Structural Change in MSTQ: Experience from Brazil

Jörg Meyer-Stamer

Draft, June 1998


MSTQ stands for measurement, standards, testing, and quality assurance. The existence of a developed institutional infrastructure in this field is usually assumed to be a key prerequisite for successful development. This does not only apply to development of industry (e.g. compliance with standards for size and consistence of manufactured products, or with process standards like ISO 9000) but also to other areas like the service sector (e.g. control of compliance with health standards in restaurants, or calibration of pumps in petrol stations). Building elements of a MSTQ system has for a long time been an important activity of technical assistance to developing countries. But success stories have been rare.

We have argued in earlier papers that the limited success of past MSTQ support activities was to a large extent due to the economic framework conditions in developing countries (Hillebrand, Messner and Meyer-Stamer 1994). As most of them were pursuing import-substituting industrialization strategies, there was little competition on the domestic market, and performance pressure on firms was accordingly low. Firms did not have to comply with things like quality standards as they could sell their products anyway, and they did not have to deal with international product norms unless they were actually exporting. Capacity-building in the MSTQ area was mostly supply-driven, and the institutions that were built hardly met with demand from firms.

We have been hypothesizing that this szenario might change with the opening-up of economies to the world market. As competition on domestic markets would increase and world market standards in terms of product definition and quality would be introduced, many more domestic firms would have to make use of MSTQ institutions. Recent trends in Brazil appear to support this hypothesis. Before I turn to them, I will briefly look at the interrelationship between the different elements of MSTQ.

MSTQ refers to a hierarchy of elements. First, in fact, comes the S, i.e. standards from the size of nuts and bolts to the organization of entire factories. Then comes the M, as in order to be able to measure the compliance with standards there must be calibration of testing equipment. Then comes T, i.e. the actual testing of substances as input, throughput, and output. Finally, there is Q, i.e. quality assurance, including the certification of quality assurance systems. Interaction between institutions and firms differ between these elements. T- and Q-institutions provide services directly to firms, whereas S- and M-institutions serve both T- and Q-institutions and firm laboratories.

Brazil: changes in the overall framework and the MSTQ system

An evaluation of Brazil's MSTQ system that was produced as part of a larger study on technological capability in 1990 came to quite sobering conclusions. Among other problems, it stated the "lack of an infrastructure in metrology, standards and industrial quality that is in touch with the productive sector and would be able to support firms. This is due to

1990 was also the year when the framework conditions started to change profoundly. The Collor government withdraw most of the non-tariff trade barriers and announced a three-year schedule for cuts in tariffs, thus putting an end to import substitution. At the same time, it launched a programme to support firms' efforts to raise productivity and quality, adding to efforts already underway in the private sector (Meyer-Stamer 1997, 263 ff). The government did not succeed in stabilizing macroeconomic conditions; this only happened in 1994 when finally an anti-inflation programme, the Plano Real, succeeded. Between 1990 and 1994 firms in Brazil faced the worst of all worlds, namely increasing competitive pressure with a hyperturbulent macroeconomic framework; since 1994, competitive pressure still increased but the macroeconomic framework was much more stable and predictable.

Since 1990 firms have mounted a strong effort to improve efficiency and quality (Meyer-Stamer et al. 1991, Fleury and Humphrey 1993, Fleury 1995). In fact, programs to improve quality often were at the same time instruments to increase productivity. Certification according to ISO 9000 became more than just a technical occurrence. ISO 9000 turned into the symbol of the process of change in Brazilian industry. The number of certified firms and organizations is constantly on the rise and has reached a four-digit-number.

The changing behavior of firms offered new challenges and opportunities to the MSTQ system. The following sections will report on some cases which show how the MSTQ system has actually reacted. They address three issues: how MSTQ institutions reinvent themselves; how competition between some institutions forces them to constantly upgrade; and how a new way of shaping the MSTQ emerges, namely a bottom-up approach.

MSTQ institutions reinventing themselves: the case of CERTI

Although its name does not necessarily suggest this, the Regional Center for Informatics Technology (Centro Regional de Tecnologia em Informática, CERTI) is a MSTQ institution. It was founded in 1984, and it is located in Florianópolis, more precisely on the campus of the Federal University of Santa Catarina (UFSC). It was a spinn-off of the renown machine building department of UFSC.

Until 1990, CERTI thrived on import substitution in testing. As testing equipment was barred from imports into the Brazilian market, CERTI ran a handicraft production of such devices and offered testing services to firms, mostly from the state of São Paulo. This trajectory grinded to an abrupt halt in 1990. With the opening of the market, testing equipment could be imported, and many CERTI customers purchased machinery for their inhouse testing facilities. The market for CERTI's products and services collapsed, and the institution had to scramble for survival.

