The rejection of products from emerging markets in a highly globalized world : from a Dutch perspective

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The rejection of products from emerging markets in a highly

globalized world: from a Dutch perspective

MASTER THESIS

Amsterdam Business School

Executive Programme in Management Studies

Strategy Track

Supervisor:

Aug. 2015

by

Laila Salek

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Abstract

This study provides the most up to date analysis of the view of the population from an established country depending highly on imported goods, towards foreign products. The purpose of this study is to test the influence of products ‘origin on willingness to buy products from the perspective of fit between country image and product category. A deviation between more developed countries (developed) and less developed countries (developing) showed that consumers from established countries who heavily depend on foreign products, evaluate products from developed countries better than products originating from developing countries in terms of willingness to buy. Further does this study show that some underlying attitudes and characteristics lead to a reverse significant effect by the rejection of products from developed countries. Consumers who perceive themselves intelligent and find it important to be respected by others are more inclined to reject products from developed countries according to this study. Also consumers with a high country knowledge of developed countries showed a negative correlation in the willingness to buy products from developed countries. Evidence from this study suggests implications for marketing and positioning strategies in developing as developed countries as well.

Keywords: country of origin, emerging countries, consumer buying, globalization Paper type: Research paper

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Forword and acknowledgments

This study is conducted as my master thesis for completion of the Master Strategy at the Business School of Amsterdam. I started the Pre- Master course at the Amsterdam Business School in 2013 whereby the courses Strategy, Marketing (Strategy) and Human Research Management were covered. A combination of all these course elements are covered as well in this study as this provides the most complete overview about the knowledge I have gathered during my study at the Amsterdam Business School.

It is important for firms to occupy and identify superior positions in attractive industries to gain competitive advantage. Knowledge about the market and acquiring the perception of the consumers in the markets they are active in is therefore crucial. This information can help firms to differentiate in terms of their product market positions or focus their marketing strategy on the right target group. Besides that I am personally interested in views of consumers about products outside their own borders and what causes this views.

Special thanks go out to the people who were willing to participate in the online questionnaire and my supervisor Dr. Sebastian Kortmann. His guidance, advice and comments have definitely contributed to this research.

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1. Introduction... 5

1. Theoretical Background ... 11

1.1 Country of Origin ... 11

1.2 Brand... 13

1.3 Intrinsic and extrinsic cues ... 15

1.4 Stereotyping, country image and country knowledge ... 17

1.5 Foreign products and countries’ level of development... 19

1.6 Purchase intention ... 22

1.7 Self-concept and personal values ... 23

2. Research scope, framework and hypotheses ... 28

2.1 Research scope ... 28

2.2 Framework ... 28

2.3 Hypotheses Development ... 30

2.4 Hypothesis 1, Favourable product/country match and willingness to buy ... 30

2.5 Hypothesis 2, Country knowledge and willingness to buy ... 31

2.6 The strength of the moderator effect of brand ... 32

2.7 The strength of the moderator effect of self-concept and control variables ... 33

- ... 33

3. Research methodology ... 34

3.1 Research ... 34

3.1.1 Questionnaire ... 34

3.1.2 Unit of analysis ... 35

3.1.3 Developed and developing country ... 35

3.1.4 Product category ... 36 3.2 Measures ... 37 3.2.1 Measures of knowledge ... 37 3.2.2 Product information ... 38 3.2.3 Brand... 38 3.2.4 Purchase intention ... 38 3.2.5 Self- concept ... 39 4. Results ... 40 4.1 Sample ... 40

4.2 Scales Reliability and normality tests ... 40

4.3 Descriptive statistics ‘willingness to buy’ ... 41

4.4 Favourable match and willingness to buy ... 41

4.5 Knowledge and Development about countries and willingness to buy ... 44

4.6 Descriptive statistics ‘Brand’ ... 44

4.6.1 Brand as a moderator ... 45

4.7 Self- concept and willingness to buy ... 46

5. Conclusion and discussion ... 48

5.1 Conclusion and main findings ... 48

5.2 Managerial implications ... 49

6. Appendix... 53

7. References ... 69

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Introduction

An increasing number of firms, countries and other economic actors take part in today’s global economy and all of them have become increasingly connected across borders. The increased linked to international trade and rapid globalization has changed the lives of consumers and significantly changed the outlook of the world economy. Globalization is referred by Utkin (2002) as the merger of national economies into a single worldwide system. Consumers worldwide have been having increased access to a wide variety of products and services from other countries including an increased supply of products from emerging (developing) countries. As the current globalization process is spreading more widely, it includes a growing number of developing countries which market their products worldwide. Developing countries have become important players in international trade and investments and products from established countries are competing more and more directly with products from emerging countries. Several earlier studies conducted in the seventies, eighties and nineties have shown that the image associated with country of origin plays a significant role in consumers perception of products whereby also evidence in earlier research is found that consumers prefer products from some countries over others (Tongberg, 1972; Yaprak,1978). Country of origin is accepted as serving as a signal, enabling consumers to make an instant decision. Products from abroad draw consumers attention by the name of the producer, performance, design or the products country of origin. The country of origin image is one of the most immediate interests for products which are marketed in a country other than the one in which they are produced (Papsdopoulos, 1993). The large body of existing research has recognized the importance of country of origin effects on consumers’ product evaluations and purchasing decisions, Bilkey and Nes (1982); Al-Sulaiti and Baker(1998). Recently extensive country of origin research has highly focused on ethnocentrism, whereby preferences of consumers between domestic and foreign products were investigated. A strong theoretical

