Country Of Origin On Co Brands

Published Date: 02 Nov 2017

Abstract

This paper compares the effects of country of origin on co-brands, where one of the constituents is a powerful global but acquired brand and the stand alone brands. Taking evaluations from the young Indian professionals and students on the overall evaluation of a branded laptop, from various countries of manufacture, this study provides results from an experimental design setup to propose few strategic guidelines for the way a global firm could best leverage its powerful brands in emerging economies like India.

Keywords: Country of origin, brand, strategy, Lenovo, ThinkPad, IBM

Introduction

An increasingly integrated and globalized world means that there would be more inter-nation trade in goods and services. Increase in international foreign trade with the passage of time is therefore a given in today’s context. It therefore becomes all the more important to study the behavior and attitude of consumers that are contingent on such realities especially if it pertains to understanding the competitive edge gained by specific nations. In the light of this perspective, considerable research has been done on how consumers have a bias for or against goods produced or assembled in a specific country. The level of development of the nation in question may provide a favourable or unfavourable opinion to the consumer about a given foreign good vis-à-vis similar goods produced in the home country. This bias for or against, is termed as country of origin effect. These biases generally are based on perceptions of quality of the goods in question (Elliott and Cameron, 1994). Thus, country of origin effects may have become a major issue faced by international marketing practitioners.

The way customers evaluate products varies as brands have symbolic meanings. The evaluative criterion for different product categories is different and is also dynamic in nature – evolving with the changing times. Understanding this criteria and overcoming the barriers to a positive evaluation is one of the primary tasks of international marketers, and academicians through their research are supposedly aiding them in this direction. While making purchase decisions and evaluating products, consumers across the world look forward to cues of product quality signals i.e. branding, pricing, physical features and retailer reputation, the factors mostly discussed in marketing literature (Rao and Monroe, 1989; Brucks and Zeithmal, 1991; Enis and Stafford, 1969; Milgrom and Roberts, 1986). These signals are likely to vary across different cultures to some degree because of region and cultural factors. A study by Dawar and Parker (1994) found that in US, brand name signals are considered more important than price, physical features and retailer reputations. The country of origin of the product or brand also acts as a cue of product quality and influences consumer perceptions in evaluating products. In many cases it becomes the most important cue (Felzensztein et al., 2004). Keown and Casey (1995) have shown that country of origin is the most important criteria for evaluation, when imported wine was the product category. Felzensztein et al. (2004) go as far as to say that country of origin could well be the fifth marketing mix element!

Country of Origin and Brand as a cue for quality and evaluative criteria

Here, it is important to note that country of origin can be defined differently – meaning the country where the headquarters of the company (the corporate brand name) is located (Ozsomer and Cavusgil (1991), where the goods are produced or assembled (Bilkey and Nes, 1982; Papadopoulos, 1993) or the country specified with the words made in (Chasin and Jaffe, 1979). As the country of origin effects can be both, positive and negative various researchers have defined it specific to the context. Country of origin effect, also known as product country image has other diverse definitions, one by Wang and Lamb (1983) which considers only the negative effects of it, is – ‘intangible barriers to enter new markets in the form of negative consumer bias toward imported products’. These effects are important to be understood in today’s context especially in a time when outsourcing is the order of the day and when it is quite possible for a firm to have its headquarters in one country, its subsidiary marketing arm in another selling the product designed in a third country, assembled in another, and sold in a fifth country as a co-branded product, the partner being a firm from an altogether different country. Tse and Gorn (1993) have shown that these effects are valid even for so called global brands and for new products. Invariably, a larger number of studies have been carried considering the effect of country of origin, where marketing scholars have studied the influence of this on various products, belonging to different countries. Further, country of origin effects is also influenced by stereotypical behavior of humans, which is a naturally present human trait. For example, Reierson (1966) in his study conducted in US found that respondents rated products "made in USA" the highest in quality, suggesting that consumers do have preconceived notions about foreign products but their attitudes is largely of national stereotypes rather than opinions about specific products. Also various studies considering developing and developed countries found that there was a negative country of origin effect for products manufactured in developing countries (Gaedeke, 1973). Negative country of origin effects have also been found by Verlegh and Steenkamp (1999) and Peterson and Jolibert (1995). On the other hand, it has been found that in many cases, consumers in developing counties have attitudinal preferences for brand which are or of non-local country of origin, and this is beyond their assessments of brand quality. This is specially the case for brands which belong to the western countries, as they are believed to reflect prestige and symbolize cosmopolitanism, which is perceived to enhance the social identity of such buyers (Hannerz, 1990). The reason for such attitude among consumers in developing countries is due to the simple phenomenon of social comparison and brand’s possession reflecting symbolic acquisition and communication of social distinctions, particularly status (Douglas and Isherwood, 1979).

