CHINESE CONSUMERS’ WILLINGNESS TO BUY DOMESTIC PRODUCTS

(1)

CHINESE CONSUMERS’

WILLINGNESS TO BUY

DOMESTIC PRODUCTS

(2)

Master Thesis International Business and Management

(3)

Chinese consumers’ willingness to buy domestic products

3 |

CHINESE CONSUMERS’ WILLINGNESS

TO BUY DOMESTIC PRODUCTS

Research on the influence of consumer ethnocentrism and country

of origin on the willingness to buy domestic cosmetic products by

Chinese consumers

Master Thesis

Author:

Marloes Garben

Student ID: 1271547

Supervisor: Dr. A.B. Kibriscikli-Ozcandarli

Co-assessor: Drs. R.W. de Vries

University of Groningen

Faculty of Management & Organization

Department International Business & Management

Landleven 5a, 9747 AD Groningen

(4)

(5)

5 |

Preface

This thesis is written as a final requirement for obtaining my Master Degree in International Business and Management at the University of Groningen. I have attempted to make a careful study on the part of international business which is of my interest: international marketing, the country that fascinates me: China, and the business I have learned from during my internship at L’Oréal: cosmetics. Hopefully my contribution to this field of study suits your interest.

The period of writing my thesis was an enormous learning experience for me. I hereby have the opportunity to thank people who have supervised and supported me during the completion of this work. First of all, I would like to thank my supervisor Mrs. Kibriscikli for her new insights and valuable comments throughout the research period. I would also like to thank my co-assessor Mr. de Vries for his judgement. Secondly, I would like to thank all Chinese respondents from the Fudan University of Shanghai and the University of Beijing who completed my questionnaire and provided feedback. Finally, I would like to thank my friends, my boyfriend, and my parents for their support during my research. I would especially like to thank my parents for providing me the opportunities and freedom to development myself personally besides my studies. I am looking back to an instructive and above all wonderful time in Groningen. With this knowledge I am looking forward to the next phase of my life!

Amsterdam, August 2007

(6)

(7)

7 |

ABSTRACT

With the globalisation of brands and the economic development in China, Chinese consumers are being exposed to numerous cosmetic brands presented by various foreign and domestic cosmetic companies. Consumer ethnocentrism and country of origin are assumed to have influence on consumers’ willingness to buy domestic or foreign products. This paper provides an insight in young female Chinese consumers’ willingness to buy local cosmetic products by applying the influences of these two variables. The quantitative research is performed by results from a questionnaire. The sample group contains 55 highly educated young female consumers in the age of 19-30 from urban areas. The impact of country of origin is measured by two variables by Klein (1998): quality judgment and symbolic value perception of cosmetic products from the four countries of research: China, the USA, France, and Japan. The level of ethnocentrism is measured by the CETSCALE-items of Shimp and Sharma (1987). The results show that foreign cosmetics are perceived of higher quality and symbolic value than domestic cosmetics; the influence of ethnocentrism on the willingness to buy domestic is not significant; the influence of symbolic value on the willingness to buy domestic products is significantly stronger than the influence of quality judgment.

KEYWORDS:

(8)

8 |

PART I:

(14)

14 |

1: INTRODUCTION

1.1. Preface

The concept of “globalisation” continues to present different challenges and opportunities for the marketing of brands and products by global and local companies. Different multinationals spread their brands all over the world, and consumers obtain the possibilities to choose between all these products from different countries. But together with the advantages of globalisation, companies face problems: how do people value their products and what are the influences of ethnocentrism (CET) and country of origin (COO) on consumers’ willingness to buy (WTB) products?

Ethnocentrism (CET) and country of origin (COO) research has attracted significant attention from researchers around the world. From an international marketing point of view, Western companies operating in foreign markets need to understand consumers’ perceptions of foreign products more than ever before (Kaynak and Kara, 2000).

1.2. Background

L’Oréal is an example of a multinational which is in the battle for the global cosmetics market. It is the largest cosmetic company in the world. The key to the success of L’Oréal is global branding: conveying the allure of different cultures through its many products. L’Oréal is reaching out to more people across a bigger range of incomes and cultures than any other beauty company in the world.

