Regulation, standardization: drivers of industrial competitiveness

Regulation and standardization are determining factors for the competitiveness of companies and countries and they are based on different systems. We make a distinction between these two themes, without opposing them.

By Emilie Bourdu et Martin Souchier
The 01/10/2015

Regulation and standardization are determining factors for the competitiveness of companies and countries. Whereas regulation receives some attention from public authorities, economic stakeholders and citizens, standardization is still rarely viewed as a strategy tool for winning new markets, moving upmarket and increasing global competitiveness, despite the recommendations of recent reports. Claude Revel (2013) indicates that French companies, unlike their German or British counterparts, seldom consider normative influence as a strategic tool.

Regulation and standardization are based on different systems. Regulations are the result of decisions made by national public authorities or international bodies, and their application is obligatory. In France, almost 400,000 rules result from the regulations process. Standardization, on the other hand, is the outcome of consensus between socio-economic stakeholders ; application is voluntary. France counts 35,000 standards resulting from standardization processes.

We make a distinction between these two themes, without opposing them. In fact, numerous reports and individuals questioned for this study call for more connection between voluntary standards and obligatory rules, similar to the European Union’s New Approach Standardization (1985).

 

Regulations weigh down on business competitiveness

Regulations are indispensible to regulate the lives of socio-economic stakeholders, citizens and businesses in a country. For companies, they can for example curb negative externalities, like pollution, generated by some manufacturing activities. They can also trigger gains in market shares . At the same time, they impose a cost on stakeholders and, in the case of companies, put them at more or less of an advantage in the face of global competition with heterogeneous regulatory frameworks in different countries (e.g. health or environmental regulations). The regulator’s task is therefore to strike a balance between the need for regulation and the costs incurred by it. In France, this balance appears hard to find, and numerous economic studies and reports observe that regulations are a hindrance to business competitiveness. A study commissioned by the European Commission in 2003 showed for example that the administrative burden in France generated costs of between 48 and 61 billion euro per year. The annual report World Economic Forum 2014-2015, which ranks countries according to different competitiveness criteria, positioned France as 121st out of 148 in terms of the red tape endured by companies, yet 23rd out of 148 in terms of global competitiveness . It is therefore clearly a relative handicap that impacts French fi rms’ competitiveness and the country’s attractiveness to foreign companies.

This observation is endorsed by civil society, the industrial sphere and the French political class. Numerous reports advocating a simplification of regulations have been published over the last decade. We mention twelve in this overview.

Most of them point out that regulations in France are :

  • Illegible, too unstable and sometimes more restrictive than those in other European countries,
  • Often too far from the reality experienced by companies,
  • Accompanied by over-complex, cumbersome, slow procedures,
  • Followed by excessively strict application or random interpretation by courts and administrations.

Following these reports, reforms have been initiated in France. Since 2004, several political personalities have reactivated attempts at simplification . The most recent attempt, the “simplification shock”, was launched at the initiative of the French presidency in 2013. Since June 2015, it has been steered by Clotilde Valter, who took over from Thierry Mandon as the prime minister’s secretary of state for reform of the state and simplification. Although the impact of previous and current policies has been limited, this new programme does now appear to be bearing fruit. Over two years, 273 measures have been announced on simplifying the regulatory environment for business : 103 are in force and 147 are currently being implemented (the other measures are being planned or have been dropped). According to the French government , these measures, in addition to those relating to individuals, have led to savings of 3.3 billion euro and could lead to total gains of 11 billion euro by 2017 for the French economy.

 

Standardization, an underestimated driver of competitiveness

Unlike regulation, standardization is the fruit of consensus between all categories of stakeholder interested in a given subject. Its aim is to produce reference documents – “standards” – relating to rules, recommendations or examples of good practice involving products, services or methods. In France, standardization is coordinated at national level by the Association Française de Normalisation (AFNOR), which also coordinates participation in establishing standards in European and international standardization bodies (respectively ETSI and ITU for telecommunications, CENELEC and IEC for electrotechnical standardization and CEN and ISO for other domains).

Standardization is a factor of competitiveness for companies because it fosters the creation of new markets by ensuring that products are interoperable, builds trust between economic stakeholders (between firms, firms and financiers, and consumers), and facilitates transfers of innovation and good practices between companies Involvement in standardization activities is also a way for companies to influence changes in markets and technologies.

Concerning state action, standardization can be a tool to complement regulation and a support for industrial policy. Few standards are obligatory, i.e. taken up in regulations (about 350 standards in France). The complementary relationship with regulations mostly involves standards that presume conformity. According to Lydie Évrard, inter-ministerial delegate for standards, the government participates, mostly through its experts, in various committees (Strategic Committees and Committee for Coordinating and Steering Standardization), but the connection with industrial policy priorities needs to be developed more. In addition, countries like Germany, the United States and China have understood the advantages of implementing a standardization influence strategy at international scale, while several reports in France are still pointing out the urgent need to establish such a plan. These reports are by the inter-ministerial delegate for economic intelligence (2012), Claude Revel (2013), or even more recently, the inter-ministerial delegate for standards (2014).

Standardization is an international issue: 90% of the standards applicable in France are now produced at European or international level. This phenomenon is likely to intensify and affect the regulations process. Tomorrow’s rules and standards are developed in numerous international bodies, like CEN and ISO, and even in intergovernmental organizations such as the OECD, ILO, WTO, the World Bank and Codex Alimentarius. Think tanks, private consortiums, and NGOs working on the environment or society are also important establishments for influencing global trade and improving competitiveness.

Lastly, rules and standards convey quality signals that concern products, services, customer-supplier relations, processes, etc. They are therefore a non-negligible means of structuring the market towards supplying high-quality goods and services, at a time when one of the avenues for boosting French manufacturing is precisely a move upmarket.

 

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