Finance:Country-of-origin effect

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The country-of-origin effect (COE), also known as the made-in image and the nationality bias,[1] is a psychological effect describing how consumers' attitudes, perceptions and purchasing decisions are influenced by products' country of origin labeling, which may refer to where: a brand is based, a product is designed or manufactured, or other forms of value-creation aligned to a country.[2] Since 1965, it has been extensively studied by researchers.[3]

History and origins

Country of origin labelling originated in 1887 when the British government, in an effort to reduce sales of Germany and other non-English products to English consumers, passed a law requiring products manufactured outside England to be labeled with their country of origin.[4]

United States labeling

In the United States, the labeling of garments came into law under the Textile Fiber Products Identification Act (TFPIA).[5] The act itself imposes regulations on the advertising and labeling of textile fiber products that are being imported and exported out of the United States. These products are defined in the act as, "any fiber, yarn, or fabric used or intended for use in household textile articles".[5] Household textile articles include "wearing apparel, costumes, draperies, floor coverings, furnishings, and bedding".[5] The goal of the Textile Fiber Product Identification Act is to protect producers and consumers against mislabeling or false advertising about the fiber content of textile fiber products.[5] It wasn't until 1984 that the TFPIA was amended to include items made in The United States stating that they were "Made in U.S.A".[5]

Along with outlining each fiber used within the product, the manufacturer must label country-of-origin information.[6] This information must be readily accessible on garments for quick examination. Garments that include a neck must adhere a label midway between the shoulder seams on the inside center of the neck.[6] Garments or products that do not include a neck must incorporate a country-of-origin label on a visible area on the inner or outer parts of the product.[6]

From the time that the act was introduced, the importing of apparel increased drastically in the United States. While this helped the economy domestically and globally, it also hurt the clothing manufacturing industry in the US. Before the act, 95% of clothing purchased in the US was produced stateside. Now, less than 4% purchased is made within the United States.[7]

In some cases, manufacturing goods on a mass level can require many different suppliers and manufacturers to complete a finished product. More often than not, the tasks associated with completing a finished product do not take place in just one single manufacturer or country.[4] In an article for the Business of Fashion, Solca states that, "Made in disclosures are not required for products traded within the European Union. Even where required, 'Made in' criteria are easy to meet: cost thresholds can be reached with finishing, quality control and packaging, while manufacturing is kept offshore".[8]

Description and strength

Research suggests that country of origin (COO) serves as a cue from which consumers make inferences about product and product attributes. The COO cue triggers a global evaluation of quality, performance, or specific product attributes. Consumers infer attributes to the product based on country stereotype and experiences with products from that country. Hence, a COO cue has become an important information cue for consumers who are exposed to far more internationalized product selection and multinational marketing than ever before. Thereby, the country of origin may even affect consumers' perceptions beyond their conscious control.[9] Research into COO has focused on various issues linking COO with other marketing variables, including consumer nationalism, demographics, hybrid products, brand effects, product quality, price, consumer perceptions, technology sophistication, product features, advertising images, and country images, to measure consumer perceptions and purchasing behavior (Ahmed et al., 2004; Badri, Davis, & Davis, 1995; Hamzaoui & Merunka, 2006).

It has been empirically demonstrated that the COO effect has significant price-related consequences and brands with favorable COO associations are able to charge price premiums, over and above those attributed to observed product differentiation (Saridakis & Baltas, 2016).[10]

The country of origin effect is strongest on older consumers[11] and those who don't know much about the product or product type, and weakest on consumers who are well-informed. Sensitivity to country of origin varies by product category. It is strongest for durable goods[12] and luxury goods[13] and weakest for "low involvement" product categories such as shampoo, candy,[14] light bulbs, toilet paper and athletic shoes.[11] When the countries of design, manufacture and the parent brand are different, research suggests all three matter to consumers, but the country of manufacture may matter most.[15]

Some research suggests that younger consumers care significantly less than older people about country of origin, but other studies resulted in different findings. The research on whether men or women care more about country of origin is also inconclusive.[16]

A U.S. study found American college students more willing to buy a "made in China" teddy bear when it was sold at an American store they believed was benevolent, competent and honest, suggesting that negative country of origin effects may be offset when consumers trust the store selling the product.[17]

Associations

Consumers have a relative preference or aversion for products, depending on the products' country of origin (this is called affinity[18] and animosity[19]).

