SCIENCE (No plaigarism, A++ Work, On Time, Quality)

Qual Quant (2008) 42:821–833 DOI 10.1007/s11135-007-9135-x

O R I G I NA L PA P E R

Is quality management a prime requisite for globalization? Some facts from the sports industry

Syed N. A. Abdi · Hayat M. Awan · M. Ishaq Bhatti

Published online: 2 October 2007 © Springer Science + Business Media B.V. 2007

Abstract Countries have progressed during the decades through internationalization of their products. Pakistan is also trying hard to internationalize its products and has succeeded as far as the textile and sport ware industries are concerned. Pakistani Sports industry, though always relying on high quality products, lacked a formal quality management program till 1990’s. It was during this decade that most sports industries adopted a formal quality manage- ment program in the shape of ISO-9000. This paper encompasses different aspects of quality management and establishes its role in internationalization. Research findings presented in this paper are carried out in two phases. In phase-I, the detailed analysis of 6 sports industries is done, whereas in phase-II, a survey of one hundred industries was conducted and the role of quality management was established based on obtained results. It was found that 85% companies adopted ISO-9000 as a formal quality management program. The quality impact on internationalization was probed and it was found that the following quality management programs increased the sale, exports, profitability and the well being of the owner and the workers.

Keywords Quality management program · ISO 9000 · Sports goods industry of Pakistan · Globalization

1 Introduction

Globalization is the process of increasing involvement in international operations but the question is how and what allows a product to be sold in the international market? The fac- tors determining sale success are many and varied. They include market conditions, the nature of the product, the image created by advertising, the socio-cultural background of

S. N. A. Abdi · H. M. Awan Institute of Management Sciences, B.Z. University, Multan, Pakistan

M. I. Bhatti (B) Department of Economics and Finance, School of Business, Latrobe University, Melbourne, Australia e-mail: [email protected]

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Fig. 1 Summary of four export development/ internationalization “Stage” models (Source: Research Devel- opments in International Marketing: A European Perspective, Ford and Leonidu, 1991)

customers, credit facilities and many more. A number of studies have been based on behav- ioral approaches. One such theoretical line has focused on the process of internationalization of the firm (Johanson and Vahlne 1977; Bilkey 1978; Wiedersheim-Paul et al. 1978; Cavus- gil 1980; Ried 1982; Welch and Luostarinen 1988; Siropolis 1994). A summary of different stage models is given in Fig. 1.

Cavusgil and Nevin (1981), Christensen et al. (1987) and Gronhaug and Lorenzen (1982) find size related differences between exporters and non-exporters. In contrast Cooper and Kle- inshmdit (1985) establish a negative relationship between size and export intensity. While McGuinness and Little (1981), Czinkota and Johanston (1983) and Diamantopoulos and Inglis (1988) conclude no relationship. Management commitment and propensity to export has received a unanimous positive relationship (Bello and Barksdale 1986; Cavusgil 1984; Cavusgil et al. 1979; Gronhaug and Lorenzen 1982; Kirpalani and Macintosh 1980; Rosson and Ford 1982).

One of the most widely adopted concepts in the field of internationalization was presented by Johanson and Vahlne (1977), which has its theoretical base in the behavioral theory of the firms (Lyert and March 1963), and Penrose’s (1959) theory of growth of the firm. One major factor that appears in all conditions is “Product Quality” as perceived by the customer. It can be argued that powerful media campaigns can create demand for any thing. This may be possible as far as the initial launch of the product or the first sale is concerned. However repeat and sustained sales can be achieved only on the basis of good quality at a reasonable price. A business concern could fail despite producing good quality products, but with poor quality no enterprise can sustain itself for long.