Though there exists vast literature on the existence of the country of origin effects (both positive and negative) and it is said to have been validated over time, with majority of studies in this area being in its favour, yet many studies have reported no or very limited effects of country of origin. Also, the magnitude of this effect and the actual way in which this effect is incorporated has not been finally settled (Elliott and Cameron, 1994). Further, as most of the early researchers used only single cue models, that is information was considered only related to the country of origin, these results are prone to be biased (Johansson, Douglas and Nonaka, 1985). To overcome this drawback many researchers have used multiple cue models, which show a lesser degree of role played by the country of origin on customer product evaluation (Ettenson, Wagner and Gaeth, 1988). Batra et al (2000) have reported on how the consumers in developing countries choose between older, local brands and newer, foreign or nonlocal brands. The consumers in a developing country such as India inevitably view foreign brands as status enhancing (Singh 1982, Tully 1991 and Ger et al 1993). The study tested this hypothesis through a survey of Indian homemakers in Mumbai and Delhi and found that a brand when perceived as non-local was preferred by the respondents over local brands. Compared to previous literature, the study also found contrasting results in the case of ethnocentric consumers who in this study did not react with the same hostility towards foreign brands as has been documented in previous research.

Research Design, Methodology and the case for a study in the Indian context

The brand name has been found to be a major signal of quality (Ross, 1988; Rao and Monroe, 1989). Dawar and Parker (1995) have further showed that for some cultures like the nation of U.S., brand name is a very prominent cue.

This paper compares the effects of country of origin on the co-brands, where one of the constituents is a powerful global but acquired brand and the stand alone brands. Lenovo, the Chinese company acquired ‘ThinkPad’ laptop brand from IBM in 2005. Apart from four places in China, Lenovo has two manufacturing facilities in India (Himachal Pradesh and Pondicherry), and one each in Poland and Mexico. Country of origin, hereafter meaning country of manufacture would mean the ‘made in’ criteria for this study. The countries examined would be these four as above – China, Poland, Mexico and India.

Taking perspectives from the young Indian professionals; aged between 20-32 years, on the overall evaluation of such branded products from these countries of manufacture, this study utilizes the analysis in provided strategic guidelines into the way a global firm could best leverage its powerful brands in emerging economies like India. Thus, the research question becomes – does the strength of effect of country of origin change with brands that have been acquired by another strong global firm (brand)? The answer to this question shall provide us insights as to whether a firm like Lenovo should leverage the existing brand, use it in conjunction with their brand name or use it as a stand-alone brand. This question becomes important in the wake of the $1.75 billion that Lenovo paid IBM for obtaining the naming rights for mere five years (Roberts et al., 2004). IBM still supports marketing efforts of Lenovo as per the deal.

Product category chosen was a laptop considering the brand and also the fact the technology products are more readily studied for country of origin effects. Also, the involvement level in the purchase of such products is high which makes the given study more meaningful.

The respondent group for this experimental setup is young Indian professionals and students aged between 20 to 32 years – the apt target group for the purchase of a technological product like a laptop. This paper attempts to understand the effect of the country of origin in an Indian setting for given parent brand, acquired brand and the compound brand / co-brands.

Drawing on assimilations from the work of Supanvanij and Amine (2000), this type of study finds favour with Easley, Madden and Dunn (2000), who opined that they are not only useful but critical for research to progress in a good manner. Even editors of leading journals have reiterated the importance of replication studies when adapted to various other countries and contexts (Monroe, 1992). These studies provide validation to the original studies as well as provide information about the generalizability of the earlier findings (Al-Sulaiti and Baker, 1998). They also provide useful insights that justify differences occurring amongst the results. The case for studying the Indian context has been made stronger by Batra et al. (2000) who are of the opinion that India as the choice for locale for testing such effects is very appropriate. O'Cass and Lim (2002) also, concur that Asian developing nations should be studied to understand the country of origin effects better. Increased liberalization and the phenomena of globalization would also affect the extent the country of origin now affects evaluation of products by consumers. Tse and Gorn (1993) have concluded that even when global brands like Sony, etc are considered the country of origin effect is important. They also opine that it is more enduring and is effective even after experiences. Also, for new products this is applicable. They importantly indicate that unfavourable country of origin effects exist and will be effective even for strong global brands.