In some countries consumers tend to prefer products made in their own country[20] (also known as consumer ethnocentrism)[21] and in others foreign-made products tend to be preferred. A preference for locally-made products has been linked to a collectivist culture, and a preference for foreign-made products is associated with a more individualistic, competitive culture, and also with countries that are less economically developed.

One of the biggest challenges many Asian companies face as they globalise is the perception that Asian brands are inferior. Research in international marketing has proven that country associations do lead to customer bias and this bias depends on how a customer views the image of a country. French wine, German cars, Japanese robots, Colombian coffee, Italian fashion, Singaporean efficiency, Swiss chocolate. Somewhere in our minds, these products and services are associated with particular countries owing to their legacy or culture or lifestyle, which automatically leads us to perceive them as 'premium'. Some brands have even been given foreign names, to create a perceived 'COO' effect. Häagen-Dazs, the US-based ice cream company started by Jewish-Polish immigrants in New York, in 1961, was deliberately given a Scandinavian-sounding name to convey an aura of the old-world traditions and craftsmanship.

Many factors contribute to the country image including: of the country's economy: most countries with a positive COO effect are highly industrialized, developed countries extent of technological advancement of a country: the higher the technological capability of a country, the more positive is the COO effect form of government: the success of capitalism and the resulting market economy around the world has created inherent perceptions (often negative) about countries that do not follow capitalism[vague]. A related aspect is the reputation of the government and its corporate governance – how bureaucratic, transparent, corrupt or efficient is a country's government?

Consumers are generally felt to perceive Chinese products as low-quality, and to associate "made in China" labelling with value pricing, unskilled labour and inexpensive materials.[22] In 2007 and 2008 China's reputation suffered worldwide due to product safety institutions in many parts of the world recalling Chinese-made products, such as pet food, toys, toothpaste and lipstick, because of concerns about their quality and safety.[23][24][25]

Some products are strongly associated with a particular country, such as (in the Western world) silk with China, spices with India ,[15] wine with France , chocolate with Belgium, cars with Germany and electronics with Japan . Such products labeled as originating in that country will benefit from a halo effect, with consumers assuming they are high quality.[26]

Countries that are less economically developed tend to have a negative country image and a negative country-of-origin effect.[27]

Associations vary by country and region. Japan is universally understood to manufacture high-quality products, and yet historical animosity between it and some other Eastern Asian countries may reduce those countries' purchasing of Japanese products.[15] A 1965 study found Guatemalan students gave lower evaluations to products from El Salvador and Costa Rica than to domestic and Mexican products because of a general negative attitude toward people from El Salvador and Guatemala.[15] French consumers avoid buying American products due to animosity towards U.S. politics and perceived U.S. passivity during the French Revolution .[16] Throughout Southeast Asia, Korean goods are very highly valued.[28]

COO for services

With the increasing importance of the service sector, also research has focussed on the influences of COO on service perception. Although not as intensively researched as with products, COO is proven to apply also on Services, e.g. when expecting a higher degree of engineering consulting by a German consultancy firm.[29]

COO marketing

Companies are seeking to communicate the COO and to increase their customer's COO awareness with a number of different strategies:[30]

  • Use of the phrase "Made in..."
  • Use of quality and origin labels
  • COO embedded in the company name
  • Typical COO words embedded in the company name
  • Use of the COO language
  • Use of famous or stereotypical people from the COO
  • Use of COO flags and symbols
  • Use of typical landscapes or famous buildings from the COO

Fluctuations

Perceptions of countries and their products change over time. Since the late 19th century the German reputation for quality and attention to detail has helped it sell products internationally, but its reputation was significantly damaged during the First World War and Second World War.[4]

