World Bank Document


Figure 1.3 Price of Developing-Country Manufactured Exports Relative to Price of


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Figure 1.3 Price of Developing-Country Manufactured Exports Relative to Price of 
Developed-Country Exports of Machinery, Transport Equipment, and Services, 1975–95
Source: Wood 1997.
Note: 1980 = 100.


Introduction 5
Box 1.1 
Surviving Crises in Low-Quality Markets: 
Brazilian Footwear and Chilean Wines
Brazil’s footwear industry went into deep distress in the 1990s as a result of the 
entry of Chinese producers with lower labor costs. Brazil reduced its share of 
the global footwear market from 7.6 percent in 1985 to 4.1 percent in 1990 and 
3.8 percent in 1998. Meanwhile, China’s share increased from 1.4 percent in 1985 
to 7.2 percent in 1990 and 23.3 percent in 1998. The Brazilian footwear industry 
experienced dramatic losses of profi tability and was squeezed out of its main 
segment of cheap, standardized leather shoes. To survive, Brazilian enterprises 
were forced to fi nd new strategies to produce higher-quality shoes and open 
up new markets and marketing channels. Some fi rms sought technical support 
from their suppliers to improve their productive processes. Others increased 
their quality by seeking the services of local testing institutions and investing in 
personnel training. Many of the fi rms decided to cooperate on the creation of a 
cluster brand with local design and quality requirements. 
Chile’s wine industry suff ered a similar shock. In the late 1990s, after a decade 
of soaring exports, prices of “popular premium” and “premium” wines began a 
decline triggered by excess supply in world markets. These were Chile’s main 
wine export segments, and the average price of wine exports decreased from 
a high of $2.15 per liter in 1998 to $1.70 per liter in 2003. Just as Brazil’s initial 
labor cost advantage did not guarantee the permanent profi tability of its foot-
wear industry, natural conditions favorable to wine production in Chile were 
not suffi
cient to ensure the sustainable growth of that country’s wine industry. 
In response to this crisis Chile’s wine industry has been trying to shift its focus to 
quality and product diff erentiation. Some of the struggling fi rms have increased 
their profi ts by participating in a government program called PROFO (Proyectos 
de Fomento), which creates small networks of fi rms that are eligible for subsi-
dies on collaborative projects. PROFOs have proven useful in upgrading soft 
technologies such as those in the organization and management of production 
processes and in quality control. 
Sources: Bazan and Navas-Alemán 2001; Schmitz 1999; Giulani and Bell 2004.


6 Quality Systems and Standards for a Competitive Edge
In light of the increased competition associated with globalization, 
developing countries seeking sustained growth need to free themselves 
from dependence on primary products and diversify into manufacturing 
exports, whose value added translates into wealth. A poor investment 
climate and small market hampers that development, but an even big-
ger obstacle is lack of the often sophisticated standards required to enter 
global trade markets. It is the systematic use and adoption of quality 
standards and technology that allows developing-country producers to 
close the gap with the leading countries.
Increasingly, developing countries, particularly small ones, are adopting 
export-led growth strategies. Their relatively small internal markets and 
limited purchasing capabilities force them to look for markets abroad. 
Countries are liberalizing trade and aggressively signing bilateral free trade 
treaties to secure favorable access to their products. But while a free trade 
treaty is essential, it is not suffi cient, as countries also have to offer the 
right products for sale. This is where quality and standards come to bear. 
To access global markets, independent manufacturers from develop-
ing countries must join global production networks typically governed 
by transnational corporations (TNC) and global buyers from developed 
countries. The multiplicity of global sourcing arrangements, the numerous 
horizontal and vertical networks, and the dynamic nature of these net-
works give a critical importance to standards in global production systems. 
Trade increasingly involves subcomponents and services, making it much 
more complex than the arms-length relationships of the past. TNCs and 
global buyers impose standards on their suppliers to ensure compatibility 
between products and processes throughout their global chains. They also 
use standards to ensure that they can satisfy the high customer require-
ments of developed-country markets with respect to quality as well as 
environmental and social impact. Firms that are unable to meet these 
standards fi nd themselves excluded from global markets, while those that 
meet them may be able to profi t from new opportunities (box 1.2). 
Adoption of the right quality and standards can also have a signifi cant 
impact on poverty and inequality. The entry of small fi rms into supply 
chains, supplier networks, and export consortia entails the use, adoption, 
and certifi cation of quality standards. Increasingly, partners, networks, 
customers (in the case of fi nal goods), and major fi rms require potential 
small suppliers to guarantee appropriate standards and quality in goods 
and services. The impact on earnings and growth and on employment 
for those small fi rms or farmers can be quite signifi cant. There are many 
examples (in Peru, Brazil, Ecuador, Guatemala, Bolivia, and elsewhere) 


Introduction 7

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