One of the major challenging “global” cosmetic markets (for L'Oréal) of this time is China. After remaining virtually closed to the rest of the world for 30 years since 1949, China initiated significant policy changes, developed a major economy and increased the standard of living of its citizens. China emerged as a viable consumer market, potentially the largest in the world. (Zhou and Hui, 2002). China’s cosmetics and toiletries market has been expanding rapidly over the past 20 years. In 1982 the total market was only about US$24 million. By 2006, this figure went up to approximately US$7.2 billion, and is projected to climb to US$10.2 billion by 2009 (China’s National Ministry of Industry, 2005). China is now Asia’s second largest market for cosmetics, following Japan and the worlds’ fourth largest market, following the US, Europe, and Japan. Despite the growth over the last two decades, China’s cosmetics consumption is still far from saturation.

CHINA, with a population of

(15)

15 |

The growth in different players on the Chinese cosmetic market means more choices for the Chinese consumer in the near future. But what do Chinese consumers prefer: local or foreign cosmetic products, and what are the attitudes towards these preferences?

Much of research in this area has focused on what is called consumer ethnocentrism (CET), and the country-of-origin effect (COO). The tendency of consumers to be ethnocentric represents their beliefs about appropriateness and moral legitimacy of purchasing foreign products (Shimp and Sharma, 1987). Ethnocentric consumers prefer domestic products1 because they believe products from their own country are the best (Klein, 1998). Moreover, a concern for morality leads consumers to purchase domestic products even though the quality is poorer than that of foreign products (Wall and Heslop, 1986). The more importance a consumer places on whether or not a product is made in his/her country, the higher his/her ethnocentric tendency will be (Huddleston, 2001).

The concept of consumer ethnocentrism (CET) is related to the country of origin (COO) of the product. The country of origin (COO) effect investigates how consumers perceive products sourced from particular countries (Roth, and Romeo, 1992). In a study that examined the relationship between consumer ethnocentrism (CET) and evaluations of foreign sourced products, Lanz and Loeb (1996) found that highly ethnocentric consumers have more favourable attitudes toward products from culturally similar countries.

1.3. Research design

In today’s global marketplace Chinese consumers have the possibilities to choose between foreign and local cosmetics. Why do these consumers prefer foreign or local products? And where are these preferences influenced by? These questions are very important for multinational companies when they enter or grow on the Chinese market. For example, L'Oréal is also expanding on the Chinese market with more of its global brands, but also by buying local brands. But are Chinese consumers actually interested in foreign brands, or in local brands? What is the level of consumer ethnocentrism (CET) in China and what is the effect on the country of origin (COO) on Chinese consumers’ willingness to buy (WTB) local or foreign cosmetic products?

1.3.1. Problem indication

Many theorists (Wang and Chen, 2004; Klein, Ettenson, and Krishnan, 2006) state that Chinese consumers are not ethnocentric consumers, which means that they do not prefer domestic goods; they actually believe that foreign products are of better quality and the image of these brands is very important for Chinese consumers.

On the other hand, there are theorists (Zhou and Hui, 2002) who state that Chinese consumers are more willing to buy domestic products. They switch from foreign to local products, because foreign companies have failed to build or sustain the symbolic value of their products in the Chinese

(16)

16 |

market. Also, Chinese companies can realize higher quality than before, making local products more interesting competitors. When it comes to the beauty segments, Jakes and Xu (2005) stated that Chinese consumers prefer the French beauty products for its quality and the image of style, but do Chinese consumers still prefer “foreign” brands instead of their upcoming home brands? What about the quality of these “western” brands for the “Asian” consumer? Prasso (2005) states for example that Chinese consumers prefer Japanese cosmetic products, because these companies have high expertise and knowledge of the Chinese consumers and their preferences.

1.3.2. Research goal

As there are contradicting findings of different researchers, it is interesting to find out what the preferences of young female Chinese consumers2, with respect to cosmetic products, are at the moment. The main goal of this research is to provide insight whether Chinese consumers prefer local or foreign cosmetic products, and to what extent consumer ethnocentrism (CET) and the country of origin (COO) influences these preferences.

