Country-Of-Origin Effects and Their Impact Upon Consumers' Perception of Quality

COUNTRY-OF-ORIGIN EFFECTS AND THEIR IMPACT UPON CONSUMERS' PERCEPTION OF QUALITY

C. Min Han, The University of Michigan

William J. Qualls, The University of Michigan

ABSTRACT -

An exploratory study was conducted to examine the impact of country-of-origin effects upon consumers' product evaluations. Specifically, the present study tested the relationship between brand names and source country on country-of origin effects. From a convenience sample of approximately 100 TVs and automobile consumers, it was found that country-of-origin effects is influenced by the brand name and source country image held by consumers. The implications of these findings for international marketing decisions are discussed.

INTRODUCTION

Since the mid-sixties, many studies have been done on country-of-origin effects have been quite successful in identifying the effects arising from the country of origin in suggesting explanatory variables such as country, product, and consumer characteristics (see Bilkey and Nes 1982 for review). Researchers have generally agreed that the country of origin affects product evaluations. However, the results of such studies have not been satisfactory for at least three reasons:

(1) In spite of the fact that the recent increase in the internationalization' of business has resulted in the proliferation of foreign direct investment (FDI), private branding, and overseas sourcing in international marketing (Terpstra 1983), most studies have only incorporated foreignmade/foreign brand products (traditionally imports), but failed to include "hybrid products" (Czepiece and Cosmas 1983) such as foreign-made/home country (US)-branded (e.g., GE TV made in Taiwan) and US-made/ foreign branded (e.g., Honda made in US).

(2) Explanatory variables have been defined in a descriptive manner, which fails to capture the specific dimensions or variables of the country-of-origin effects. For example, different degrees of effects have been found in different types of products, but the underlying country characteristics that cause such effects have been seldom studied.

(3) Most studies have relied on a single cue, "Made-in (country)" label. Only a few studies have attempted to analyze the country-of-origin effects.

Recognizing the above shortcomings, this study attempts to address these issues by incorporating hybrid (bi-national) products as well as country-of-origin effects upon the consumer's perception of quality. Specifically, the purpose of this study is threefold:

(1) To examine differences in consumers perception of quality for bi-national and uni-national products; and the direction of any differences.

(2) To identify the effects of brand names and source country as stimuli and evaluate the relative importance of each stimulus.

(3) To discuss the implications of country of origin effects for international marketing management.

THEORETICAL OVERVIEW

The globalization of today's business environment has resulted in a unique problem for manufacturers, marketers, and consumers. The country of origin (where a product is made) touches both consumer evaluations of the product as well as the firm's decision to manufacture its goods in certain countries and how to brand. While conceptual and empirical evidence in the literature supports the contention that the country of origin impacts upon the consumer's perceptions of quality, explanations as to why are virtually nonexistant.

In spite of the growing importance of the country-of-origin effects, most studies have relied exclusively on the "made-in (country)" label, or source country as a primary measurement stimulus. Researchers have failed to consider the effects that arise from a consumers identification of the country of origin, with the brand name that the product carries. It is argued here that the country-of-origin effects are caused by consumers identification of the country-of-origin from brand names as well as "made-in" information cues.

Foreign brand names affect consumer evaluations of products in two ways. One involves the consumer's identification of the country-of-origin from the brand names. Khera and Anderson (1981) examined the degree to which American consumers are aware of the location (US or foreign) of the manufacturers of various brands of household products. Their findings suggest that brand names give rise to the country-of-origin effects. In response to country-of-origin effects of this type, such firms as Japan's Matsushita and Mitsubishi adopted anglicized brand names in their earlier years in the US market, during the time in which the image of most Japanese products sold in the US was not favorable.

The importance of brand names and seller familiarity in consumer perceptions of quality and product evaluations has long been recognized in consumer behavior literature (Jacoby, Olson, and Haddock 1971, Jacoby, Szybillo, ans Busato-Schach 1977) as well as in the information economics literature (Nelson 1970; Shapiro 1982). Jacoby, Szybillo, ans Busato-Schach (1977) contend that brand names serve as information cues (chunks) which facilitate consumer decision making.

METHODOLOGY

A study was designed to gain an understanding of how consumers' perception are affected by the country that manufacturers the product and the brand name it carries. Two products (TVs and automobiles), classified according to whether they carry a foreign or US brand name and whether they were foreign made or US made, were selected as the products to be examined because of their familiarity to the sample. Dummy multiple regression analysis was used to test for specific hypothesized differences in perceived quality across modes of source country and brand names.

Research Design

In developing a framework for examining the country-of-origin effects hypothesis, binational (hybrid) and uni-national products are cross classified to produce the following test design. A survey was made of business students from a major midwestern university. A total of 104 television questionnaires and 92 automobile questionnaires were returned completed and in usable form, representing a response rate of over 85% for both surveys. Respondents were instructed to rate the product described on a series of attributes that the literature-had suggested consumers use to evaluate televisions and automobiles. Consumer attitudes were measured on a 5 point Likert scale on 13 product attributes for the automobile and 10 television product dimensions.