References

  1. ↑ Cai, Yi (2002). Country-Of-Origin Effects on Consumers' Willingness to Buy Foreign Products: An Experiment in Consumer Decision Making (PDF) (Master's thesis). The University of Georgia. Archived from the original on 2014-05-09.
  2. ↑ Johnson, Zachary S.; Tian, Yichao; Lee, Sangwon (2016). "Country-of-origin fit: When does a discrepancy between brand origin and country of manufacture reduce consumers' product evaluations?". Journal of Brand Management 23 (4): 403–418. doi:10.1057/bm.2016.13. 
  3. ↑ Keith, Dinnie (2003). "Country-of-Origin 1965-2004: A Literature Review". http://www.brandhorizons.com/papers/Dinnie_COO_litreview.pdf. [self-published source?]
  4. ↑ 4.0 4.1 4.2 Rayasam, Renuka (3 September 2013). "What does the "made in" label mean anymore?". New Yorker. https://www.newyorker.com/online/blogs/currency/2013/09/made-in-germany-eu-labelling-regulations.html. 
  5. ↑ 5.0 5.1 5.2 5.3 5.4 Hinkelman, E., & Shippey, K. (2004). Commodity Index. In Importers Manual USA: The Single Source Encyclopedia for Importing to the United States. (4th ed., pp. 763-764). Novato, California: World Trade Press.
  6. ↑ 6.0 6.1 6.2 Ward, P. (1986). Other Laws for Which the FTC has Enforcement Responsibilities. In Federal Trade Commission: Law, Practice and Procedure. New York, New York: Law Journal Press.
  7. ↑ Howard, Caroline. "On Fashion Revolution Day, Ask The Important Question: Who Made My Clothes?" (in en). https://www.forbes.com/sites/work-in-progress/2015/04/24/on-fashion-revolution-day-ask-the-important-question-who-made-my-clothes/. 
  8. ↑ Solca, L. (2015, June 14). The 'Made In' Dilemma: To Label, or Not to Label. Retrieved September 20, 2015, from http://www.businessoffashion.com/articles/opinion/the-made-in-dilemma-to-label-or-not-to-label
  9. ↑ Herz, Marc Florian; Diamantopoulos, Adamantios (2013). "Activation of country stereotypes: automaticity, consonance, and impact". Journal of the Academy of Marketing Science 41 (4): 400–417. doi:10.1007/s11747-012-0318-1. 
  10. ↑ Saridakis, Charalampos; Baltas, George (2016). "Modeling price-related consequences of the brand origin cue: An empirical examination of the automobile market". Marketing Letters 27 (1): 77–87. doi:10.1007/s11002-014-9304-3. http://eprints.whiterose.ac.uk/91085/2/MARK2580R1_final%20paper.pdf. 
  11. ↑ 11.0 11.1 Günter Schweiger; Thomas Otter. "The influence of country of origin and brand on product evaluation and the implications thereof for location decisions". http://www.wu.ac.at/werbung/download/publikationen/97cems.pdf. 
  12. ↑ Jain, Subhash C. (2012). Handbook of Research in International Marketing, Second Edition (Elgar Original Reference). Edward Elgar Publishing. pp. 467. ISBN 978-1849803021. 
  13. ↑ Aiello, G., Donvito, R., Godey, B., Pederzoli, D., Wiedmann, K.-P., Hennings, N., Siebels, A., Chan, P., Tsuchiya, J., Rabino, S., Ivanovna, S. I., Weitz, B., Oh, H., & Singh, R. 2008. An International Perspective on Luxury Brand and Country-of-Origin Effect. Brand Management, 16(5/6): 323-337.
  14. ↑ Sigitas Urbonavičius; Justina Gineikienė (2009). "Importance of the Product Country-of-Origin Factor on Purchasing Process in the Context of Globalisation". Ekonomika: 41. http://www.leidykla.eu/fileadmin/Ekonomika/85/37-44.pdf. 
  15. ↑ 15.0 15.1 15.2 15.3 "Nation Equity: Country-of Origin Effects and Globalization". February 2008. http://www.nationequityresearch.com/Handbook_COO_Chapter_7-0308.pdf. 
  16. ↑ 16.0 16.1 Olsson, Karin (1 June 2012). "Brand gap and the effect of country-of-origin: A consumer survey in Rhone-Alps". School of Sustainable Development of Society and Technology, Mälardalen University. http://www.diva-portal.org/smash/get/diva2:558551/FULLTEXT01.pdf. Retrieved 6 October 2013. 