In order to build a sustainable basis for its existence, CERTI pursued three lines of activities. First, it built on its traditional strength in testing. It specialized in measuring sizes, and it managed to become (with the support of technical assistance from the German National Institute for Physics and Technology, PTB) a certification agency in this area.

Second, it moved into the new and rapidly growing market of consultancy in quality management. The first step was to introduce total quality management inside the institution, an initiative that had the two goals of improving the performance of the organization and stimulating a profound learning process on quality management methodologies among the employees. The second step was to offer such services to firms. Today the quality management group, internally named Business Management Center (Centro de Gestão Empresarial) is the largest of CERTI's four departments.

Third, CERTI refocused its regional orientation, starting to work more with firms and institutions in Santa Catarina. As demand for size measurement services was not very strong, this mainly applied to advisory service in quality management. It also included improving the relationship with business associations, especially the state-level Federation of Industries, a relationship which had been characterized by mutual mistrust and disrespect in the early 1990s.

Altogether, CERTI emerged as a much stronger, flexible, customer-oriented and quality-minded institution from its crisis. It is perceived as a reference model by other institutions (see below).

Competition between MSTQ institutions

MSTQ institutions used to be treated as a kind of natural monopoly. However, there are only limited segments where this must necessarily be the case; for instance, there can only be one national mastermeter for weight or size. In most fields competition is perfectly possible. In Brazil, it actually exists.

TECPAR, the Paraná Technology Institute, is active in calibrating, testing, and quality assurance. In an interview I asked one of the directors how TECPAR compares with CERTI. The answer was "CERTI is one of our most important competitors, they offer a broader spectrum of services, and they have very competitive prices. But we are working hard to close the gap". In practical terms, this means that TECPAR is trying to become more customer-oriented and to foster stronger ties with firms. The problem, however, is that the institution still tends to display a passive disposition, waiting for potential customers to turn up, and that it is apparently not aware of methodologies to stimulate interaction between firms and meso-institutions that have been developed elsewhere.

A further example of competition between laboratories also involves TECPAR. This case started with TECPAR training an engineer and setting up a special laboratory for testing the galvanization baths of small and medium-sized local surface treatment firms. Behind this activity is the following observation. The quality of galvanizing baths deteriorates over time, and there are two possible options in dealing with this: add more chemicals or replace the whole bath. In the past, the tests of galvanizing baths were usually conducted by technicians of the firms which supply the inputs. There is little doubt that they had a certain bias to declare baths unusable prematurely as this increased their sales. Setting up a laboratory at TECPAR gives firms another option: If the results of a given galvanizing process are no longer satisfactory, they can send a sample of a given bath to TECPAR for testing in order to identify the exact cause of the problem, and to suggest possible solutions like filtration or adding a specific chemical in a precise dose. As this reduces costs and dependence on suppliers, surface treatment firms are quite enthusiastic about the provision of testing services. Indeed, they are so enthusiastic that they looked for a mechanism to put performance pressure on TECPAR. Thus, a parallel laboratory is being created at UFPR to make sure that there is no monopoly. UFPR's initiative reflects close cooperation between a professor of the university and a very active association of small and medium-sized surface treatment firms.

Competition between testing laboratories is already going on in Blumenau. Both the local university, FURB, and the local branch of the vocational training institution SENAI are running testing facilities for wastewater (Instituto de Pesquisas Tecnológicas / IPT, and Centro Ambiental, respectively). This reflects less external pressure but rather a business opportunity, i.e. the possibility for the institutions to earn service fees. As pressure of state and local environmental agencies on firms is strong, there is a lot of testing to be done. Professionals in both organizations are keenly aware of the rivalry and are trying to improve their services to strengthen their competitive position.

From top-down to bottom-up

Criciúma in the state of Santa Catarina hosts the leading cluster of Brazil's ceramic tile industry (which is the forth largest in the world), being responsible for 30 % of production and 70 % of exports. The cluster went through a deep crisis after 1989 as its market collapsed due to macroeconomic instability and various stabilization programs. To get out of the crisis, local firms changed their business model profoundly. Before the crisis there was fierce rivalry between the firms, including personal enmity between the owner families and open hostility between the two large firms. These two firms grew strongly based on construction of new factories and acquisition of medium-sized firms; consequently, relations between them and the local medium-sized firms were uncooperative as the latter feared to be taken over as well.