For this study, three brand names were used – one: the acquiring firm: Lenovo, a globally strong brand name in itself; two: IBM (ThinkPad), the acquired brand; and this is another globally strong brand and three: Lenovo IBM (ThinkPad), the combined or co-branded name.

Considering the opinion of Samiee (1994) that certain brands have country of origin very obvious by their very name – Sony for Japan and IBM for the U.S., it becomes all the more interesting to see if these quality associations differ significantly in other contexts, and specifically when the use of the IBM ThinkPad brand name is done mentioning a different country of origin or with a strong, global brand name that has a different country of origin.

Thus, a 3 x 4 experimental design (3 brands and 4 countries of origin / manufacture) was chosen as the procedure to elicit overall evaluation scores with the help of a picture of a laptop (see Appendix) with the brand name and made in details being the twelve possible combinations of brand name and country of origin / manufacture. Thirty respondents were chosen for each combination giving twelve such groups and overall sample size of 360.

Overall product evaluation scores were obtained using a 5-point semantic differential scale where 1 meant very poor and 5 indicated very good overall evaluation. Thus, from each of the twelve groups mean scores were obtained. These were tested and results tabulated as follows.

Hypotheses Tested

Based on the research questions discussed earlier the hypotheses to be tested are:

H1: There is a significant difference in the overall evaluation scores of different brand names – Lenovo, Lenovo IBM and IBM for various countries of origin.

H2: There is a significant difference in the overall evaluation scores for different countries of origin – Poland, India, China and Mexico.

Results Tables

Table 1a:

Descriptive Statistics for Overall Evaluation Scores

For All Groups (Combinations of Brand name and Country of Origin)

N

Minimum

Maximum

Mean

Std. Deviation

Lenovo_Poland

30

2.00

5.00

3.4000

.81368

Lenovo_India

30

1.00

5.00

2.7333

.94443

Lenovo_China

30

1.00

5.00

3.7667

.89763

Lenovo_Mexico

30

1.00

4.00

2.6667

.88409

Lenovo_IBM_Poland

30

2.00

4.00

3.1667

.59209

Lenovo_IBM_India

30

1.00

5.00

2.8667

.97320

Lenovo_IBM_China

30

1.00

5.00

3.3333

.99424

Lenovo_IBM_Mexico

30

1.00

4.00

2.6667

.80230

IBM_Poland

30

1.00

4.00

2.8667

.81931

IBM_India

30

1.00

5.00

2.6667

.92227

IBM_China

30

1.00

5.00

3.0333

1.03335

IBM_Mexico

30

1.00

5.00

2.8667

.97320

Valid N (listwise)

30

Table 1b:

Descriptive Statistics (Brand name-wise)

N

Minimum

Maximum

Mean

Std. Deviation

Lenovo

120

1.00

5.00

3.1417

.98983

Lenovo_IBM

120

1.00

5.00

3.0083

.88399

IBM

120

1.00

5.00

2.8583

.93751

Valid N (listwise)

120

Table 1c:

Descriptive Statistics (Country of Origin-wise)

N

Minimum

Maximum

Mean

Std. Deviation

Poland

90

1.00

5.00

3.1444

.77258

India

90

1.00

5.00

2.7556

.93989

China

90

1.00

5.00

3.3778

1.01204

Mexico

90

1.00

5.00

2.7333

.88432

Valid N (listwise)

90

Table 2:

Tests of Between-Subjects Effects

Dependent Variable: Overall_Evaluation_Scores

Source

Type III Sum of Squares

df

Mean Square

F

Sig.

Corrected Model

31.858a

5

6.372

7.855

.000

Intercept

3017.175

1

3017.175

3.720E3

.000

Made_In_Country

24.236

3

8.079

9.960

.000

Brand_Name

5.361

2

2.681

3.305

.038

Made_In_Country * Brand_Name

.000

0

.

.

.

Error

287.139

354

.811

Total

3565.000

360

Corrected Total

318.997

359

a. R Squared = .100 (Adjusted R Squared = .087)

Table 3a:

T-statistics for Differences in means between each pair of the groups

(Brand-wise)

Lenovo IBM

IBM

Lenovo

2.132 (0.035)*

3.061 ( 0.003)*

Lenovo IBM

1.747 (0.083)**

Figures in parenthesis indicate the respective p-values.

* – significant at 5 % level of significance

** – significant at 10 % level of significance

Table 3b:

T-statistics for Differences in means between each pair of the groups

(Country of Origin-wise)

 

India

China

Mexico

Poland

3.298 (0.001)*

-1.890 (0.062)**

1.4333 ( 0.000)*

India

 

4.529 (0.000)*

0.157 (0.875)

China

 

 

4.316 (0.000)*

Figures in parenthesis indicate the respective p-values.