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Quality—as it applies to products—and its control has become an integral part of the fac- tor in the competitive market place. Consumers expect quality in the products they buy and exert great pressure on producers to maintain a high standard of quality. Likewise producers realize that if they are not competitive in all aspects of quality, they find it very difficult to survive. With the emergence of the new World Trade Order in the 21st Century, there has been dramatic change in trends, practices and outlook of the business environment in all around the world. Standards play an increasingly important role in the development of the “global village”. Burton and Schlegelmilch (1987) and Christensen et al. (1987) found that successful exporters had a stronger quality control function. Daniels and Robles (1982) concluded that product quality was a key competency for Peruvian exporters. Joynt (1982) reported that Norwegian exporters perceive their most important competency to be product quality. In contrast, Malek-Zadeh and Nahavandi (1985) concluded that research in this area is limited and the results are unclear. Market globalization has fostered an important and positive move towards the internationalization of standards. Countries that have introduced standardization policies have gained an advantage over countries that have been slower to move.

ISO standards are organized in a way that guarantees the involvement of all parties involved. A distinctive feature of quality assurance is that it transfers verification of req- uisites from the product to the system that produces the product. ISO-9000 series provides the basis for the third party certification of a company’s quality system by establishing the standard that must be met. Under these, standards control exists for every aspect of production process. Achieving ISO-900 registration requires third party assessment and periodic audit of the quality system to confirm that the system meets and adheres to ISO-9000 standard.

Lipovatz et al. (1999); Berry (1998); Tummala and Tang (1998); Tsiotras and Gotzamani (1998), state that for a company to receive ISO-9000 approval is not only a trend but also a general requirement towards what is needed to run a good business. At the beginning, many companies perceived the certification as a tool for improving their market position. As the number of certificates continuously increases, the certification tends to becomes necessary for the company’s survival rather than a competitive advantage. Although different opinions are often expressed, many researchers consider the existence of quality assurance standard (QAS) to be an essential first step towards the adoption of total Quality Management, which aims at the continuous improvement of business performance with principal focus on the cus- tomer’s satisfaction and the gain of a competitive advantage (Awan and Bhatti 2003; Bhatti and Awan 2004). Total quality Management and ISO-9000 have a strong relationship with each other. They are used to improve the quality of the product and service. The concepts of quality management have been widely accepted and adopted since the Second World War (Lee et al. 1999). Since the publication of ISO-9000 series of standards in 1987, they are used by many companies and organizations as an important milestone to mark their quality jour- ney. In particular, many buyers and merchandisers in the national and international markets use ISO-9000 certification as a primary criterion in their selection of suppliers. The ISO-9000 quality management system is the most widely recognized quality model for the purpose of certification. The route to TQM is definitely not an easy one, however many organizations striving to attain TQM have chosen ISO-9000 certification as a stepping stone to achieving this goal (Quazi et al. 1997).

Prior to the mid 1970s international business activity was considered to be the prerogative of large corporations and global markets were regarded as the domain of multinational enter- prises (MNE’s). Most Governments relied extensively on large indigenous or foreign-owned business to provide the engine for economic development and trade growth. Smaller firms received scant attention from policy-makers and researchers alike. It was widely assumed

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that due to backward technologies, inadequate management and inferior organization—they would play an increasingly residual role in the advancement of economies. These percep- tions began to change in the 1970’s. World wide recession in the aftermath of the 1973–74 “Oil Crises” led to sluggish demand in saturated domestic markets and to a slump in world trade. Intense global competitions emanating from Japan and the newly industrialized natives aggravated the balance of trade deficits of many advanced economies and provoked severe foreign debt problems among lesser developed countries. Then since the mid-1970’s, small firm internationalization has become an important research topic. For example, Scandinavian nations, due to small firm bases and limited domestic markets, have been in the vanguard of such enquiry (Johanson and Wiedersheim-Paul, 1975), but also in sizeable economies where the export activities of small firms are not as critical, yet still offer significant incremental contributions to foreign trade (Bilkey and Tesar 1977; Joynt 1982; Widersheim-Paul and Olson 1978; Kaynak and Kothari 1984).