  17. ↑ Sertan Kabadayi; Dawn Lerman. "Made in China but Sold at Fao Schwarz: Country of Origin Effect and Trusting Beliefs". http://thil-memoirevivante.prd.fr/sites/thil-memoirevivante.prd.fr/IMG/pdf/MADE_IN_CHINA_BUT_SOLD_AT_FAO_SCHWARZ.pdf. [yes|permanent dead link|dead link}}][clarification needed]
  18. ↑ Oberecker, E. M., Riefler, P., & Diamantopoulos, A. 2008. The Consumer Affinity Construct: Conceptualization, Qualitative Investigation, and Research Agenda. Journal of International Marketing, 16(3): 23-56.
  19. ↑ Klein, J. G., Ettenson, R., & Morris, M. D. 1998. The Animosity Model of Foreign Product Purchase: An Empirical Test in the People's Republic of China. Journal of Marketing, 62(1): 89-100.
  20. ↑ Shimp, T. A. & Sharma, S. 1987. Consumer Ethnocentrism: Construction and Validation of the CETSCALE. Journal of Marketing Research, 24(3): 280-289.
  21. ↑ Sankar, Shyamala Mathan (2006). Consumer Perception of Global vs. Local Brands: The Indian Car Industry (PDF) (Master's thesis). University of Nottingham. Archived from the original (PDF) on 2010-12-26.
  22. ↑ Benson, Joseph; Levinson, Rob; Allison, Drew (2006). "Brand Blueprint: CHINESE BRANDS ARE COMING TO AMERICA". Brand Blueprint. http://www.brandblueprint.com/articles/Chinese_Brands_Are_Coming_to_America.pdf. 
  23. ↑ "Mattel to recall more Chinese-made toys". CNN. https://money.cnn.com/news/newsfeeds/articles/newstex/AFX-0013-18873781.htm?cnn=yes. 
  24. ↑ Spain withdraws Chinese toothpaste from the oral care market CosmesticsDesigns.com. 12 July 2007 .Accessed: 2007-09-05.
  25. ↑ Ramachandran, Arjun (29 August 2007). "Toxic toothpaste alert: buyers beware". The Sydney Morning Herald. https://www.smh.com.au/news/national/toxic-toothpaste-alert-buyers-beware/2007/08/29/1188067173174.html. 
  26. ↑ "The Country of Origin Effect". The Economist. 4 August 2011. http://going-global.economist.com/blog/2011/08/04/the-country-of-origin-effect/. 
  27. ↑ Lumb, Ruth and Lall, Vinod (1 March 2006). "Perception of the quality of products made in India by consumers from the United States: a longitudinal analysis". Indian Journal of Economics and Business. http://www.thefreelibrary.com/Perception+of+the+quality+of+products+made+in+India+by+consumers+from...-a0169308002. Retrieved 6 October 2013. 
  28. ↑ Peng, Mike W. (2013). Global Strategy. Cengage Publishing. pp. 177. ISBN 978-1133964612. 
  29. ↑ Peters, Nils (2013). The country-of-origin affect on perception of services: Entry mode decisions as a determinant of usability (Master's thesis). Grin Verlag Gmbh. p. 116. ISBN 978-3656020790.
  30. ↑ Aichner, T. 2014. Country-of-origin marketing: A list of typical strategies with examples. Journal of Brand Management, 21(1): 81-93.

Sources

  • Agarwal, S./Sikri, S. (1996): Country image: Consumer evaluation of product category extensions, in: International Marketing Review, Vol. 13, No. 4, pp. 23–39.
  • Anderson, W.T./Cunningham, W.H. (1972): Gauging Foreign Product Promotion, in: Journal of Advertising Research, Vol. 12, No. 1, pp. 29–34.
  • Kuester, Sabine (2012): MKT 401: Strategic Marketing & Marketing in Specific Industry Contexts, University of Mannheim.
  • Shimp, T.A./Sharma, S. (1987): Consumer Ethnocentrism: Construction and Validation of the CETSCALE, in: Journal of Marketing Research, Vol. 24, No. 3, pp. 280–289.
  • Wood, V.R./Darling, J.R./Siders, M. (1999): Consumer desire to buy and use products in international markets: How to capture it, how to sustain it, in: International Marketing Review, Vol. 16, No. 3, pp. 231–256.



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