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explanation for domestic preference was offered by Shimp and Sharma (1987) who proposed the construct of consumer ethnocentrism that they defined as ‘the beliefs held by American consumers about the appropriateness, indeed morality, of purchasing foreign made products’. According to ethnocentric consumers, the purchase of imported goods is wrong because it results in damage to the domestic economy and is unpatriotic. In studying ethnocentric consumers, Shimp and Sharma (1987) found that ethnocentrism is negatively correlated with purchase of foreign products. Substantial country-of-origin research has shown a tendency for consumers to prefer their own country’s products (Hong and Wyer, 1989; Peterson and Jolibert, 1995). Conversely, non-ethnocentric consumers consider foreign goods as objects to be evaluated on their own merit, and the source of the product is not relevant for evaluation (A. Pecotich & M. Rosenthal, 2001). Most of the country of origin studies have been conducted in the context of large industrialized countries such as the US, Japan, Germany and France. These large industrialized countries have large internal markets and a wide range of domestic alternatives or brands in most product categories available. Also were many studies conducted in times when national borders were not nearly as faded as they are now. The latest stream of research examining consumer attitudes towards foreign or imported products and brands has typically emphasized negative attitudes towards foreign products in general while limited studies have focused in discriminating effects between foreign products. Liefeld, (1993); Srinivasan, Jain and Sikand (2004) and Han (1988) showed in their studies during the eighties that significant differences in country of origin effect also varies between foreign products from developed countries and developing countries. Liefeld (1993) demonstrated a positive relationship between product evaluation and the degree of economic development. These negative attitudes towards foreign products can be caused by numerous reasons besides ethnocentrism. Consumers may believe products from some countries e.g., emerging markets are of inferior quality (Han, 1988) or hold feelings of hostility towards a specific country and

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hence ‘’boycott’’ their products (Klein, Ettenson, & Morris, 1998). Since not all countries have (in all product categories) domestic products available, some consumers have no choice than to buy foreign products from some product markets. Unexplored seems whether consumers from countries with high levels of foreign trade, that do not have in all product markets domestic products available, discriminate between foreign products based on the level of development. The study of Nijssen and Douglas (2004) was conducted on consumers in a country with high levels of foreign trade, but was solely focused on examining consumers attitudes towards foreign products in general relative to domestic products. Additionally, purchase intentions concerns were ignored in this study and limited by focusing only on consumers perceptions or evaluations. The results of the study of Nijssen and Douglas (2004) however did show that even when no domestic brands are available, consumer ethnocentrism and feelings of animosity have an important impact on the evaluation of foreign products by consumers of small nations depending highly on imports. Based on this results it can be concluded that also for consumers in countries with high levels of imported goods, the country of origin cue is an important cue that influences consumers’ evaluation of products in a positive or negative direction (Peterson and Jolibert, 1995). The development of international trade stimulates future research of country of origin (Han and Terpstra, 1988). Although the country of origin effect is widely researched in the last decades, so far research on effect of country origin has not provided a consensus conclusion. The suggestion arises that the country of origin effect is context dependent and varies between different situations. While Schooler and Wildt (1968) found that consumers were biased against products from Japan in the sixties, Papadopulos (1993) showed in their study that in the nineties ‘Made in Japan’ means quality to consumers. As newly industrialised countries increase their international presence, it is likely that customers’ perceptions of country-specific stereotypes will be reassessed (Liu and Johnson, 2005). Also the

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globalization and the development of increasingly open trade borders requires more attention of the understanding of marketplaces. As a more open market becomes increasingly attractive to manufacturers from new industrialized countries, it is critical for manufacturers and marketers to understand how consumers in the market they are active in, perceive and evaluate foreign goods. Global manufacturers are facing increased competition from manufacturers and brands originating from emerging market countries that are entering the global markets. Goldman Sachs Global Economics Group (2007) believes that the BRICS countries; Brazil, Russia, India, China and South-Africa, due to their fast growth, may be among the most dominant countries in the world by 2050. T. Chan et. al. (2010) suggest that exports from an emerging market are already at a disadvantage when competing with domestic products in a developed country. The image of products origin can act as a significant barrier or opportunity to enter into a foreign market. The identification of groups susceptible to discriminate between foreign products from developed and developing countries can be useful when deciding to enter a market, especially in markets where there are no domestic products or alternatives available and therefore dependence of imported goods is great. To have a successful market position as a firm, it is of importance to analyze the current market they are or want to be active in and collect relevant information to make strategically decisions such as pricing and positioning. This information is however not only useful for manufacturers from developing countries. Facing renewed and fierce competition from new entrants in the market, also established manufacturers can use this information in order to differentiate their products from others. Recognizing the country of origin effect on consumers buying intentions and quantifying the effect will not only help international producers and marketers but also will help consumers understand the rationality of their purchase behavior (Cai, Y et al, 2004). Research emphasizes that consumers do not globalize as well as companies, and feelings of neo-nationalism and localism resists globalism in

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buying behaviors (Belk, 1996). With increasing globalization, an important challenge for internationally active companies is to identify appropriate customer segments and subsequently target these segments in different countries (Steenkamp & Hofstede, 2002). When assuming that less developed countries are at disadvantage in all contexts relative to established countries, one can question whether emerging countries will ever achieve the predicted dominant position according to the Goldman Sachs Global Economics Group. This study is an effort to deal with the question whether country of origin has an effect in the willingness to buy foreign products in the context of an established world with high levels of imported foreign products in a highly globalized world. Thereby this research extends the existing literature concerning country of origin research which results in answering the following research question: ’Does the origin of products effect the willingness to buy

products of consumers in established countries with high levels of imported goods in the today highly globalized world ?’.

Additional this study seeks to look at factors underlying attitudes towards foreign products. This study considers the strength of other intrinsic and extrinsic information about the product as well as personal factors that may facilitate the willingness to buy foreign products. The moderating role of country knowledge, brand and self-concept is of interest to this study and will be further investigated in this study. The main goal of this research is to provide actual valuable new insights of the country of origin effect on purchase decision (also referred to as willingness to buy) in the presence of a favourable match between equally products from a developed and developing country in an established market. The research is designed to provide information about the country of origin effect in a highly globalized world and tested in an established country with high levels of foreign trade. The research is relevant from an academic- as well as a practical point of view. To the degree that country-of-origin

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(COO) effects contribute to sales growth, it would be helpful for retailers to understand how to deploy the ‘‘made in” claim in order to motivate consumers to buy products.

In the next chapter (‘Theoretical Background’) the literature is reviewed to show some relative backgrounds and starts with the explanation of important and commonly used terms in the field of this research, chapter two (‘Research scope, framework and hypotheses’) gives a short outlook of the research scope, framework and outlines the development of hypothesis and an explanation behind the hypothesis. In chapter three (‘Research Methodology’) the research methodology and questionnaire design will be present. Subsequently in chapter four (‘Data’) the data will be checked and validated and results will be described. Some general insights in the data will be discussed and the explanation of the statistical tests used in this study will be here described. In chapter five (‘Conclusions and discussion’), I conclude with discussion and limitations, here the general conclusions and main findings of the research, the managerial implications, the limitations and the recommendations for future research will be present.

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1.