1.3.3. Research question

To start performing this research, the following research question is formulated:

1.3.4. Sub questions

In order to answer this research question, the following sub questions will be used:

1) What is the level of consumer ethnocentrism (CET) of young female Chinese consumers? 2) What is the level of willingness to buy (WTB) local cosmetic products by young female

Chinese consumers?

3) What is the influence of consumer ethnocentrism (CET) on Chinese consumers’ willingness to buy (WTB) local cosmetic products?

4) What is the level of quality perception of Chinese cosmetics products by young female Chinese consumers?

5) What is the level of quality perception of foreign cosmetic products by young female Chinese consumers?

6) What is the difference in quality perception of local and foreign cosmetic products by young female Chinese consumers?

2_{Well educated young Chinese females (19-30 years) from urban areas. These women constitute a highly interesting current and future target} group for cosmetic companies.

(17)

17 |

7) What is the influence of quality perception on willingness to buy (WTB) local cosmetic products by young female Chinese consumers?

8) What is the level of symbolic value perception of Chinese cosmetics products by young female Chinese consumers?

9) What is the level of symbolic value perception of foreign cosmetic products by young female Chinese consumers?

10) What is the difference in symbolic value perception of local and foreign cosmetic products by young female Chinese consumers?

11) What is the influence of symbolic value perception on willingness to buy (WTB) local cosmetic products by young female Chinese consumers?

12) What is the difference in quality and symbolic value perception of local cosmetics by young female Chinese consumers?

13) What is the difference in quality and symbolic value perception of foreign cosmetics by young female Chinese consumers?

An overview of the various variables is drawn in figure 1, which presents the conceptual model of this research.

Figure 1: Conceptual model

1.4. Limitations

This study focuses on two main concepts that have influence on the Chinese consumers’ WTB local or global cosmetic products: country of origin (COO) and consumer ethnocentrism (CET). A limitation of this study can be that, due to the globalisation the concept of country of origin (COO) for a product has become problematic, because of confusion about what is or is not a foreign product or brand and from which country. This confusion exists because of foreign brands that “sound local” or local brands that “sound foreign”, and because of the buying of global companies of local businesses.

WILLINGNESS TO BUY LOCAL PRODUCTS

(18)

18 |

This limitation should be taken into account when analysing the questionnaires, because Chinese consumers can have different perceptions of products from a certain country than one should expect.

1.5. Relevance of the study 1.5.1. Scientific relevance

Research on China, in the field of International Business and Marketing, is mostly concentrated on the economic and industry conditions that influence investment and business decisions in China. Little research had been focused on the Chinese consumers. The studies within this market are also quite contradicting. Some researchers state that Chinese consumers perceive a low level of consumer ethnocentrism (CET), they prefer foreign products over local products. Other researchers state that there is a trend towards a higher preference for local products because of the growing Chinese economy, which provides more qualitative products of higher status.

1.5.2. Practical relevance

There is little research in consumer preferences in China, and in particular few research efforts have explored Chinese consumers' attitudes towards cosmetic products during the last twenty years. The cosmetic market is a highly potential growth market, and this study may help to gain insights into urban Chinese consumer preferences for cosmetics. This insight may help to formulate a recommendation on strategic decisions in the increasingly competitive cosmetic market.

1.6. Structure of the thesis

(19)

19 |

2:

THEORETICAL

BACKGROUND

ON

CONSUMER

WILLINGNESS

TO

BUY

LOCAL

OR

FOREIGN

PRODUCTS

The theoretical background will concern two important determinants that are of main importance for this research. These determinants can have influence on Chinese consumers’ WTB local cosmetic products. Consumer researchers have extended considerable effort to better understand the framing of such decisions (Piron, 2000). Among the parameters that influence the purchase and consumption of a product are its COO, and the consumer’s level of CET. As evidence in the large body of published research on these two topics, it is generally accepted by researchers that these two topics are of major influence. That is the reason why these determinants are the focus of this research. COO will be more specified by dividing the concept into two determinants: quality and symbolic value perception.