The sports goods industry is one of the largest small-scale manufacturing set up in Sial- kot, Pakistan. The sports goods being manufactured for export from Sialkot include tennis balls, rackets, hockey sticks, polo sticks, cricket bats & balls, footballs, badminton rackets and other associated products. The industry is one of the major foreign exchange earners for Pakistan and is therefore receiving full Government backing in its development. It is expected that more than 75% of the total production is exported every year. In fact the export demand has acted as the main stimulus for the rapid growth of this industry. At the time of inde- pendence, this industry was in an infant age with a nominal export of Rs. 0.82 million. The Government took immediate steps to develop this industry by providing loans and subsidies to the manufacturers and arrangements were made to market the manufactured goods. Since then the industry has flourished locally and enjoys good reputation in international markets as well. Export of sports goods increased from $141 million in 1991–92 to $248 million in 1995–96; Showing an average increase of 15% per annum. (Awan and Bhatti 2003). Industry in particular holds a monopolistic position in world trade with almost 70% share. Pakistan Football is played in all international matches and tournaments. International companies like Adidas, Puma, Select, Nike, Mitre and Reebok buy their major share of footballs and foot- ball goal keeper gloves from Pakistan. Pakistan Martial Art uniforms and Boxing equipment are considered the best all over the world including Japan, EU and USA. This industry has kept pace with all innovation in the manufacturing technology. The hockey industry has a remarkable distinction of being marketed in the world with its own brand names which is by no means a small achievement. India, China, Japan, Taiwan and South Korea are competing with Pakistan in the international markets by supplying their products at cheaper rates. India and China have an advent of cheap labour and raw material, whereas others have semi auto- matic mechanized units and are always engaged in introducing cheap sports gears such as metal rackets and cricket bats. Pakistan sports goods industries have progressed from cottage industry scale to a semi-automotive level by modernization and introducing new technol- ogies. The industry should now increase the bulk of its production and enlarge its area of export. The level of internationalization should therefore be needed. The object of research presented in this paper is therefore to assess the importance of quality management in the process of internationalization in sports industry of Pakistan.

The objectives therefore are to find out the:

(i) Importance the firms give to quality management as a pre-requisite to internationali- zation.

(ii) Value of quality management as a competitive edge factor in the process of interna- tionalization.

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(iii) Characteristics of exporting firms and place of TQM therein. (iv) Impact of quality management on level of exports. (v) Impact of quality management over reject rate and sales.

There are so many factors which influence the internationalization of a firm. In their paper in the International Marketing Review (1989) titled “Management influences on export per- formance: A review of the Empirical Literature 1978–87, Nils Erik Aaby et al. organized the management influences in three areas namely: Firm Characteristics, Competences and Strategy.

Total quality management became a major element in corporate strategy. Significant num- bers of firms adopted quality programs during the 1990’s. Quality improvement is but one way for an organization to improve its competitiveness. Even in the absence of competition, improvements in quality can facilitate an organization’s competitiveness; though as wit- ness over the last decade, competition has for many organizations been the driver of quality improvement efforts.

3 Research methodology

The research reported in this paper is based on two issues:

(i) Case studies of six firms operating in the sports industry in Pakistan. In depth inter- views were conducted at each firm to find out quality management practices and their impact on the level of internationalization. These firms are characterized as L (Large), M (Medium) and S (Small).

(ii) A structured questionnaire is developed by considering observations from literature sur- vey with an emphasis on finding out the impact of quality management on the process of internationalization. Sports companies operating in Sialkot (Pakistan) were taken as Population. Cluster sampling technique was applied and under cluster sampling “Random Sampling” method was used. Size of the sample was 100 sports companies, out of which 89, provided useable responses.

4 Observations

4.1 Case studies

This portion presents an analysis of case study of six firms operating in the sports industry. In depth site interviews were conducted at each firm to obtain detailed information about the TQM implementation, benefits, and difficulties and especially with reference to its impact on the export performance of these firms. These firms include Talon Sports, SAGA Sports and Awan Sports, Anwar Khawaja Industries (AKI), Fox & Associates and A.M. Sports. Categorization of these firms is done as large, medium and small on the basis of turnover and the number of employees. Those having an annual turnover of more than Rs. 500 million and more than 1000 employees are categorized as large, above Rs. 100 million but less than 500 million (100–1,000 employees) as medium and below Rs. 100 million (less than 100 workers) as small.

The structured portion of the interview utilized a questionnaire that was based on a com- prehensive review of literature. Also this study presents the results of personal observation,

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Table 1 Company background information

Sr. Description Talon Sports (Pvt) Ltd.