* – significant at 5 % level of significance

** – significant at 10 % level of significance

Interpretation of Results

From the above tables, it can be seen that the highest mean evaluation scores have been obtained for Lenovo – China followed by Lenovo-Poland combination. The least mean scores have been obtained (equal) by Lenovo-Mexico combination, Lenovo IBM-Mexico combination and IBM-India combination.

Lenovo brand name is more favourably evaluated by the respondents, followed by Lenovo IBM and lastly IBM. These differences are significant (at various levels of significance) as can be seen from table 3a. Thus, prima facie it seems that the use of the acquired brand would not add value to the already strong brand, Lenovo.

Evaluations for these for various countries of origin provide that there is a marked country of origin effect in play here. The made in Poland is most favoured followed by China (surprisingly). India is not too different or way ahead of Mexico.

Table 2 provides that the country of origin (manufacture) is a greater determinant of favourable overall evaluations than the global brands. Thus, country of origin effects overrides the strength of a global brand as a cue for greater overall appeal.

Thus, both the hypotheses are accepted; implying that both, the brand name as well as the country of origin have a significant impact on the overall evaluation of a product like a laptop.

Implications

In a development that would delight Ben-Ur and Wang (2008), Lenovo with a ‘made in’ China label seems to have removed the negative stereotype of low quality associated with Chinese products.

The relatively poor performance of IBM can be attributed to the continuous erosion in its brand equity (Magnusson et al., 2008). Thus, it is not surprising that Lenovo has rightly decided to phase out the use of IBM brand name for the sale of its laptops. However, in such case the hefty premium paid for acquiring the brand may not seem justifiable today.

This study provides us with an interesting perspective and its findings help one thought to emerge in comprehensive manner – that a well-known global brand may not altogether override the country of origin effects. Even a combination of such brands – co-branded together may not help evade the effects of country of origin. This is in contrast to the findings of Thakor and Pacheco (1997).

This study also validates the existence of the country of origin effects and thus, has contributed to the understanding of an important dimension in international marketing. This will help international firms in today’s era of globalization to take advantage of their global brands and overcome negative country of origin effects and also use this opportunity to serve a wider and global market spending more on communication that leverages on the brand than publicizing the country of origin. This will provide marketing practitioners marketing strategies that spell out success for their firms and thereby ensure their sustained profitability in the arena of international competition.

This study elicits the relationship and relative strength of global brand names and country of origin effects. The implications of this study are particularly important as, compared to other previous studies conducted along similar lines as this study examines prospective consumers in a developing country and provides valuable insights to practitioners seeking to target these markets.

Thus, from above the manufacturing destinations should be Poland and secondly China. These results also prove that it is possible to shun stereotypical poor images and build on strong brands. This may in-fact aid future brands from that country to be global leaders in their categories.

The result of this study also provides lessons for strategically aligning brands based on region. Thus brands that are favoured by association with a region (made in) should be marketed as such. Similarly, those with unfavourable associations should be avoided as much as possible. Thus, IBM and India combination should not be promoted together if other possible combinations are available.

Conclusion

Notwithstanding, changes in the forms of increased infrastructure, logistics, technology and flow of information due to internet, many region specific factors play more import role in determining positive demand and attitude of customers towards international products. Some of the underlying reasons may be rational, but many of them are based on perceived attitude, thinking, behavior and culture specific issues. Understanding these and responding accordingly is the toughest, but key task for international marketers. This study aims to further this cause and aid marketers to better understand the effects of country of origin especially for the context of a globally strong brand – Lenovo in this case.

Limitations and Scope for Future Research:

The interaction effects of country of origin and brand name was not explained or determined here. This could thus have a bearing on the results of this study. Also, the study was limited to the Indian context and only one product category – laptops. Other product categories and other developing countries could be explored for similar studies. Also, as country of origin is now applied to services as well (Berentzen et al., 2008, Javalgi et. al, 2001), it should be explored whether there exists interaction between these service brands and country of origin effects and found which of these overrides the other. An interesting extension could be the evaluation of online services / purchases of goods for the country of origin effects.

Also, since countries themselves are brands today, there needs to be greater conceptual understanding of the exact cognitive and symbolic evaluations of brands and countries. Research has shown that additional information provides more quality emphasis and lessened emphasis on origin of manufacturer (Roth and Romeo, 1992). Other cues could be taken along with strong brand name and tested further to see if the country of origin effect diminishes greatly.

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