2.1. Consumer ethnocentrism

Different researchers (Zhang, 1996; Nagashima, 1970) indicate that consumers’ attitudes towards products differ from country to country. Attitudes are dependent on extrinsic cues such as quality perception, government intervention, and symbolic value of products that form consumers’ preferences.

But also national pride, loyalty, and patriotism have been found to influence consumers’ reactions to local and foreign products. Consumers often exhibit a preference for products produced in the home country even though home country products do not necessarily have the best quality or price. CET refers to the belief held by consumers that it is inappropriate, or even immoral, to purchase foreign products, because it damages to the domestic economy, it will increase domestic unemployment, and it is generally unpatriotic (Shimp and Sharma, 1987). CET indicates a general proclivity of buyers to shun all imported products irrespective of price or quality considerations due to nationalistic reasons (Shankarmahesh, 2006). CET can be institutionalized in the form of an informal government procurement policy that favours domestic companies (Kotabe and Helsen, 1998) or it can be seen as a general society tendency (Shimp and Sharma, 1987). The latter explanation of the belief will be used in this study, because this contains the specific concept for the study of consumer behaviour with marketing implications.

2.1.1. Antecedents of consumer ethnocentrism

(20)

20 |

patriotism, and conservatism. In order to Chinese consumers, these concepts will be shortly referred to in the next chapter. The second and third categories “economic environment”, and “political environment”, will not be of importance within this study. Finally the fourth category, “demographic antecedents”, which includes age, gender, education, income, ethnic group, and social class, will be of importance for the sample group of this research. Additional information on the four categories of antecedents can be found in appendix 1.

2.1.2. The consequences of ethnocentrism

Different studies found different results on CET; according to Sharma et al. (1995) CET results in negative attitudes towards foreign products. Han (1988) found a positive relationship between CET and purchase intention of domestic products. Klein et al. (1998) found a negative link between CET and the WTB foreign products.

2.1.3. The CETSCALE

Shimp and Sharma (1987) have developed the CET scale (CETSCALE) to measure consumer’s attitudes and preferences. CET may result in an overestimation of the attributes and overall quality of domestic products and in underestimation of the quality of foreign products (Watson and Wright, 2000). CETSCALE elaborates specific properties. 1: it is a general tendency as opposed to a specific attitude, 2: it results from a perceived concern for one’s own country, 3: it has a ethical dimension because buying foreign is regarded as unpatriotic, 4: it is inelastic to product attributes, 5: it is assumed to be socialized during childhood, and 6: it is an aggregation of individual tendencies, it ignores the aggregation at organisations (Shankarmahesh, 2006).

Although the construct was developed and initially validated in the USA, there is evidence that the properties of the CETSCALE extent beyond North America (Klein et all, 2005; Wang and Chen, 2004). Klein, Ettenson, and Krishnan (2005) demonstrate in their research that the CETSCALE provides a valid and reliable measure of CET in the developing countries Russia and China.

2.2. Country of origin effect

(21)

21 |

their prior perception of the country’s production and marketing strengths and weaknesses (Roth and Romeo, 1992).

Consumers usually use the COO of a product or brand as an extrinsic information cue when making product evaluations (Kwok, Uncles, and Huang, 2006). Extrinsic cues (e.g. price, brand name, warranties) serve as intangible product traits, where intrinsic cues (e.g. taste, design) are tangible aspects or physical characteristics of the product (Watson and Wright, 2000).

COO stereotyping may be universal in nature; however, the degree to which it is applied and the prominence in the evaluation of the product varies (Mohammed, et al. 2000). Consumer sensitivity to the COO image varies from country to country, and varies by the level of consumer knowledge. Mohammed et al. (2000) suggests that a negative COO effect is evident when the country of manufacture is less developed. And a specific country can rank high in one product and low in another. According to Zhang (1996), stronger COO effects exist for products from a country with dissimilar belief system and socio-cultural climate than for products from a similar country. Moreover, a product’s COO often serves as a cue activating a consumer’s ethnocentric tendency (Huddleston, et al., 2001).

In summary, the degree of the COO effect is depended on development and similarity of a country, on consumer knowledge, and on the product type. The operationalisation of the COO effect in this study is divided into two dimensions of the COO product image. Products from a certain country can be valued by their perceived quality of by the perceived symbolic value.