Saga Sports (Pvt) Ltd.

Anwar Khawaja Industries

Awan Sports Industries

Fox Associates

A.M. Sports No.

01. Size of company Large Large Medium Medium Small Small

02. Scope of business Exports Exports Exports Exports Exports Domestic & export

03. Nature of Company Private Ltd.,

Private Ltd.,

Private Ltd.,

Private Ltd.,

Partner- ship

Proprietorship

04. No. of employees 1265 1200 317 355 77 10

05. Turnover, Rs. Million 800 1400 371 160 50 05

06. Experience in exports (years)

10 20 Over 20 20 10 Below 10

and company publications. The details of these cases have been presented in Abdi (2005). The general information about these firms is presented in Table 1 below.

The cases under study are export oriented; they have implemented TQM and except one, are ISO certified. They first got ISO registration and based on that implemented TQM. Per- sonal observations and essence of interviews is summarized as under;

• Strong commitment to quality was observed irrespective of fact that whether a formal quality management system was enforced or not.

• Nearly 80–90% of firms are ISO certified showing their belief to adopt ISO certification. • HRD factors are considered to be the crux of efforts for achieving TQM; which is in

consonance with literature. • Customer satisfaction, product design/quality and management commitment have been

identified as the factors in which a firm must excel if it wants to proceed ahead with Internationalization. All these factors are in fact an outcome of TQM; hence we can say that TQM practices enhance the process of Internationalization.

• All the companies feel that without emphasis on quality and TQM parameters, Interna- tionalization can not proceed ahead. However marketing efforts and personal contacts are considered to be important parameter for internationalization.

• Large companies, by virtue of maintaining some sort of systematic operations, were not pressurized by the customers to adopt ISO standards. However, medium & small compa- nies were to some extent required to adopt ISO standards by outside clients to enhance their credibility and commitment to quality.

• Increase in exports was experienced by nearly all companies as the result of implemen- tation of quality management system.

• Product design, technology improved, new machines installed, laboratory testing were sought for various incoming raw materials. As a result tighter conformance to customer’s specification was observed which caused increase in customer satisfaction and profit.

• Cost control and control of reject rate improved considerably as a result of quality manage- ment practiced; causing increased profits. However, in case where quality management was not being practiced the progress remained static.

• The different companies studied were found to be at different stages of internationaliza- tion, organizations with an older age of quality management programs were found to be at an advanced stage of internationalization.

The quality management and internationalization information is summarized in Table 2 below.

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A prime requisite for globalization 827

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828 S. N. A. Abdi et al.

Table 3 Average & ranking: factors in internationalization

S # Question N Mean Std. deviation

15 Receipts of orders from abroad 71 1.21 .74

5 Management interest in exports 73 1.32 .64

10 Having unique quality product 71 1.37 .80

11 Having extra growth potential by exports 71 1.41 .62

9 Having exclusive information of foreign markets 72 1.64 .83

12 Possibility of higher sale return from export 73 1.64 .84

6 Starting of exports by competitors 72 1.69 1.04

02 To get large scale production benefits 73 1.85 1.20

03 Having idle capacity and want to utilize it 72 1.94 1.03

08 Having easy access to export finance 72 2.17 1.11

04 Encouragement of external agents 71 2.44 1.42

13 Govt. export related incentives 72 2.47 1.34

07 Intense competition in domestic market 71 2.55 1.43

01 High Level of unsold stock 70 2.74 1.50

14 Lack of growth in domestic market share 64 3.05 1.41

These case studies confirm the findings regarding the implementation of TQM and its impact on Internationalization in line with the existing literature like increase in exports. The positive relationship between implementation of quality management and the factors indicating progress in the process of Internationalizations was observed.

4.2 Statistical analysis

Data obtained as result of survey show that 92% of the respondents consider product quality as a competitive edge factor whereas 77.3% believe that quality of raw material is also a competitive edge factor. 95.3% respondents agree that exporting firms pay more attention to Quality/TQM and 90.6% perceive that firms practicing TQM are more likely to be an exporter. 87.2% think that exporting firms are more likely to seek ISO certification while 97.7% agree that exporting firms are involved in a quality management program in one way or another. 90.6% say that firms practicing TQM has a positive impact on level of sales, and 89.4% believe that TQM increases level of exports. TQM increasing foreign market share is believed by about 92.9% respondents. All in all, in quality related questions, the frequency obtained is around 90% (Abdi 2005). This high frequency demonstrate the importance and positive role of quality management in the process of internationalization.

