Do ISO Certifications Enhance Internationalization? The Case of Portuguese Industrial SMEs

Round 1

Reviewer 1 Report

Generally, I find this paper is interesting. However, a number of critical issues should be well addressed. 

Methodology: Authors have acknowledged the existence of potential endogeneity in the relationship between certification and export performance, they have not shown how to deal with this. While finding appropriate instrument variables may be difficult, they may adopt some strategies to mitigate the endogenous bias such as using fixed-effects models (and instead of using share of export value, they may use absolute export value). Propensity score matching may also help. They also use system GMM methods given the lenght of their data.  

Estimation results: 

1. Authors separate their sample by EU and non-EU markets, but they did not explain why and how such separation is important. In many case, the requirement to enter non-EU markets such as Japan and the US is also tough as the EU. 

2. Negative coefficients for ISO9001 variables in Table 4 (both for exports to EU and to non-EU markets) the subsample of medium-high tech, and high technology firms (in first panel) and of medium-low tech and high tech firms (in second component) are not well explained. 

3. In Table 5, readers also want to understand more about the different moderating effects of firm size for the different types of certification in different types of market. 

Author Response

Thank you for your comments. Regarding the methodology issues, we acknowledge the limitations of the methods and propose now in the “Conclusions” some possible alternatives to be used in future studies (rows 451 to 457):

(…) the generalization of our results should be considered carefully. Internationalization can be either a result of certification or a reason to obtain certification. This potential endogeneity in the relationship between certification and export performance could be addressed in future studies. While finding appropriate instrumental variables may be difficult, some possible alternatives are the use of propensity score matching or system GMM methods.

Specifically, regarding your suggestions, the use of a fixed-effects model is not supported by the usual tests made to choose between fixed or random effects (so, that is the reason to use random-effects). We didn’t use Exports as the dependent variable since that isn’t the usual procedure in the literature, which normally employs ratios or indicators.

Regarding the estimation results …

1. The main reason to separate the sample in EU and non-EU markets is due to data availability. The database that we used doesn’t provide country-disaggregated data for firms’ exports. Nevertheless, as correctly pointed by the reviewer, and since there are certainly relevant differences between some non-EU markets, references to that are now made in lines 201-202 and 251-253.

2. We think that the most important result from the paper is that certification exerts a positive effect in low or medium-low technology sectors, with that effect tending to disappear, or being negative, in other sectors (one exception is the significant negative coefficient appearing for ISO 9001 in non-EU markets). On the other hand, we acknowledge that it is difficult to interpret (and present a plausible explanation) for the significant negative coefficients appearing in the medium-high and high technology sectors. Possible explanations could lie in: i) the reduced number of firms in the high technology sector can result in less robust results; ii) firms in the medium-high and high technology sectors tend to have a greater percentage of exports directed to the EU markets, being their exports to non-EU countries more volatile and somewhat residual (more than 30% vs. less than 10% of sales). Also, there are a greater prevalence of foreign firms in the high and medium-high technology sectors (higher levels of FDI in those sectors) and those firms export a large part of their output. So, given their multinational status and tight integration in international trade networks, having a certification loses its relevance as a tool to reduce informational asymmetries in international trade. Certification is a significant and highly regarded determinant of exports in the EU markets, whether for other markets is less significant. Exports to the more distant non-EU markets are certainly determined by other factors, external to firms, such as commercial diplomacy, exchange rates or the economical/political context, so that our regressions can’t provide a clear picture of the certification impact on exports. These arguments are now elaborated in rows 388-400.

3. Finally, regarding the moderating effects associated with size, the significant effects only appear for exports to EU markets and ISO 14001 and for exports to non-EU markets and ISO 9001. We think that the result that larger exporters to the EU market benefit with environmental certification is very interesting. We can posit that the benefits that firm size brings to export intensity are reinforced when firms are certified, both contributing to a better positioning of the firm in EU markets. This result has a clear policy implication: recommend and support ISO 14001 certification for the Portuguese medium firms trying to export to the EU (particularly in the low and medium-low technology sectors). We added this issue in the paper (rows 415-419). Regarding ISO 9001 certification, the result is less interesting and puzzling, confirming the negative impact previously obtained. The explanation for this result could lie in the reasons outlined above (see point 2).   

Reviewer 2 Report

The paper is excellent. 

Author Response

Thank you for your comment and for reading our paper.

Reviewer 3 Report

Dear authors,

The paper is very well structured.

Please correct row 213. 

Row 324 - correct the citation style.

Give the distribution of 1684 SMEs more precisely to industrial sectors.

Author Response

Thank you for your comments.

We made the necessary corrections in former rows 213 and 324 (now, respectively rows 222 and 340).

Due to space limitations, the data for the different sectors is not presented in a disaggregated way. The complete distribution of firms by industrial sectors is the following: NACE 10 (100 firms); 11 (34); 12 (2); 13 (79); 14 (57); 15 (33); 16 (62); 17 (36); 18 (36); 19 (1); 20 (92); 21 (7), 22 (163); 23 (134); 24 (47); 25 (403); 26 (27); 27 (64); 28 (136); 29 (55); 30 (9); 31 (67); 32 (40)

Partly answering to this request, in rows 275-279 it was added the following sentence briefly describing some differences in the sectoral distribution of the 1684 firms:

“The three most represented sectors are sectors 25 (Fabricated metal products), 22 (Rubber and plastic products) and 28 (Machinery and equipment), respectively with 403, 163 and 136 firms, whereas sectors 12 (Tobacco), 19 (Refined petroleum), 21 (pharmaceutical products) and 30 (Other transport equipment) are represented only by a handful of firms.”

Reviewer 4 Report

examing the determinants for exports is important and can be an interesting topic for discussion.  This manuscript put forward theoretical assumptions following previous studies and examine these assumptions using unbalance data. It indeed contributes to literatures. But there are some drawbacks in this manuscript. 

1, lacking of important literatures that discuss the determinant of export.

2. the metholody using in this manuscript is too simple to support all the conclusions. I really doubt about the robustness and general applicability for these conclusions.

3, proofreading is needed for this manuscript to aviod typos. 

Author Response

Thank you for your comments.

1. We acknowledge the reviewer’s suggestion to add more relevant literature that discusses the determinants of exports. In our opinion the paper already cited a large body of literature emphasizing the exports’ determinants. The focus of our paper is not to study those traditional determinants but rather the specific relationship between certification and export activity. At the beginning of the paper, we referred some paper that explore those traditional determinants (references [1-7]). Additionally, other set of references were made at the beginning section 2 (references [10-19]). Nevertheless, following the reviewer’s suggestion, two other highly cited papers were added, and cited in the beginning of section 2 (row 63-64), namely:

Chen, J., Sousa, C., & Xinming, H. (2016). The determinants of export performance: a review of the literature 2006-2014. International Marketing Review., 33(5), 626-670.

Katsikeas, C., Piercy, N., & Ioannidis, C. (1996). Determinants of export performance in a European context. European Journal of Marketing, 30(6), 6-35.

2. We acknowledge the limitations of the methods and propose now some possible alternatives to be used in future studies (around rows 451-457). Namely, it was included the following sentence:

“Internationalization can be either a result of certification or a reason to obtain certification. This potential endogeneity in the relationship between certification and export performance could be addressed in future studies. While finding appropriate instrumental variables may be difficult, some possible alternatives are the use of propensity score matching or system GMM methods”.

3. The text was carefully proofread and several grammatical errors and typos were corrected.

Round 2

Reviewer 1 Report

Thank you.