Four countries (US, Japan, Korea, and Germany) were used to examine the country-of-origin hypothesis, mainly because each country manufactures both televisions and automobiles which are marketed internationally.

The present study incorporates four product modes that were examined under the country-of-origin as shown in Figure 1. Q1 represents the consumer's perception of the quality of purely imported products (e.g., Korean TV made in Korea); Q2 US-branded/foreign-made products (e.g., GE TV made in Korea)- Q3 foreign-branded/US-made products (e.g.: Honda made in US); Q4, purely domestic products (Ford Escort made in US).

FIGURE 1

From the analysis of the perceived quality of the above product modes, one can determine the differences in perceived quality of a given product between product modes. Thus, one may test the following propositions for four modes of products:

(1) There exists a significant difference between (D1) in perceived quality between Q1 and Q4. D1 (Q1 - Q4 represent consumers' systematic bias towards foreign imported products vis-a-vis domestic consumer stereotypes toward foreign products.

(2) There exists a significant difference (D2) in the perceived quality of Q1 and Q3. D2 W3 - Q1) may show the effects of relocating the a given product's production site from home country market country (e.g., Honda made in Japan vs. Honda made in US).

(3) There exists a significant difference (D2) in the perceived quality of Q4 and Q2. D2 (Q3 - Q1) may represent the effects of overseas product sourcing (e.g., GE TV made in US vs. GE TV made in Korea).

(4) There exists a significant difference (D4) in the perceived quality of Q2 and Q1. D4 (Q2 - Q1) may show the effects of private branding of foreign products (e.g., Mitsubishi automobile made in Japan vs. Chrysler Colt made in Japan by Mitsubishi).

In order to examine the effects and relative importance of brand name and the sourcing country on consumers evaluations, the following predictive model was used:

Q₁ = b_oi + b_1iJB + b_2iJM + b_3iJINT + b_4iGB + b_5iGM + b_6iGINT + B_7iKB + b_8iKM + b_9iKINT + E_i  (1)

where:

Q = Perceived quality of the ith product attribute

JB = Japanese brand name

JM = Made in Japan

JINT = Japanese brand/Japanese made

GB = German brand name

GM = Made in Germany

GINT = German brand/German made

KB = Korean brand name

KM = Made in Korea

KINT = Korean brand/Korean made

b = Regression coefficient

E = random error

Interaction terms (JINT, GINT, KINT) have been included for the express purpose of determining any interaction between brand name and sourcing country, with the sourcing identical country of origin. The value of this model is that it allows one to predict the average value of perceived quality for alternative product modes based upon a common reference point of US branded/US made. The coefficients suggested in the hypothesized model formula represent the degree of adjustment in the average value of the perceived quality when a product carries a certain country's brand and/or when it is made in a certain country. The boi estimate will be equal to the average value of US-branded/MS made products on the ith attribute.

RESULT

A preliminary analysis Of the data (Han and Qualls, in process) revealed significant differences in evaluations of the product dimensions used to describe general country image. While Japanese and German products in general were consistently preferred to US and Korean products, it appears that such differences may be product-attribute specific. The degree of uniformity varies across product attributes. For example, German-made products in general are perceived as being more expensive, lumurious, mass produced, attractive, but of traditional styling, while Japanese-made products are seen to be reasonable priced, technically advanced, innovative, and of good value.

TABLE 1

COUNTRY IMAGE PERCEPTIONS BY PRODUCT ATTRIBUTES

Similar patterns exist for both television and automobiles, when individual product dimensions were examined. Specific details of this analysis are discussed elsewhere (Han and Qualls, in process).

Respondents' familiarity with the seller was assessed through four measures 1) respondent ownership of the brands of TVs and automobiles being examined, 2) respondent ownership of a product made by the seller, 3) respondent awareness of the brand under consideration and, 4) respondent awareness of the seller under consideration (see Table 2). For automobile based upon the degree of familiarity, consumers were most familiar with Volkswagen Rabbit, Honda Civic, Chrysler Colt, and Hyundai. While the Rabbit, Civic, and Colt were basically similar in terms of awareness, the Hyundai Pony was the one brand/manufacturer least familiar among respondents.

Similarly, for televisions, GE, JVC, Samsung, and Grundig represented the order of products of which consumers were most aware and familiar. The familiarity of GE among respondents was as much as five times familiar to respondents as was Samsung and Grundig.

In order to investigate the country-of-origin effects that occur as a result of consumer awareness of the seller and the source manufacturing country, a series of multiple regressions were employed to estimate the parameters of the hypothesized predictive model specified and illustrated in an earlier section. Results of this analysis are shown in Table 3 and 4 for televisions and automobiles respectively.