Question No. 1 with 21 sub-questions was asked to determine different factors prompting the organizations to enter the international market and their relative importance as far as the sports industry in Sialkot (Pakistan) is concerned. A ranking table in the shape of average weighted replies is shown in Table 3. A mean value nearer to 01 indicates higher importance of the factor. The third most important factor is “having unique quality product”. This sup- ports the present study and belief. Quality Management makes possible maintaining unique quality and this in fact paves the way for internationalization.

Question No. 2 was asked to assess firm’s feeling about different factors as they be- lieve to be their point of competitive advantage in internationalization process. There were

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Table 4 Average & ranking: competitive edge factors

S # Question N Mean Std. deviation

05 Customer satisfaction 86 1.29 .59

01 Product quality 87 1.32 .66

03 Customer service 88 1.45 .73

14 Managerial commitment 87 1.56 .74

04 Market information 88 1.60 .92

09 Quality of marketing 86 1.66 .92

11 Quality of raw material 88 1.70 .91

16 Brand recognition 88 1.74 1.12

12 Production innovation 85 1.76 .95

02 Price 87 1.77 .84

13 Technology adopted 85 1.92 1.04

15 Workforce 87 1.92 .99

10 Financial strength 86 1.99 .93

08 Foreign middleman network 81 2.12 .94

06 Terms of credit 80 2.40 .79

07 Local middleman network 64 2.86 .97

16 different factors which could be the strength or weakness in the process of internation- alization. A mean value nearer to 01 represents higher importance of the factor. The survey results are given in the Table 4.

The top most four variables identified as the competitive edge factors are; Customer Satisfaction, Product Quality, Customer Service and Managerial Commitment. These four variables can only be achieved through adoption of TQM practices and hence TQM is playing a vital role in internationalization.

Question No. 3. with 21 sub-questions was asked to find out characteristics of firms engaged in international business. The top most characteristic identified is “giving weigh- tage to customer’s suggestion and specification in product design & development”, which is again a quality management outcome. As per table below, the next ranking shows the hall mark of exporting firms which have emphasis on quality management programs. The next four ranks are directed towards the importance of quality management program in interna- tionalization. Again a mean value nearer to 01 represents higher degree of agreement with the statement.

Results of Question 3 are tabulated in Table 5. To find out the results of quality manage- ment, question No. 4 with 12 sub-questions was asked and ranking table was generated based on responses which are tabulated in Table 6. The value closer to 1 depicts higher degree of improvement.

In the above table, one can note that the rank 2 and 3 come as an export level and level of sales and the next one is cost of Production. Internationalization is gradual increase in foreign business. The rise in export level and the level in sales as a consequence of quality management speaks itself for role of quality management in the process of internationali- zation. Naturally with the increase of quality control, the product becomes more and more acceptable to foreign customers, hence the market improves and consequently the level of sales and exports.

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Table 5 Characteristics of exporting firms

S # Question N Mean Std. deviation

21 A firm that starts exporting, gives heavy weightage to customer’s suggestions and specifications in new production design and new product development