Theoretical Background

1.1 Country of Origin

The location in the world where a product is manufactured is the ‘country of origin of the product’. The country of origin of a product is typically operationalized or communicated through the phrase “made in_,”. The ‘Made In’ image is the picture, the reputation, the stereotype that consumers attach to products of a specific country. This image is created by such variables as history and traditions, representative products and economic and political background (A. Nagasjima’s, 1970). While the effects of COO on consumer evaluations and behaviour appear quite robust, the definitions and conceptualizations of COO effect are diverse. Guhran-Canli & Maheswaran (2000), Martin, Lee, and Lacey (2011) commonly defined the COO effect as: “The extent to which the place of manufacture influences product evaluations”. Samiee (1994) defines the COO effect as any influence or bias that consumers may hold resulting from the COO of a product. Yet, Nagashima (1970) defines it as the picture, the reputation and the stereotype that businessmen and consumers attach to products of specific country. A definition given by Ghazali et. al (2008) of the country of origin effect is as any influence that the country of manufacture has on a consumer’s positive or negative perception of a product. In this paper, we follow Gurhan-Canli and Maheswaran (2000) in defining COO effects simply as the extent to which the place of manufacture influences consumer evaluations and related decisions. Globalization and multinational production trends have caused that products do not always originate from just one country. A growing number of international companies seek production outside their own borders, mostly in less developed countries because of lower costs and an increasingly competitive business environment. The emergence of new markets, intense worldwide competition and rapid growth in global sourcing has led to a world of hybrid (designed in one country and

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manufactured in another) or multinational products, making the understanding of COO effect more critical and relevant (N. Srinivasan, S. Jain, and K. Sikand, 2004). With increasing economic globalization, it is common to find that products are manufactured in one country and branded in another (Tse & Gorn, 1993). In the literature there are also different definitions given of the country of origin. The definition of the country of origin given by Samiee (1994) is the location of manufacture or assembly of a product referring to the final point of manufacture where Acharya et. al (1994) define the country of origin as the country of origin or the country of manufacturing for a specific product.

Because of the evolution of hybrid products, some research on country of origin has focused attention on the complexity and ambiguity of country of origin cues (Levin et.al, 1996). The impact of different components of country of origin effects, i.e. country of manufacture (COM), country of assembly (COA), country of brand (COB) and country of design (COD) (Han & Terpstra, 1988) have, for example, been examined. One of the studies where COO was decomposed into branding country and manufacturing country was the study of Srinivasan, Jain, & Sikand (2004). The overall suggestion of Srinivasan et al. 2004) is that the seller should choose a developed country as COB to compensate the negative effect on quality perception when manufacturing in a less developed country to reduce production costs. Srinivasan et.al. (2004) consequently insinuate in their study that products manufactured in less developing country suffer a negative effect in quality perception. One must highlight that the country-of-origin effect may vary according to the country, the sample used and the products evaluated (Martin and Eroglu, 1993). Several papers are critical about the COO effect arguing that the COO effect on itself has no significant influence on consumers’ perceived quality but country image is mainly caused by brand image. Tse and Gorn (1993) have disproved this theory by demonstrating that the nation of manufacture has a stronger effect than brand image. The studies of different components of country of origin

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have revealed substantial confusion in consumers’ mind with regard to country of origin and have shown that consumers are frequently misled or misinformed about country of origin (Nijssen and Douglas, 2004).

In this paper we follow the definition of Acharya, Elliot and Cameron (1994) who defined country of origin as the country of origin or the country of manufacturing for a specific product. Defended by the study of Verlegh & Steenkamp (1999) the country of origin will not be decomposed but focus will be on the general type of county of origin.

1.2 Brand

While it is widely acknowledged that COO has an impact on product evaluations, there are deviating empirical findings found concerning the importance of the COO effect when different brands are used (Ettenson, 1993; Hulland, 1999) for consumers from different countries (Gurhan-Canli & Maheswaran, 2000) to evaluate products of different origins (Papadopoulos et al., 1990). Several studies have shown that besides country of origin of a product, also brand name is an important stimuli for consumers product evaluation (Jacoby, Olson and Haddock, 1971). The results of the study of Hsieh (2004) indicate that consumers attitude towards a brand’s COO is positively related with consumer brand purchase behavior. Han and Terpstra (1988) investigated both (country of origin and brand name) stimuli on product evaluations and found that the sourcing country has greater effects on consumer evaluations of product quality than brand name. Brand image is a cue that does not exist in the actual product itself, neither in the features or in the technology. Through brand image, consumers are able to recognize a product, evaluate the quality and obtain certain experience and satisfaction out of product differentiation. Brand is about relevancy and differentiation (with respect to the customer). Kotler (2000) contends that brand is a name, term, symbol, design or all the above, and is used to distinguish one’s products and services from

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competitors. The definition of brand by Keller (1993) is an association or perception consumers make based on their memory towards a product. Brand can convey either a positive or a negative message about the product to the consumer (Kim and Chung, 1997). Thanasuta et al. (2009) found for example out that Mercedes- Benz, BMW and Audi receive the highest price premium from Thai consumers among 17 other car brands. Hsieh (2004) showed that the COO appeared to be more influential on the purchase behavior who perceived it to be of high quality or had a positive attitude towards the brand being investigated. Further did the same study of Hsieh showed that the COO effects seemed to be more significant among nations where the availability of international brands was lower. While early studies documented the influence of COO information on consumer response, more recent research also suggest that COO has a relatively weak or even insignificant effect when extrinsic cues as brand name are available (Pharr, 2005). Some critic notes exist about the validity of the studies that have analyzed COO effect on the brand level. The arguments are that most studies fail to isolate the proportion of difference in product evaluations only caused by the COO. Although many researchers recognize and use hybrid models of COO, it is not always necessary to decompose COO. Decomposing suggest that the COO effect differs between hybrid and non-hybrid products. Verlegh & Steenkamp (1999) presented in their study that there was no significant difference between the COO effect in the hybrid and in the non-hybrid model. To avoid possible impact of brand name awareness, Iyer and Kalita (1997) tested the effect of COO by conducting an experiment whereby respondents were only told the origin or manufacture country, U.S or Europe, of the product, without the specific name. It was found indeed in this study that COO information played an important role in consumers’ attitudes about products. An unambiguous answer about the effect of brand name in country of origin study has not yet been given and might be context and product depending.