2.3. Product quality judgement

Consumers’ intention to buy products from a (foreign) country will be influenced by perceived quality. In the literature (Wang and Chen, 2004; Klein, 1998), quality perception is treated as a multi-dimensional concept including appearance, colour and design, durability, fashion, functionality, prestige, reliability, technical advancement, value for money, and workmanship. The extrinsic COO cue helps consumers to make inferences about quality and affects their beliefs about product attributes (Wang and Chen, 2004). Previous studies have suggested a positive correlation between the evaluations of products and a country’s level of economic development. A consumer will tend to purchase a product made in a technologically advanced country where the quality is judged better than a product merchandised in a less developed country (Wang and Chen, 2004).

2.4. The symbolic value perception of products

(22)

22 |

personality, social status, or affiliation (symbolic purposes) or to fulfil their internal psychological needs, such as the need for change or newness (emotional purposes) (Kim, Forsythe, Gu, and Moon, 2002). Products are symbols by which people convey something about themselves and to others (Govers and Schoormans, 2005). According to Zhou and Hui (2002) the symbolic values of “foreign products” are modernity, prestige, and associations with foreign lifestyles. Batra (2000) adds: social distinction and status.

2.5. The relation between country of origin and consumer ethnocentrism

COO and CET are often confused. Although the two topics are distinct and independent of each other, some researcher found evidence that they could be related. The COO can possibly be seen as a mediator between CET and WTB local/foreign products. Han (1988) concluded this on the basis of an empirical study involving US consumers; he found that consumer patriotism affected country image, but the relationship was moderated by the importance of the product. Brodowsky (1994) found evidence for CET to be an antecedent of COO. The author found that low ethnocentric consumers used COO cues for evaluation of product features. Shimp and Sharma (1987) found that CET is associated with adverse judgements of foreign product quality. Klein (1998) supports the mediating effect of adverse product evaluation.

The difference between the two concepts can be explained by an example by Shankarmahesh (2006): a Chinese consumer can have a positive COO effect for French cosmetic, due to its product class attributes, but decide not to buy it because of nationalistic reasons. CET is more a “general tendency” to avoid buying foreign products; COO is “specific tendency” because it concerns the specific country. Moreover, COO represents the cognitive and affective aspects of consumer decision making, whereas CET symbolizes the normative and affective aspects of consumer decision making (Shankarmahesh, 2006). These normative aspects of CET mean that a consumer is not only affected by the responses towards one’s own country, but also by normative pressures that a consumer feels towards buying domestic products. This normative dimension is a unique aspect of CET.

2.6. Conspicuous consumption

(23)

23 |

Chen, 2004). While conspicuous consumption may be global, it is more prevalent in countries that stimulate materialism. The desirability seems bound by cultural values (Piron, 2000).

2.7. Cultural similarity

Culture is a complex and multifaceted construct. Culture is the foundation of people’s preferences for certain products. When consumes are deciding to buy foreign products, their decision making will be influenced by cultural aspects. In the light of similarity and differences, it is expected that the COO would be influenced by the degree of shared similarity in the cultural traits of the countries. In other words, consumers react to the COO information of countries differently based on the perceived cultural and value similarity with the “home” country. According to Zhang (1996), the more similar the country, the more favourable the COO image may be. The influence of culture will not be discussed within this research.

2.8. The role of the government

(24)

24 |

3: CHINESE CONSUMERS’ WILLINGNESS TO BUY LOCAL OR

FOREIGN PRODUCTS

After the theoretical overview of the concept WTB in relation to CET and COO effect in the former chapter, this chapter will theoretically describe the influence of these concepts on consumers from China.

3.1. The level of consumer ethnocentrism of Chinese consumers

Different commentators have different ideas on the level of CET in China. Most of them state that the level of CET in China is low; some of them explain that the level of CET in China is growing. The different views of authors on this subject and reasons for their theories are explained in the following paragraphs.

