Entering the supplier base through certified management standards

This paper explores the external motive (i.e., the signaling purpose) according to which small- and medium-size firms are increasingly adopting a strategy of multiple certification at international standard-setting bodies (e.g. ISO), possibly to increase their chances of being selected as suppliers by large global players. We investigate how firms select their certification strategy, choosing between no accreditation at all, and a strategy requesting one or even multiple certified management system standards. Two types of potential suppliers (the high- and low-types) are envisaged, featuring different costs of accreditation for every selected level, and yielding different utility to their customer. Our analysis suggests that, by seeking multiple certification, firms may expand the space for separation, which also goes to the benefit of the buyer. We then study how different contract provisions may alter the equilibrium outcomes, e.g. showing that contractual penalties may either expand or even shut down the space for separation between types, depending on their size.