Newsletter > Newsletter No. 01

Germany
Economic benefits of standardization

This study looked at the benefits of standardization for business and on economy overall. The aim was to verify a number of hypotheses that were based on literature and industrial economic principles.

1. Benefits for companies

A survey conducted with a highly representative sample of companies in Germany, Austria and Switzerland focused on the effect of standards on:

  • the company and its strategy
  • cost, research, development, safety
  • competitive advantages and strategic alliances

2. Benefits for the economy

Examined the interaction between technological change and standardization, as well as implications for the German economy and foreign trade.

 

The method used was a company survey that was carried out in Germany, Austria and Switzerland.   It achieved 17% participation (4 000 mailed-out questionnaires to 10 industries, 707 completed and returned) and interviews with ten experts each in Germany and Austria representing the consumer and the  state.

 

1. Benefits for companies

The relevance of standards can be established and demonstrated. However, decision-makers in many companies seem hardly aware of it. Therefore the strategic potential of standards is not fully appreciated. The decision to participate (or not participate) in the standardization process  is solely based on time and cost factors.

Companies who participated in the survey seemed at least partially aware of the strategic potential of standardization. All statements below relate only to the businesses which  returned a completed questionnaire.

Strategic impact of standards
75% confirmed that they are involved in the activities of their national standards body because they want to influence international standardization.  60 % of them indicated that their involvement is at the European or international level:

  • active involvement resulted in higher short- and long-term benefits both in terms of impact on cost and competitive status
  •  bigger influence on the adoption of national standards on the European or International level
  • competitive edge for  faster, broader market access
  • advantage in terms of regulations – company can adopt the standard before it becomes  law – 25% have adopted this strategy at least once. Among them 36 % were able to achieve large cost savings.

Potential competitive advantage

  • Gaining a competitive advantage over non-participating companies was rated as very important – insider knowledge was considered  most important, followed by early access to information
  • More than 50% of surveyed companies indicated that they felt they were able to exert significant influence on the substance of standards. 46 % of them said they had been able to prevent undesirable  contents from being included.

Standards to access global markets
Impact of  application of European or International Standards:

  • 84% were able to trade beyond national borders
  • 62% indicated that the use of harmonized European or International Standards reduced trading costs and simplified contractual agreements
  • 54% stated that they lowered trade barriers in their sector
  • 37% felt increased pressure from rivals to conform to European and International Standards
  • 46% pointed to cost savings because their product already conformed to European and International Standards
  • 36% benefited from a greater choice of suppliers

30% achieved their positions in the global market with products that conform to their national standards, and 27% had to adapt products or services to foreign standards. This resulted in significant  negative cost impact.  80% could not give a figure for that cost,  while only 9% were willing to provide actual figures for costs and savings.

Cost reduction through standardization

  • standardization lowers overall transaction costs and leads to cost savings for individual businesses – available information is accessible to all interested parties
  • company standards were judged to be more efficient in the reduction of production costs than  industry-wide standards
  • international standards were judged to be more effective in cost-reduction for interdepartmental communication and resulted     in savings that were significantly higher than those achieved  in production

Supplier-client relationship

  • broader choice for businesses – bigger competition among suppliers
  • suppliers achieve  greater customer confidence when using standards
  • suppliers are able to expand  their markets – but may face increased competition for non-value-added products

Influence on strategic alliances
The coding of knowledge can help businesses  to cooperate better. Synergies are more clearly identifiable and this can help reduce costs and increase profits.

Impact on R&D
Participation in standardization can reduce economic risk and costs for R&D activities.

Impact on time
In industries with longer product life-spans (+five years), in terms of relevance, industry-wide standards were rated higher than private industry standards.

Standards work
70 % supported a system of majority decisions
A majority of representatives of minority interest groups prefered the consensus principle

 

2. Benefits for the overall economy

Part of the study was a macroeconomic analysis covering the period from 1960 to 1996, which concluded that the economic impact of standardization on the overall economy was approximately 1% of GNP (Gross National Product) per annum.

Economic development did not solely depend on innovation potential but also on  broad dissemination of  standards and technical rules.

Summary of findings:

  • More new standards are published in innovative sectors than in non-innovative sectors. A similar correlation was found using R&D expenditure as a factor.
  • International and European standards have a significant impact on German exports, while national standards  do not.
  • International standards encourage intra-industrial trade more than national standards, and they improve the competitive chances of domestic products. 
  • Non-participation in standardization work generally increases the cost of R&D.
  • Standards make technical specifications more transparent and encourage technology transfer.

Overall, there is empirical support for the theory that international standards lead to international competitiveness.