3.1.1. The traditional view of the level of CET in China

In the early years, after the in 1978 implemented open-door policy, most Chinese consumers generally associated foreign products with concepts such as sophistication, modernity, novelty, and faddishness. Buying foreign products represented the materialistic lifestyles of the Chinese consumers (Zhou and Hui, 2002). Also Klein et al. (2006) notice that Chinese consumers view domestic goods less favourable than imports. According to these findings, one should expect Chinese consumers to have a low level of CET.

3.1.2. Recent view of the level of CET in China

Zhou and Hui (2002) explain that Chinese consumers have recently shown a tendency to shift away from foreign products in preference for local products. Some foreign brands, such as Kodak, Motorola, Whirlpool, and Head & Shoulders are still very popular in the Chinese market, but local Chinese brands have emerged as powerful competitors of these foreign brands. According to a series of market surveys in China, conducted by China Business (2000), from 1995 to 1999, Zhou and Hui (2002) explain that among the dominant players in the Chinese market, only a few are non-local ones. According to these findings one should expect Chinese consumers to favour their “own” products. This means that the Chinese consumers are more ethnocentric than earlier studies demonstrated. 3.1.3. Antecedents of CET in China

(25)

25 |

after the accession of the WTO (Ianchovichina, and Walmsley, 2005). 2) World mindedness, which is the “worldview” of humanity. Chinese consumers have become more “world minded” after the Cultural Revolution, and the accession of the WTO, but they are less concerned with the problems of the world then most western countries (Ianchovichina, and Walmsley, 2005). 3) Patriotism, which is the love or devotion for one’s country. Chinese are very patriotic (Cui and Liu, 2001). 4) Conservatism, the importance of cherishing traditions. Chinese people find traditions very important; they are conservative people (Cui and Liu, 2001). 5) Collectivism-individualism; Chinese people are collectivists. They consider the effect of their actions on the larger group or society (Shankarmahesh, 2006). 6) Animosity, the remnants of antipathy related to previous or ongoing military, political, or economic events that will affect consumers’ purchase behaviour in the international marketplace, and 7) Materialism. Chinese people have a quite low level of animosity and are not very materialistic (Shankarmahesh, 2006). According to Sharm (1995) en Klein (1998) are cultural openness and world mindedness negatively related to CET. Patriotism, conservatism, and materialism are positively related to CET.

3.1.4. Implementation of the CETSCALE in China

According to Klein et al. (2005), consumers in China display levels of CET similar to consumers in developed western countries, but they view domestic goods as inferior to imports. Although Chinese consumers are not generally nationalistic in their product judgements, Klein et al. (2005) demonstrate that the CETSCALE, developed by Shimp and Sharma (1987), is applicable in this context. Klein et al. (2005) also developed a ten-item version of the CETSCALE, instead of the originally 17-item scale, which is especially developed for implementation in developing economies as China.

3.2. The country of origin effect on Chinese consumers

COO research has attracted significant attraction, but despite the interest, studies investigating the product perceptions of consumers in developing countries are relatively scarce. The perceptions of consumers from China are of important interest, because more western companies are exporting their products to China. Some researchers explained the COO effect on Chinese consumers. Their findings are contradicting, which will be explained in the next paragraphs.

3.2.1. Traditional view of COO effect on Chinese consumers

(26)

26 |

consumers have traditionally associated foreign brands with concepts of sophistication, prestige, modernity, and novelty. Furthermore, foreign brands are traditionally perceived in China as having higher quality (Wang and Chen, 2004).

3.2.2. Recent view of COO effect on Chinese consumers

There is a growing contrary evidence to suggest that foreign brands are not necessarily preferred. One study found that Chinese consumers in general prefer local products over comparable foreign goods (Li and Gallup, 1995). This is supported by the suggestion that increasing westernisation does not necessarily lead to a greater preference for foreign products (Bates, 1998). It has simply created a preference for modern goods, whether they are local or foreign. There is also a growing evidence of a rise in the sales of local brands. The emergence of local brands, as a competitive force has been attributed to improved product quality, more sophisticated marketing, and government protection (Cui and Lui, 2001). Furthermore, the rise of Chinese brands in not only evident within China, but it can be seen as a global phenomenon (Vence, 2005).