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A brand forms part of the extrinsic cues. To form judgments regarding products, services or brands consumers use cues or signals. Earlier studies investigated the COO effect as a single cue and found it to be a significant predictor of individuals’ product evaluation (Bilkey and Nes, 1982). Because evaluation of product attributes is sometimes difficult, purchasers use extrinsic cues such as origin (Ettenson, Wagner, and Gaeth, 1988; Wall, Liefeld, and Heslop, 1991) and brand (Rao and Monroe, 1989; Josiassen, 2011) when intrinsic cues such as quality and performance (Han, 1989; Han and Terpstra, 1988) are not available. Intrinsic cues cannot be changed without changing the physical characteristics of the product and are product-related like length, weight, engine power and color. Extrinsic cues are not product-related to the physical characteristics of a product like brand name, price or country of origin (COO). A country-of origin cue does thus not directly bear on product performance (Peterson, R & Jolibert, A, 1995). Faced with an enormous supply and cues of innumerable products from other countries, consumers often evaluate and integrate the available cues to create a composite judgment (Szybillo & Jacoby, 1974). The word ‘cue’ in a psychological context is defined as: ‘A stimulus, either consciously or unconsciously perceived, that elicits or signals a type of behavior’ (The American Heritage, 2015). Consumers start the assessment and evaluation process and make a purchase decision after comparison and judgment, when the amount of information reaches a certain level. The country of origin image is even more important when there is less information available or when the available information is not evaluated correctly (Srinivasan, Jain, & Sikand, 2004). Richardson, Dick, & Jain (1994) found in their study that extrinsic cues are relatively more important than intrinsic cues. Country of origin, as one of the most important factors in competitiveness, expressed by Schooler (1965), Tan and Farley (1987) and others, proposes that a product's country of origin can influence consumers' evaluative judgments of the product. Several studies have

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concluded that country of origin was used as a cue in the absence of other information on which to evaluate products (Johansson et al., 1985) especially if consumers are less familiar with the product category (Han, 1989).

Human information processing theory maintains that there are limits to the ability of human beings to assimilate and process information during any period in time (Jacoby et al., 1974). The huge array of information is dealt with through a process of perceptual categorization (Erickson et al., 1984). Wyer & Hong (1989) suggest that product evaluation and purchasing behavior are influenced indirectly through beliefs, which is also called ‘the halo effect’ and directly by COO. Erickson et al. (1984) and Han (1989) showed that consumers’ attention and evaluation of other product dimensions are affected through the creation of the country of origin as a ‘halo effect’. If there is only a small amount of product information available, people can use the halo effect of COO to create inferential beliefs about other product attributes that are not available or cannot be evaluated directly (Hsieh, 2004).

Research has shown the image of the country of origin can influence beliefs about product attributes (Cordell, 1991; Erickson et. al, 1984; Johansson and Nebenzahl, 1986), which beliefs in turn affect evaluative attitudes (Erickson et al., 1984; Han, 1989), which subsequently influence choice (Wall and Heslop, 1986). People hold different views of countries, shaped by a variety of influences over time, and they are affected by these perceptions. There are different causes that people hold different views of countries and are affected by these perceptions. Summarized is the country-of-origin effect the “overall perception consumers form of products from a particular country, based on their prior perceptions of the country’s production and marketing strengths and weaknesses” (Roth and Romeo, 1992).

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1.4 Stereotyping, country image and country knowledge

Before the COO effect can occur, there must be a ‘country image’ in the consumers mind. Stereotyping is an important underlying mechanism that is used by people to simplify the complexity of issues and can lead to largely incorrect judgments (Chen & Starosta, 1998; Hinner, 2010; Vito, 2002) that can be either positive or negative (Vito, 2002). Stereotyping is often the result of the habit of people to avoid information overload which results in simplifying the issue to a manageable level by making assumptions of other people, products, countries etc. (Hinner, 2010). The country image stereotypes can be influenced by the level of economic, cultural and political development and can vary a lot between countries and between product groups. The country image of for instance of Japan as a producer of clothing could be totally different in comparison with the image of Japan as a producer of consumer electronics (TV’s, Stereo’s). The generally used stereotypes of country image are: ‘high quality’ with Germany and Japan, ‘attractive design’ with Italy, ‘good value’ with South Korea and ‘special appeal’ with Sweden (Keegan & Schlegelmilch, 2001). The three groups where country image can be divided into (Hsieh, 2004) are: 1) Overall Country image (all beliefs about a particular country, i.e. ‘I like Sweden’); 2) Aggregate product-country image (all beliefs and feelings about and attitudes towards products coming from that particular country, i.e. ‘I like products from Sweden’); 3) Specific product-country image (all beliefs and feelings about and attitudes towards specific product coming from a particular country, i.e. ‘I like cars from Sweden’).

Verlengh and Steenkamp (1999) emphasize that consumers cannot response solely through the Cognitive mechanism whereby COO is used as a ‘signal’ for overall product quality and quality attributes. According to Verlengh and Steenkamp there exist two additional mechanism namely, the Affective and Normative mechanism. In the Affective mechanism, COO has a symbolic and emotional value to consumers formed by indirect (e.g. media) and

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direct (e.g. holidays) experiences. The collection of product or country information on consumers is based on (direct) personal experience and external environment prior to purchasing. Consumers develop knowledge based on the experiences they have gained. Consumers’ knowledge of a product’s country of origin is widely regarded as an important influence on choice behaviour (Bilkey and Nes, 1982). An interpretation of Han’s (1989, 1990) position is that the order of country of origin images for ‘foreign’ countries in the domestic market may, most clearly, be compared on the basis of product and country knowledge. Consumers with high levels of self-assessed knowledge have been found to use their own experiences (however limited) as the basis for their expertise (Alba & Hutchinson, 2000). However, empirical evidence has also established that consumers, in the main, do not possess the level or quality of objective knowledge they believe they do (Alba & Hutchinson, 2000). Given this, it is not surprising that many consumers often misjudge product quality or the image of a country. The lack of firsthand experience and/or knowledge of consumers about countries can reinforce misrepresentations, mistrust and misunderstanding about unknown foreign countries and the products they produce. Foreign travel and exposure to people from other countries reduce such tendencies and facilitates social integration (Appadurai, 1996,). Direct contact provides the opportunity for first-hand experience with the country, expanding the local reality to which a consumer is exposed and offering the opportunity to know the country in a more objective manner (Balabanis et al.,2002). Having knowledge about other countries may result that negative attitudes towards foreign products may be less pronounced or have less impact on purchase behavior or conversely be reinforced.

