the confidence of theserapidly internationalizing firms from emerging economies.10

4. Global Spread of ISO/TS-16949We analyse here the information on ISO/TS-16949 certifications, as compiled from the annualISO Survey of Management System Standard Certifications, ISO (2012). We further relate it tothe automotive production (see Tables 1-2 and Figures 2-4). A few remarks are pertinent.First, the automotive industry has undergone much turbulence and restructuring in the 21stcentury. For vehicle manufacturing while there has been expansion through new plants inrapidly expanding markets of China, India and Brazil, and other low cost locations in majortrading blocks, there has been a drastic downsizing in the traditional markets of the West evensome plant closures by volume producers (Bailey et al. 2010). The International Organization ofMotor Vehicles Manufacturers, OICA (i.e. Organisation des Constructeurs d’Automobiles)compiles the data on production of cars and commercial vehicles (CVs) only. These data indicatean increase of 50% in global production during 1999 to 2012. Thus since the close of 20thcentury the global vehicle industry has grown at a modest average annual rate of around 3%,with much yearly fluctuations and an absolute fall in output in 2008 and 2009 due to therecession. The global recession hit the automobile industry badly due to the highly pro-cyclicaldemand for vehicles and consumer credit crunch.In contrast to a remarkable growth of automobile industry in some emerging economies, thenumber of vehicles manufactured in some advanced economies, like the USA has fallen since1999 (see Table 2 and Figure 4). The USA vehicle output decreased even before the recentglobal recession. The USA, Japan and Germany the erstwhile major production centres –produced 28.6 million automobiles in 1999, accounting for about half (50.85%) of globalproduction. Their combined output has since fallen to 25.9 million units in 2012, implying30.81% global share. During the same period China, India and Brazil together have raised theiroutput from 4.0 million to 26.8 million vehicles, and their global share from 7.11% to 31.80%.Their cars & CVs output growth has been based primarily on the strength of domestic demand(Stanford 2010). China’s global share (rank) of output has moved up from 3.25% (9th) in 1999, to8.12% (4th) in 2004, 22.35% (1st) in 2009 and 22.90% (1st) in 2012.11

Second, the ISO/TS-16949 certification can be applied to automotive manufacturing and certainautomotive-related services production sites (plants). Among all such automotive sites globally,the vehicle manufacturing sites are a small minority. Vehicle assembly requires numerouscomponents and many related services. The producers linked to automotive value chainsgenerally supply (directly or indirectly) to multiple OEMs. Overall, for the application ofISO/TS-16949 certification the upstream supply base for vehicle production is heavy, i.e. interms of the number of auto component/ sub-assemblies/ assemblies and related servicesproducing plants (sites) as compared to the number of vehicle manufacturing plants. Theimpressionistic evidence indicates that in the automotive supply chains currently the adoption ofISO/TS-16949 Standard certification is mainly found among suppliers to cars and commercialvehicle manufacturers, especially among their Tier-1 suppliers, and among suppliers to Tier-1firms having international operations. Thus at present the ISO/TS-16949 QMS certifications No.is expected to be high in countries where the 4-wheeler vehicle production is concentrated and/or which are major supply centres to global OEMs and Tier-1 firms.Operationally the ISO/TS-16949 Standard certification commenced in 2000. By end-2004, just afew years since its launch, 10 thousand certificates had been issued globally (Table 1, Part A). 6During 2004 to 2007 there was a steep increase of 2.5 times in these certificates, followed by arelatively modest growth subsequently.4.1Inter-National and Inter-Regional DiffusionThe disaggregate figures on ISO/TS-16949 certifications reflect certain interesting geographicand dynamic patterns (Table 1, Parts B and C, and Figures 2 and 3).ISO/TS-16949 Inter-National Diffusion: China, S. Korea, India, Brazil, Thailand and Mexico also significant producers of auto components appear in the list of the top 10 countries in termsof the number of ISO/TS-16949 certificates as on December-end 2011 (Table 1, Part B, andFigure 2). The global share of the top 5 ISO/TS-16949 certification nations China, S. Korea,USA, India and Germany, having a total of 30936 certificates in December-end 2011 is about65.11%. During 2004 to 2011 China’s rank improved from the 5th to 1st (since 2006); S. Korea6The data reported in Table 1 are for the number of sites covered by single/ multiple-site ISO/TS-16949 certificates.12

Table 1: Global Spread of ISO/TS-16949 Quality Management System CertificationA. Worldwide Total Certificates (Year-end figures) Year Total Certificates 4647512628181838486No. of CountriesB. Top 10 Countries: Year 2011Total No. of CertificatesRank in 2011 &Country1. China2. S. Korea3. USA4. India5. Germany6. Japan7. Brazil8. Italy9. Thailand10. 453428820083068110697210246949472011: Increase in2012: Cars &CertificatesCVs Produced(thousands) Rank 251073‘Top 10’ Total36684World 21. China2. India3. S. Korea4. Iran5. Taipei, Ch.6. Thailand7. Mexico8. USA9. Turkey10. Italy63395 Sub-Total(1-10)84141 World Total211039724812595796451483732543566C. Region-wise CertificatesRegionAfricaCentral / S. AmericaNorth AmericaEuropeEast Asia and PacificCentral and S. AsiaMiddle 3410891249683388884475122011 Global 2011 IncreaseShare (%)in .03566Sources: The data on certificates are from ISO (2012); these data have been provided to the ISO by the InternationalAutomotive Task Force. The data on cars and commercial vehicles (CVs) production units are from the OICAwebsite (www.oica.net, accessed September 1, 2013).13

No. of ISO/TS 16949 CertificatesFigure 2: Top 10 Nations in terms of No. of ISO/TS-16949 Certificates (Year 420072011Source: See Table 1.Figure 3: Region-wise Spread of ISO/TS-16949 CertificatesNo. of ISO/TS 16949 0000Africa Central / North Europe East Asia Central MiddleS.Americaandand S.EastAmericaPacificAsiaRegionSource: See Table 1.14

Table 2: Vehicle Production in Top 10 ISO/TS-16949 Certificate Nations (Year 2011)CountryChinaS. Total 10NationsTotalWorldISO/TS16949Certificates:2011 GlobalShare (%)Cars & Commercial Vehicles ProductionNo. 41100.00Sources: Complied from ISO (2012) and www.oica.net, accessed September 1, 2013.Vehicle Production (in units)Figure 4: Cars & CVs Production in Top 10 ISO/TS-16949 Certificate Nations (Year 2011)25,0

The 1999 version of ISO/TS-16949 was aligned with the then prevalent U.S. (QS-9000), German, French and Italian QMS Standards for automotive sector – all based on ISO-9001:1994. The second edition ISO/TS-16949:2002, called TS-2, released in March 2002, incorpor