TABLE 2

SELLER FAMILIARITY AMONG CONSUMERS

Determinants of Country-of-Origin Effects

Dummy multiple regressions were run to examine the relationship between the dependent variable perceived quality (represented by a composite of product-specific attributes) and the independent variables of foreign brand name and source (made-in) country. The results are presented in Table 3 and 4 reveal.

In general, Japanese and German brand names and sourcing are found to have positive relationships with favorable product evaluations, whereas Korean stimuli produced negative effects.

The most apparent and significant effect is the impact of the source country on the perception of quality. The image of the source country, where the product is made, accounts for significant relationships in 10 of the 13 automobile product dimensions, and 6 of the 10 attributes for televisions. For example, there are greater country-of-origin effects on perceived quality of TVs on such dimensions as serviceability, technical advances, durability, exclusiveness, and workmanship and on evaluations of automobile attributes such as reliability, durability, technical advances, design, horsepower, and accelerations.

The coefficient*signs across product attributes for both automobiles and TV's were generally consistent, positive, and in the expected direction, while the R-squares appear to be low: ranging from .044 to .234 for TVs and from .051 to .247 for automobiles; the model does well in both prediction and explanation of relationships empirically, previously these had only been conceptualized. One possible explanation for the low R-squares could be that the hypothesized model does not control for individual differences across consumers, which has been found to influence differences in stimulus evaluations and the relative nature of scaling (Anderson 1981).

TABLE 3

DUMMY MULTIPLE REGRESSION RESULTS - TELEVISION UNSTANDARDIZED REGRESSION COEFFICIENTS

TABLE 4

DUMMY MULTIPLE REGRESSION RESULTS - AUTOMOBILE UNSTANDARDIZED REGRESSION COEFFICIENTS

Nevertheless, the variations of R-squares across attributes may imply that the country of origin effects are product attribute-specific. In addition, the degree of influence for each stimuius varies across product attributes. Comparisons of standardized regression coefficients between two stimuli (brand name and source country) reveals the following pattern:

(1) Greater effects of source country for TV's are found in such dimensions as reliability, durability, service, and workmanship, while greater effects of brand names, in exclusiveness, style, and value.

(2) For automobiles, greater effects of source country are observed in reliability, durability, technical superiority, workmanship, handling, acceleration, service, and value while brand names have greater influence in design, comfort, and safety.

(3) Purchase intentions for TV's is slightly more influenced by brand whereas the opposite effect is found for automobile purchase intention.

(4) Source country appears to have greater effects on such dimensions as reliability, durability, serviceability, and workmanship across the two product categories whereas brand name had greater effects on style and design.

A second interesting finding from Tables 3 and 4 is that the interaction effects between brand name and source country are inversely related to the effects of foreign-made and foreign brand names as independent stimuli. This might imply that the repetition of stimuli for the identical country does not necessarily result in a reinforcement of the country-of-origin effects on product evaluations. Subjects might actually perceive two repetitive stimuli (i.e., Japanese-branded and Japanese-made) as a single stimulus--a Japanese product.

Equally interesting is that subjects rated the German, Grundig TV very highly in spite of the low degree of familiarity with Grundig. This may imply that the favorable image of Germany, influences their evaluation through the German brand name.

In an attempt to identify overall brand and source country effects on brands, two-way multivariate analysis of variance (MANOVA) were run and the results presented in Table 5. The source country is found to have greater effects on product evaluations than brand names. The F-values for the former are consistently greater than those of the latter. This is quite interesting, since previous research suggests that the brand name serve as the most important information cue consumers utilize in making product evaluations. The source country of origin might serve as more useful information 11 chunks" than brand names in evaluations of foreign products. Another interesting finding is that TV's are subject to stronger effects from foreign brand names and while sourcing effects are stronger for automobiles.

TABLE 5

OVERALL BRAND NAME AND SOURCE COUNTRY EFFECTS

Thus there appears to be three major findings suggesting new avenues that must be tested and examined in future research:

(1) Country-of-origin effects are product-attribute specific.

(2) The brand and source country of Japanese and German made products have a greater positive impact upon consumer product evaluations.

(3) Source country has a greater effect on product evaluations than the brand name.

CONCLUSION

This paper has suggested that the concept of country of origin effects is influenced by the brand name and source country image held by consumers. The empirical results of a preliminary study indicated that consumer perceptions of quality for automobiles and televisions is strongly influenced by where the product is made (source country) and the seller's brand name.

Findings such as these presented here should not be interpreted as generalizable principles. Yet, they do suggest several implications for a firm operating in today's global market. For example, firms such as GM, Chrysler, and Ford should investigate consumer perceptions before making decisions on joint ventures or manufacturing automobiles in other countries. In addition, the findings provide important implications to foreign manufacturers with regard to consumer-side effects of their decisions on local production and private branding, which might be as equally important as the consideration of cost-side effects. A second implication involves how products should be marketed when source country and/or foreign brand names impact consumer perceptions. Since the phenomena appears to be product attribute specific, advertising could be aimed at correcting myths. The results reported here suggest the need for further research.

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