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1.5 Foreign products and countries’ level of development

Consumers preferences are shown to be affected by the extrinsic COO cue, when choosing between otherwise identical products that come from different countries. According to Liu et. al (2005) the country of origin effect has a significant impact on consumers’ attitudes and intentions to buy foreign products. There is research support for the nation that a hierarchy of foreign countries in terms of consumer response, variables (Pecotich and Rosenthal, 2001). Numerous studies have found that consumers have biases in favor and against products made in certain countries. Krishnakumar (1974) and Srinivasan et. al. (2004) have found that products from a developed country receive better evaluation in comparison with products from developing countries. Products from developing countries were according to the study of Han (1988) typically perceived to be of inferior quality. The research of Han (1988) has, however, been widely criticized on the grounds that in reality consumers are typically faced with multiple cues, whereas of which country of origin is only one, and in this study a single ‘‘made in’’ cue is used to assess consumer reactions. Darling and Kraft (1977) and Han (1989) showed that developed countries such as Japan, Germany and the United States are associated with high quality products whereas developing nations such as Korea, China and the Philippines are associated with poorer quality products. Countries with a high level of market-development in the specific product-group receive better evaluations by the consumers and the level of cultural or political development can positively influence consumers perceptions, according to Wang (1978). Additional the study of Srinivasan et. al (2004) explored that when the manufacturing country was less developed (Mexico & Malaysia), American consumers’ quality perception had a negative effect and when the manufacturing country was developed (USA & Japan) this quality perception turned into a positive effect.

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Additional numerous research has been done on underlying attitudes focusing on negative attitudes towards foreign countries and products. Attitudes towards foreign products are used in some studies as the dependent variable and determinants of these attitudes were the primary research focus, while in other cases, attitudes towards foreign products are used as the independent variable, in understanding purchase behavior or intentions (Balabantis, Diamantopoulos, Mueller, & Melewar, 2001). Research concerning underlying attitudes on negative attitudes towards foreign countries can be distinguished in two major constructs, namely; ethnocentrism and animosity. The third mechanism according to Verlegh and Steenkamp (1999) that consumers rely on for overall product evaluation as mentioned in previous paragraph is the Normative mechanism. The Normative mechanism emphasizes social and personal norms related to the COO which is connected to the concepts ethnocentrism and animosity. Consumers with a very strong home bias are called ‘ethnocentric’, this means that they not only prefer domestic products but they even consider buying foreign products as immoral and wrong. In their opinion it can cause higher unemployment rates and hurts the domestic economy (Shimp & Sharma, 1987). Consumer ethnocentrism and different facets of ethnocentrism are a widely studied construct. Ethnocentrism is inherently a construct more pronounced in developed countries as their consumers in general tend to hold domestic products in higher regard than they do imports (Han, 1988). Shimp & Sharma (1987) have shown that consumers prefer domestic products and that when people buy foreign products, they prefer products from culturally similar countries (Watson & Wright, 2000). Over two-thirds of Spanish and British subjects preferred domestic made products to comparable foreign-made products (Peris et al., 1993). Hsieh (2004) found evidence that consumers preferably buy foreign products from their own geographic region (Europe, North America) but it only partially holds for Asia and did not hold at all for South America. Huang et al. (2010) have noticed significant ethnocentrism

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effect from both Western and Eastern consumers in terms of their evaluation and response to foreign products. In another study, French and West German consumers exhibited nationalistic sentiments as they rated their own country’s products higher than those from Japan (Papadopoulos et al., 1990).

Alienation and animosity are facets of ethnocentrism and have often been cited as an explanation, or at least a significant factor, in discussing various forms of social, political, and organizational behavior that reflect disaffection, disgruntlement, deviance, and other feelings of estrangement (Johnson, F., 1973). Animosity refers to the remnants of antipathy related to previous or ongoing military, political, or economic events Klein et al. (1998). The contrast of animosity with respect to ethnocentrism is that feelings of animosity are directed at one specific country. Consumers may hold feelings of hostility or animosity towards a specific country and hence ‘boycott’ their products (Klein et. al, 1998). Feelings of animosity can negatively influence buying intention and product evaluation, regardless of quality judgements (Russel & Russel, 2006). Nijssen and Douglas (2004) appointed war animosity and economic animosity as the two types of animosity whereby war animosity results from acts of aggression or warlike behavior by a country or nation-state (Nijssen and Douglas, 2004) and economic animosity results from feelings of economic dominance or aggression (Klein et al., 1998). Economic animosity is particularly salient for small nations or economies, whose population may be apprehensive about the dominance of the power of larger economies. These hostile feelings may contribute in negative attitudes towards products from the ‘’ aggressor’’ country, and reluctance to buy products from that country. Klein et. al (1998) found for example that the willingness to buy Japanese products was affected by consumers in the Chinese city of Nanjing, were 300.000 people were massacred by the Japanese in World War II, rather than their judgment or evaluation of these products. When consumers invoke a collective identity based on their nationality to accept or reject

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products from other countries, regardless of price, quality or technological superiority, that sentiment interrupts the process of a ‘reasoned’ purchase decision (Wang et al., 2005). For all discussed studies above applies that they were either conducted in large industrialized countries that has large internal markets and a wide range of domestic alternatives or brands in most product categories available. Consumers in countries depending highly on imports have however, even in the presence of ethnocentrism or animosity consumers, no option than not to purchase at all. Nijssen and S. Douglas (2004) is an exception who conducted these study in a country depending heavily on imports and found that consumer ethnocentrism and animosity are also relevant in small countries with high levels of foreign trade. But for this study the negative attitudes where compared between domestic products and foreign products in general. Regarding discrimination between products origin on the level of development, Okechuku (1994) found that next to domestically made products, or if domestically made products are unavailable, respondents preferred products made in other developed countries and the developing countries were the least evaluated source countries when it came to product evaluations. Although there seems to be a consensus on the fact that the country of origin has an impact on the product evaluation, at the same time, there is a constant debate about the magnitude of this effect. Like in most studies (Srinivasan et al., 2004; Han, 1988), Okechuku (1994) tend to focus solely on consumers evaluation and leaving the answer unexplored whether consumers are also affected in their buy decision.