85 1.28 .45

7 Exporting firms are more likely to pay attention to quality/TQM 85 1.32 .60

20 A firm after starting exports gives more attention to customer satisfaction

85 1.39 .54

10 Exporting firms are more likely to get involved in quality man- agement program

86 1.47 .55

11 Firms practicing TQM give a consistent increase in exports 85 1.56 .66

13 Exporting firms pay high attention to the quality of incoming raw material

85 1.58 .84

08 Firms practicing TQM are more likely to export 85 1.59 .79

06 Exporting firms have more and a broad base customers 86 1.59 .71

09 Exporting firms are more likely to seek ISO certification 86 1.72 1.12

17 Exporting firms perform better in financial terms 87 1.76 .78

18 Exporting firms give more attention to employee participation in decision making

87 1.83 .77

14 Exporting firms are more likely to have a small number of defects in production process

85 1.84 .77

12 Exporting firms have more ISO or quality certified suppliers 84 1.94 .97

04 Manufacturing firm will be more likely to be an exporter 85 1.98 .95

16 Exporting firms are more likely to have a specialized quality per- sonnel to maintain the quality of production

87 2.02 .94

05 Old age firms more likely to be an exporter 83 2.05 1.03

19 Exporting firms are more likely to give attention to employee training

87 2.06 .99

15 Exporting firms are more likely to have a very small number of defective final products due to their quality program

84 2.13 .98

01 New firms with large scale turnover are more likely to be exporter 86 2.43 1.02

02 New firms exporting their product will be more profitable 86 2.74 .92

03 New firms with large employment size are more likely to be exporter

82 2.90 1.06

5 Discussion

It has been observed in the Data analysis that quality management has emerged as an impor- tant factor in the process of internationalization. ISO certification has also been found as an important step in the process of internationalization. Strandsko (1985) described that multinational firms with international activities or multinational operations are continually changing. They are responding to the newly required standards which are being adopted by all kinds of business around the world, so it can be inferred that these international standards will encourage the organizations to adopt these standards and thus will help the companies in the international markets. Overall the internationalization process has been conceived as a “gradual process”, taking place in incremental stages and over a relatively long period of time. So, it can be related with the fact that 100% quality is also a gradual process and the companies try to achieve it with the passage of time. The companies will register for ISO standard, which will pave the way to the adoption of TQM in the long run.

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Table 6 Average & ranking: results of quality management

S # Question N Mean Std. deviation

08 Customer satisfaction 84 1.27 .45

04 Level of exports 85 1.38 .67

02 Level of sales 86 1.40 .58

01 Cost of production 85 1.41 .70

03 Time of production 86 1.42 .64

12 Overall business immage 76 1.45 .53

09 Staff commitment 85 1.52 .50

11 Workers satisfaction 85 1.54 .55

07 Market share (Exports) 84 1.65 .61

05 Profitability 85 1.89 .62

10 No. of defective products 84 2.08 1.10

06 Market share (Local) 61 2.41 .72

As the “stages theory of internationalization” argues that firms proceed in a consistent stepwise fashion, so it can also be said that the firms move into the international markets in a gradual fashion by adopting the internationally required concepts and practices. Quality is the only way by which you can sustain your long term growth and survival. And to ensure that the company is producing quality products, many companies are getting ISO 9000 certification to ensure their international customers that they are focusing and producing the products of high quality. ISO 9000 can be used as a stage, according to stage theory of internationalization, by/for any company to enter into new markets and to compete in the international markets.

As Wind et al. (1993) consider, internationalization is a process in which companies adopt special orientation and policies as they move along the different successive stages. The final stage of “geocentric” can be related with the fact that companies perceive the whole world as a potential market, thus they have to adopt the internationally required policies and standards if they want to operate and compete successfully in the international markets. As Cunningham and Homse (1982) perceive that exporting occurs in a developmental stage in which organizations learn the different practices and concepts and then adopt these in their routine business. Companies experience different practices in the international mar- kets, which accumulates organizational learning over time. Therefore, the companies have to adjust and respond to foreign markets by fulfilling their requirements under the quality management system. Overall we can see that link between internationalization and quality management exists and the companies can gain many benefits in the international market by having a quality management system in place. It will not be overemphasized if we say that quality management system in a pre-requisite for internationalization.

6 Conclusions

• Industries rise to higher stage of internationalization as they grow in size and age of quality management.

• ISO certification, though not essential for internationalization, serves as a stepping stone in the process.

• The industry is aware that internationalization can not be increased unless strong com- mitment to quality is maintained.

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• Throughout the survey results quality management has been identified as one of top most important factors in internationalization.

• Quality Management increases level of exports and sales & hence increases level of exports and sales & hence increases business.

• Exporting firms place quality management very high on their ladder of importance of exporting factors.

• Quality Management reduces production cost and reject rate.

References

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