3.3. Product quality judgement by Chinese consumers

Product quality judgement of Chinese consumers is influenced by the COO. Some countries are perceived to produce products of higher quality, because of for example the image of the country, or the technological development. In a developed country, consumers in general tend to have a higher quality perception of domestic products than of foreign products (Wang and Chen, 2004). The reverse has been observed in developing countries such as China. Chinese consumers typically perceive foreign products, as being of higher quality than domestic products. Even ethnocentric consumers may positively evaluate the quality of imports if they are being associated with the good image of the country, for example the economic development of the foreign country (Wang and Chen, 2004).

(27)

27 |

3.4. The symbolic value of products by Chinese consumers

The symbolic value of products is, just as quality judgement, influenced by the COO. Zhou and Hui (2002) state in their article: symbolic values constitute one of the primary motivational forces of Chinese consumers’ purchase of foreign products. Han and Schmitt (1997) note: there is a strong tendency for Chinese Asians to consume luxuries from “the west”, because these products conform to social norms and have meanings of social status and wealth. Examples of luxury products in China are cognac, Luis Vuitton, and Gucci (Wong, 1998), and luxurious cosmetics. But also non luxury items have become more popular in China because of their symbolic value; examples are McDonalds, KFC, Starbucks, and Haagen-Dazs. These western brands dominate in China because they symbolize status, modernity and western civilization.

Some other authors claim an opposite trend of the symbolic value of foreign products. According to Zhou and Hui (2002), there is less preference for foreign products, which is the result of a diminishing symbolic value of foreign products in the Chinese market. Some foreign companies have favoured adaption, or hybridisation of standardized and localized approaches. Localization of language, product attributes, advertising content, and product meanings adopted by multinational companies in China and local imitations of foreign products negatively affect the symbolic value of foreign products (Zhou and Hui, 2001). This trend has been established in various product categories, both conspicuous and inconspicuous categories.

The diminishing symbolic value of foreign products also comes along with the “creation of Chinese brands”. Schlevogt (2000) emphasizes that modern methods of marketing and promotion of domestic brands have contributed to increased market share for these local products. Strong Chinese brand recognition and value-added positioning are major competitive advantages in overcoming competition from foreign rivals. The improving image of Chinese brands has led western companies to adopt local brand names or takeover Chinese brands and their brand names (Zhou and Hui, 2002). For example: Unilever’s takeover of the largest jasmine Tea producer in Northern China, the Jing Hua tea-processing factory. Another example is L’Oreals recent buy of the Chinese skincare and cosmetic brand: “Mininurse” and Yue-Sai. Both Unilever and L’Oréal kept the traditional Chinese brand names.

3.5. Reason for different views of consumer ethnocentrism and country of origin effects in China The different views on CET and the COO effect in China may be attributed to various factors. First, the rapid economic and social developments in China led to different attitudes of Chinese consumers towards local and foreign brands (Kwok et al. 2006). Studies conducted at different points in time may have conflicting results, because the attitudes of Chinese consumers are changing rapidly. Secondly, the COO effect can vary by product type. Zhang, (1996) found that the COO effect appears to be stronger for durable products than for non-durable products.

(28)

28 |

3.6. Conspicuous consumption and social values of Chinese consumers

In South East Asia, conspicuous consumption is a culturally accepted medium to communicate wealth and social status. These values are particularly important to Chinese consumers (Zhou and Hui, 2001). According to Chung-Tung Lowe and Corkindale (1998), product preferences by Chinese consumers are situational dependent. In a low-involvement situation, when products are used for private consumption, the Chinese may adopt a more down to earth approach to product choices. Chinese may be less brand-conscious, the symbolic value is less relevant, and price and quality would be the main criteria for purchase. But in a high involvement situation, where products are used as social symbols, which means they reflect social status, maintain social relationships, express gratitude, return a favour, and to signal approval, the choice of a product is based on the social meaning. It represents a tendency for a Chinese consumer to buy products in accordance with external expectations or social norms (Chung-Tung Lowe and Corkindale, 1998). Under these circumstances, prestige, brand, and COO become important criteria for purchase.

The study by Kim et al. (2002) found that Chinese consumers prefer high profile brand names to provide security because of their limited experience with a modern free market system, rather than for symbolic or status reasons, as prevalent in more developing economies.