1.6 Purchase intention

In many studies purchase intentions concerns are ignored and limited by focusing only on consumers perceptions or evaluations. Product evaluation and consumers’ attitudes were commonly used in previous studies. Okechuku (1994) compared the importance of the country of origin of a product between Europeans and North Americans and revealed that for

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European, the country of origin of a product is one of the two or three most important attributes in product evaluations but ignored purchase intentions concerns. Although purchase intention is highly related to product evaluation, purchase intention may not be a successive step in the evaluation. For instance, knowing that German-made cars are of high quality does not mean that consumers will rush out to buy a BMW. Among the researchers who investigated purchase intentions regarding country of origin effect, Ulgado and Lee (1998) demonstrated that consumers’ evaluations of a product were different from their purchase intentions for that product under the same context of attribute information. The study of Ulgado and Lee (1998) was concerned with determining whether and how COO and product attribute information influences quality perceptions and buying intentions from Korean and American consumers. While Korean thought COO to be as important as attributes in judging product quality, when it came to actual purchase considerations they did not think that COO was as relevant as specific product attributes. For American respondents only attributes had a main effect on product evaluations as well as on purchase intentions, this in contradiction to other studies which report that American consumers prefer American-made products to foreign made products and suggest that the country of origin is important to Americans (Granzin and Olsen, 1998). The so-called purchase intention means a subjective inclination consumers have towards a certain product, and has been proven to be a key factor in predicting consumer behaviour (Fishbein and Ajzen, 1975). Consumers buying intentions, also called the willingness to buy, will therefore be employed in this country-of-origin study.

1.7 Self-concept and personal values

Like mentioned in previous sections, one of the three mechanisms according to Verlegh and Steenkamp (1999) that consumers rely on for overall product evaluation is the Normative mechanism. The normative mechanism emphasize social and personal norms related to the

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COO. Consumers from one country might for example boycott products from certain countries because of moral or political reasons (Klein et al., 1998).Consumer’s susceptibility to normative influence, as the need to identify one’s image with others through the acquisition and the use of products (Mangleburg et al. 2004), has been an important factor for shaping consumers purchase intention and behavior that has been widely recognized (Bearden et al. 1989; Shukla 2010). Results of the study of Wang et. al. (2013) confirm that the effect of consumers’ animosity is subject to both consumers' personal values and social influences. Consumers might feel social pressure to avoid products of certain country; this pressure has negative impact on such products (Wang et al., 2013). Underlying sources of dismissive attitudes towards foreign products’ has been subject of considerable research. Studies that have related attitudes to the country of origin were based on the concepts ethnic background, sex, age, income, formal education and marital status. Caruna (1996) for example studied the relationship between demographic profiles and ethnocentrism. The study of Caruna (1996) was done by categorizing consumers into four groups based on education, income, occupation and residence level. Consumers with a high education level showed in this study a lower level of ethnocentrism and no significant relationship was found between income, occupation, residence level and ethnocentrism. Further studies reported that persons in lower socioeconomic status categories tend to have higher levels of general alienation (Lystad, 1972). Researchers who had the aim to examine how cultural differences among consumers or ethnic background influences perceptions of products from different countries found that alienation is typically higher among blacks than Mexican- Americans or whites (Lambert, 1981). Hugstad and Durr (1986) consequently found that 70 per cent of those under 35 years of age have little interest in determining the COO of their purchases. The results of Hugstad and Durr (1986) regarding younger consumers are consistent with those of Shimp and Sharma (1987) who reported that younger consumers tend to be less ethnocentrism. In

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general, studies involving age have presented significant results, with younger consumers more open and receptive with regard to foreign products (Good and Huddleston, 1995). The reason might be that younger people have a greater tendency to tolerate other cultures that allows them to go beyond local, regional and national concerns (Der-Karabetian et al.,1983). Above discussed studies that have related attitudes to the country of origin were based on the concepts which are related more to demographic factors than personal values or self-concept. Balabanis et al., (2002) investigated the relationship between personal values and the country of origin effect and showed that Schwartz’s (1992, 1994) values are stronger predictors of the country of origin effect than demographic data. The literature recommends directing segmentation efforts at customer characteristics rather than country characteristics, since successful marketing largely depends on matching product attributes to customer attitudes and values (Keillor, d’Amico, and Horton, 2001). In product evaluation and purchase behavior, consumers’ personal values and social influences play significant roles ( Zhou and Wong, 2008). Aaker (1997) and Malhotra (1988) have found that individuals’ personality is an important predictor of brand preference as well as product choice. Individual’s personality has been found to be related to a wide variety of behaviors and choices (Barrick & Mount, 1991) and is described by Allport (1937) as ‘‘the dynamic organization within the individual of those psychophysical systems that determine his unique adjustments to his environment”. Personality traits are considered to be enduring, which means they result in stable and cross-situational individual differences (Allport, 1937; Wang & Yang, 2007). Alden et al., (2006); Sharma, (2011) and Shukla, have discovered significant effects of personal values and social influences in consumers’ decision making and behavior regarding foreign products. Adorno et. al (1950) studied personality characteristics such as insecurity and lack of self-confidence of specific groups and notably minority groups such as Jews and Black and the relation towards hostility of certain products.

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Consumer self-confidence levels have been found to influence the interpretation and use of both intrinsic and extrinsic cues (Bearden et. al, 2001; Jover, Montes et. al., 2004; Wansink et al., 2000; Wilson & Brekke, 1994). Self-confidence may lack self-belief to the point where individuals will allow their better judgment to be over ridden if faced with a strong opposing opinion or predictive extrinsic cues. Individuals compare themselves with others in their group to obtain self-esteem by seeing themselves as a member of a special group (Pluempavarn & Panteli, 2007). Alternatively, consumers with high levels of self-confidence develop strong attitudes or beliefs towards specific products or countries that are very difficult to change due to strong self-belief. This strength of conviction leads them to hold on to their beliefs regardless of support by others or its legitimacy (Rao & Olson, 1990). Interestingly, people with low self- confidence can become stubborn also, but this is because they became defensive under the pressure of decision making, not because they necessarily believe they are right (Bell, 1967). According to Kotler (2000), consumer behaviour occurs when consumers are stimulated by external factors and come to a purchase decision based on their personal characteristics and decision making process. Consumers can for example associate brands or products and services with social classes and this affects what products they buy. Social class may be defined as homogeneous and relatively permanent divisions in a society in which individuals and families sharing similar values, interests and behaviour can be categorized (Engel et al., 1993). Implicitly and explicitly, people are engaged in ‘impression management’, acting in accordance with the type of person they wish others would see them and governing, guiding, and controlling their own actions (Goffman, 1959). People make efforts to insure that other people think of them as a certain type of person, Rosenberg (1979). It follows that such efforts are likely to include consumers’ consumption behavior.