To get out of the crisis, two local change agents started to forge cooperation between the firms. The conditions were favorable for several reasons. First, an existential crisis (one of the large firms filed for concordata, the Brazilian equivalent Chapter 11) often offers an opportunity to question established practices. Second, creditors pushed owners out of the large firms and professional managers in, a factor that helped to overcome the personal hostility element in rivalry. Third, it became obvious that the traditional, debt- and takeover-based growth model was no longer feasible. Cooperation between firms emerged mainly through the local chapter of the association of the tile industry and the local chamber of industry and commerce. It included formalized information exchange, e.g. via seminars and conferences, and collective action to strengthen the supporting meso-level institutions, e.g. by successfully lobbying for a specialized engineering course at the local university.

Collective action also involved the creation of a local, specialized MSTQ institution. Together with the state's Federation of Industries (FIESC), in cooperation with the Federal University of SC (UFSC), and with some financial support from the state the firms founded the Center for Ceramics Technology (CTC), modeled after a similar institution in Spain. Getting this venture off the ground involved a lot of tough bargaining by the Criciúma firms, and there was literal collective action: The presidents of the leading firms boarded a business jet to get to the state capital, Florianópolis, and invaded first the office of the President of FIESC and afterwards that of the state governor to press them for firm commitments for support and financing of CTC. An important element of support was the relocation of a specialized laboratory from the Federal University of Santa Catarina (UFSC) in Florianópolis to CTC.

A similar activity is currently going on in the state of Rio de Janeiro. Brick manufacturers in the northern part of the state started to upgrade in the 1980s, stimulated both by increasing demands, especially in terms of quality, from their main customers (large civil construction firms), and by visits to fairs and brick factories in Europe, revealing the gap with best practice. Just like most other Brazilian brick manufacturers they were way behind best practice; they usually employ circle ovens or Hoffmann ovens, i.e. 19th century technology. The first of the pilot firms is only right now setting up a tunnel oven, a technology developed in the early 20th century in industrialized countries.

In 1991, these firms set up their own association (Sindicato de Cerâmica para Construção e Olaria do Médio Vale do Paraiba, Sincovap) as they were frustrated with the lack of support and services offered by the existing association that was organized on a statewide basis. One of the problems identified by Sincovap and its member firms is the lack of MSTQ services, especially regarding the testing of inputs and the certification of products. So far, firms have to rely on expensive, unresponsive, geographically distant institutions. In order to reduce the substantial transaction costs this incurs, they have started collective action towards the creation of a local laboratory after they had visited a similar installation in Portugal. The main target of their lobbying effort is SENAI. Firms have identified an idle SENAI school in the city of Tres Rios, a school where employees for the railway company had been trained, an activity that was discontinued after the reorganization that followed the privatization of the company. They contracted an architect to draw the plans for a remodeling of the school which, they hope, will be used both as a laboratory and a training center. SENAI is supposed to run this installation, including hiring the necessary professionals. The firms are searching for additional funding from other sources, including foreign technical assistance.

Concluding remarks

This paper is meant to be an exploratory study, as a first step towards a broader and more systematic study on the restructuring of the MSTQ system in Brazil. The cases documented in this paper give strong evidence that profound restructuring is underway. It is, however, not at all clear so far how far-reaching this restructuring is and what kind of institutional landscape in MSTQ will emerge. Future research will have to look closely at the role traditional organizations play, especially INMETRO and ABNT. To what extent are they able to reinvent themselves? Are they able to cope with increasing demands, especially in terms of lower prices, better quality of services, and higher responsiveness? Is reforming these organizations actually a promising approach or is it more promising to create new organizations which over the course of time take over activities from INMETRO and ABNT so that the latter vanish in the medium term? Moreover, what is the role of organizations that have been going strong since the early 1990s and enjoy a high prestige in firms, like Fundação Christiano Otoni in Belo Horizonte? And what is the trajectory of cooperation that emerges, i.e. do MSTQ institutions (especially T and Q institutions) widen their spectrum of activities to include technical support for firms and to move, in the course of time, towards joint technological development projects with firms?


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Institutions in the Brazilian MSTQ System

ABCQ Associação Brasileira de Controle da Qualidade

ABIPTI Associação Brasileira das Instituiçôes de Pesquisa Tecnológica

ABNT Associação Brasileira de Normas Técnicas

CERTI Centro Regional de Tecnologia em Informática

INMETRO Instituto Nacional de Metrologia, Normalização e Qualidade Industrial

INPM Instituto Nacional de Pesos e Medidas

ISO International Standardization Organization

NBR Normas Brasileiras da ABNT

PBQP Programa Brasileiro da Qualidade e Produtividade

RNL Rede Nacional de Laboratórios

SENAI Serviço Nacional de Aprendizagem Industrial

SINMETRO Sistema Nacional de Metrologia, Normalização e Qualidade Industrial

SQN Sistema Nacional da Qualidade

TECPAR Instituto de Tecnologia do Paraná