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The role of self- concept or image of consumers and brand image is recognized in all elements of the marketing mix (e.g., Kotler 1984). The saliency of the self- concept notion has suggested in direct mail (e.g., Caballero and Pride 1984) and personal selling (e.g., Swan et al. 1984). Consumers evaluate information consistent with their self-concept more favorably (Malhotra 1979). Advertising which appeals to the self-concept of the consumers reduces irritation, and is also likely to be more effective (DeSarbo and Harshman 1985; Sewall and Sarel 1986). Self-concept is advanced as a useful construct for explaining consumer choice (Malhotra, 1979). The literature examining the hypotheses that consumers have greater preference for brands/products which are more congruent with their self- concept is discussed by Malhotra (1987). The notion of social self-concept deserves therefore greater attention in consumer behaviour. In the next chapter the research scope of this study, framework and hypotheses will be discussed.

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2.

Research scope, framework and hypotheses

2.1 Research scope

The COO effect can be researched in many ways, in a variety of situations and with different dependent and independent variables. Because it is impossible to cover every side of the phenomenon, this study is limited to the focus upon the ‘’fit’’ between one product category and country image perceptions of countries with different levels of development. The research on COO effects generally examined how a country’s image (e.g. workmanship, innovation and technological advancement) is projected on to the products of the producing country (Bilkey and Nes 1982; Papadopoulos and Heslop 2003) and COO has been identified to be a key information cue that affects product judgements, especially when consumers are not familiar with a product category (Han 1989), or less motivated to process product information (Hong and Wyer 1989). Brown (1986) indicates that when a country’s political, social, cultural and economic conditions change, the influence of the COO might change as well. The country images can vary a lot between countries and between product groups, therefore this research will follow the specific product-country image approach. This study will follow the specific product-country image approach to test the effect of COO fit in countries with high levels of imported goods. A framework will be used for investigating the match/mismatch between consumers’ product category and country image perceptions.

2.2 Framework

To measure the country of origin effect the framework of Roth and Romeo (1992) is adopted to assess the match/mismatch between consumers’ product and country image perceptions (see figure 1). Adoption of this framework will allow the results of this study to be comparable to other studies that have also used Roth and Romeo’s (1992) structure. This,

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makes findings in this study more useable in solving the practical issues facing global retailers. Roth and Romeo (1992) suggest that a product and country match (positive fit) would occur when important dimensions for a product category are associated with a country’s image. This scale assesses 4 important aspects of country and product image, namely, innovation, design, prestige and workmanship (Roth and Romeo, 1992). According to Roth and Romeo (1992) innovation is defined as the use of technology and engineering advances; designs as appearance, style, colours and variety; prestige as exclusivity, status and brand name; and workmanship as reliability, durability, craftsmanship and manufacturing quality (Dagger and Raciti, 2011). According to the framework of Roth and Romeo,

1) A product-country match (cell 1) would occur when the perceived strengths of a country are also important features or benefits for the particular product category.

1b) An unfavorable product-country match (cell 2) would occur when important product features are not the perceived strengths of the country.

2) A favorable mismatch (cell 3) would occur when the image dimensions for a country are positive, but they are not important for the particular product category.

2b) Likewise, an unfavorable mismatch (cell 4) would occur when an image dimension is both an unimportant product feature and not a perceived strength of the country (Roth and Romeo, 1992).

30 2.3 Hypotheses Development

This study examined the COO effects and hypothesized some effects based on prior studies. The formation of the hypotheses are described in this section.

2.4 Hypothesis 1, Favourable product/country match and willingness to buy Attitudes towards foreign products depend according to studies on the specific country context. A critical issue impacting attitudes towards foreign products can be the availability or absence of domestic alternatives. In small countries like the Netherlands, in a lot of product categories no domestic brands or alternatives are available, as for example, there is the absence of a computer manufacturer. Studies showed products from more-developed (and politically free) countries are more highly regarded than those from less-developed countries in developed highly industrialized countries (Wang and Lamb, 1983; Cordell, 1991). Watson & Wright (2000) suggest in the context of highly industrialized countries that consumers prefer products from countries with similar social or cultural norms as their own country when they buy foreign products. Based on previous research it is expected that consumers from a developed market in the absence of a local manufacturer will perceive the strengths from a developed country as important features or benefits for the particular product category and consequently it can be assumed that the identification of this product-country match will lead to a higher willingness to buy products from developed countries. This results in the following hypothesis;

H1: The identification of a favorable match is significantly higher for products from products originating from developed countries than from developing countries and assists in the prediction of willingness to buy a product

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2.5 Hypothesis 2, Country knowledge and willingness to buy

Consumers’ country knowledge can play an important role in consumers’ information processing and decision making. Consumers where the relevant choice set consists solely of foreign products may evaluate foreign products in a specific category favorably and be willing to buy them even if they have negative attitudes towards foreign products in general (Nijssen and Douglas, 2004). Consumers will however make a distinction choice when possible between foreign products based on the country knowledge they have and their feelings towards that country. Studies have found that cognitions of another country influence product evaluations (Heslop et al., 2004; Knight and Calantone, 2000). Likely is that when consumers have negative feelings towards a country based on their country knowledge this can result in rejecting products from that country. Nijssen and Douglas (2004) suggest that the population from small nations or economies may be apprehensive about the dominance of the power and dominance of larger economies. Subsequently, Klein et al,. 1998 suggest that economic animosity is a result from feelings of economic dominance which according to Nijssen and Douglas (2004) may result in negative attitudes towards products from the ‘aggressor’’ country, and reluctance to buy products from that country. The variable ‘country knowledge’ is considered as a potential moderator in making the choice of willingness to buy a foreign product from a developed or developing country. The image of a country can be inconsistent with the image of its products (Han and Terpstra, 1988). Consumers who perceive a country generally unfavourable may consider their products of good quality (Ahmed et al., 2004). Since this study is conducted in a small nation that extremely dependents on imports and earlier study has explored that consumers in this context hold feelings of animosity even when no domestic products are available (E. Nijssen and P. Douglas, 2004), it is expected that consumers with a high country knowledge of large developed countries will have negative attitudes towards those countries and that this results

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in reluctance to buy products from developed countries. This results in the following hypothesis;

H2: A high level of country knowledge of a developed country will negatively associate the willingness to buy products from that country by consumers in established nations who depend heavily on imported goods

2.6 The strength of the moderator effect of brand

COO is one extrinsic product cue among many other intrinsic and extrinsic cues that are used for product evaluations (Agrawal & Kamakura, 1999). Chao (1993) found that when a product carries a well-known brand name, consumers’ product evaluations will be less affected by the country of manufacture. Additional, Thakor and Katsanis (1997) found that when it comes to experiential product evaluation, a positive brand image may make up for an inferior image of the country and raise the possibility of the product being selected. While early studies documented the influence of COO information on consumer response, more recent research suggests that COO has a relatively weak or even insignificant effect when other extrinsic cues such as brand name are available (Pharr, 2005). Subsequently Wall, Leifeld and Heslop (1991) found that unknown brands are only favored when they are made in more developed, high reputation countries. In this study brand name will be introduced as a moderator to examine consumers’ willingness to buy when a brand name is available. Previous discussed studies were focusing on the evaluation of a product, le. This study follows the findings of Thakor and Katsanis and assumes that the fit of a product/country match influences the buy decision of consumers and that this decision is moderated by a favourable brand. This results in the following hypothesis;

H3: A high favor of the brand in the presence of a favorable product/country match positively associates with willingness to buy

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2.7 The strength of the moderator effect of self-concept and control variables

For the potential moderator ‘self-concept the following six different variables are selected; Moral/ Ethical, Intelligent, Has high status (respect, influence), Motivated to be liked by others (i.e. making friends is important), Motivated to be respected and/or admired by others. This personal traits are taken into account to control whether they are equal between the groups. The individual personal traits are not individual included in the final conceptual model but instead summarized as ‘self-concept. If potential moderators turn out to be unequal between groups and do have a significant influence on the dependent variables, they are included in the analysis which also count for the demographic variables (control variables).

Based on the literature background introduced above, I propose the theoretical model in this thesis as shown in figure 2 below;

Figure 2. Conceptual Model

H1

Control variables

Demographics -

Country of Origin fit (COO) Willingness to buy (WTB)

Knowledge Brand

Self- concept

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3.

Research methodology

3.1 Research

The purpose of the present research was to examine whether findings of previous research regarding preference for products originating from developed countries over products from developing countries in established countries could be extrapolated to economies with high levels of foreign trade in which consumers are frequently exposed to influences from other countries. Since country-product image alone cannot be a surrogate for product evaluation and/or purchase, additional is the second objective to determine to what extent personal perceived values and brand play an interactive role on the buy decision of consumers in established markets, in the presence of a ‘made in’ label. Specific profiles of consumers and their reaction towards foreign products will be analysed.

3.1.1 Questionnaire

Survey data was collected using a snowball sample. A cross-sectional design (quantitative, single point in time) was used to collect data from a relative large amount of respondents (compared to for example a qualitative interview study). To be able to draw causal conclusions, it was important to have enough respondents so that there would be enough variance in the sample. A convenient-sampling method on voluntary basis, which is a non-probability sampling method, has been used. The data was collected by using a digital questionnaire. The digital questionnaire was distributed by mail and a link to the questionnaire was posted at different social media channels. The questionnaire was build up logically and the questions were based on questions which were used by different research what already is done on this topic. An introduction explained how long it should take to fill in the questionnaire and that all answers would be confidential and anonymous. The English

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questionnaire was translated into Dutch so that respondents had the possibility to choose the language they understand best. To address potential translation problems, the technique parallel translation was used whereby two independent persons translated the questions and the outcome was adapted based on differences in translation.

3.1.2 Unit of analysis

The data for this research was collected in the Netherlands, with Dutch consumers as the unit of analysis. The Netherlands has an increasing involvement in worldwide trade and foreign products dominate the Dutch market including products from developing and developed countries. The Netherlands has been member of a free-trade alliance for several decades and depend extensively on foreign trade for its economic wellbeing. Outside the EU, China is currently the Netherlands’ largest trade partner, after the US. The Netherlands is therefore a suitable market to investigate how consumers in established countries perceiving foreign products and whether the COO effect may occur.

3.1.3 Developed and developing country

The country of origin in this study is the country which a consumer associates with a certain product or brand as being its country of origin, regardless of where the products is produced. Some consumers consider GE for example to be an American brand even though some GE products are produced outside of the USA (Nebenzahl et al., 1997). In order to give valuable and new insights of the COO effect on (Dutch) consumers’ willingness to buy it is important to test the effect between countries with different levels of development in order to confirm or disconfirm findings of prior research, from a Dutch perspective. Because of the quantity and difficulty to include all countries that meet the investigation criteria, this study will investigate a limited selection of two counties that are important to the Dutch (consumer)

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market. Incorporating all interesting countries would extensively increase the amount of required respondents and/ or can lower the statistical power of the analysis. For a successful manipulation of evaluative implications of COO and product attributes, it is important to select (countries) and product categories that are well known to the Dutch population. In addition, given the nature of this research, it is important that the countries be active in international trade, particularly in the production and export of consumer goods. The Netherlands main imports are: fuel (29 percent of total imports), machinery (26 percent), food and live animals (8.6 percent), pharmaceuticals and electronics. Main import partners are: Germany (17 percent of total imports), Belgium (10 percent), China (8.5 percent), United Kingdom (6.9 percent), United States (6.6 percent), Russia and Italy. The two types of countries (developed and developing) are divided using the data (2015) according to the United Nations (UN M49).Netherlands’ currently trade partners, China and the United States are selected for the evaluation of consumer attitudes towards developing and developed countries. China represents the developing country whereas the United States accounts as the developed country.

3.1.4 Product category

The products selected for this study are consumer products. The literature suggests a difference in the COO effect between consumer products and industrial products (Ahmed & d'Astous, 1993). Because buying agents are in general more rational and better informed than household buyers (Webster & Wind, 1972), they will be less sensitive to the COO effect. In this study laptops (computers) are used as the consumer product because it is a product that is widely distributed and purchased by almost all segments of the consumer market. The absence of a domestic laptop manufacturer results in a relatively high amount of imported laptops, which is interesting for foreign manufacturers. The absence of a dominant home