The Chinese also tend to put more value on “past time” orientation and continuity. This would imply that they are brand loyal; even when the product being used proves unsatisfactory; they are not likely to switch to other products (Chung-Tung Lowe and Corkindale, 1998).

Furthermore, Chinese consumers are likely to conform to group norms, and therefore they have a higher tendency to purchase products that their group members recommend.

3.8. Government intervention

Government policies or incentives in favour of domestic businesses and goods have been criticized for causing declining positions of some foreign products or for beating back the advance of multinational companies in the Chinese market. Zhou and Hui (2002) discuss the subject of government intervention in their paper. They reveal that media publicity in China over the past years promote national pride of ownership for domestic brands, and facilitate strategic alliances and partnerships among domestic firms. Examples are the advertisement: “Please drink Chinese Cola, our Own” by the Chinese Wahaha Group for its cola brand. Another example is the resistance to further expansion of Kodak in China, because the Chinese government fears that further expansion of Kodak locally could mean death for the local Chinese brand: Lucky Film.

3.8.1. Consequences of China’s accession to the WTO

(29)

29 |

(30)

30 |

4: TRENDS IN CHINESE CONSUMERS’ WILLINGNESS TO BUY

LOCAL OR FOREIGN COSMETIC PRODUCTS

In this chapter, a theoretical background will be provided on the willingness of Chinese consumers to buy cosmetic products, and the quality judgment and symbolic value perception of domestic and foreign cosmetic products.

4.1. The Chinese cosmetic market

The diversified cosmetics and toiletries market covers everything from luxury-end fragrances to essential products such as toilet soap. Because of the economic growth in China, also China’s cosmetics and toiletries sector continues to grow at an astonishing rate (China Business, 2001). But the cosmetics and toiletries sector is possibly exceeding that of any other domestic consumer market, because of the great interest in “beauty” in China. According to the British market research firm Datamonitor, the total value of the Chinese cosmetic market reached nearly 5% of the world market. And growth is likely to be long-term. The national bureau of statistics expects the sector to grow 13% annually until 2009. With a market value of US$6.3 billion in 2005, the market is expected to reach US$10 billion by 2009. The data is presented in table 1.

Table 1: Annual Sales of China Cosmetics industry (in billions)*

Year RMB USD 1999 30 3.7 2000 35 4.3 2001 40 4.9 2002 46 5.7 2003 50 6.2 2005 51 6.3 2009 (expected) 82 10.2

* Note: the statistics contained in this table only recover retail sales of: hair care, skin care, color cosmetics, personal care (=

baby care, deodorants, bath and shower), oral hygiene, and fragrances. Source: China’s National Ministry of Industry, 2005. 4.1.1. Foreign cosmetic products dominate the Chinese market

(31)

31 |

Max factor line. In contrast, Jahwa, China’s top cosmetic manufacturer whose brands include Maxam and Ruby hold 5% market share. According to these numbers, the big foreign cosmetic brands seem to be dominating in China, but the smaller Chinese brands should be noticed, because they are gaining market share.

4.2. The influence of the government on the Chinese cosmetics market

Before 1997, China’s import duties for cosmetics were over 55% in addition to a 17% value added tax (VAT) and a 30% of consumption tax (CT), but since China entered the WTO, import tariffs have been lowered. These regulations made it more lucrative for foreign cosmetic companies to exports their products to the Chinese market.

Further, the Chinese government required three major procedures for product certification in China. All cosmetic products must complete certification procedures, “the safety and health quality tests”, before they are allowed to sell in the Chinese market (Li, 2003). These regulations lead to higher quality standards in general, also for the local cosmetic companies, which makes it more difficult for “low quality (local) products” to survive in the fierce competitive market.

4.2.1. Results China’s entry WTO on cosmetic industry

China’s imports of cosmetics rose 160% from 1996 to 2001 as the Chinese government reduced import tariffs in order to join the WTO (see table 2). As a result of China’s entry into the WTO in 2001, China’s imports of cosmetics are expected to grow even further in the next several years. Of $194 million cosmetics imported during the period 1996-2001, color cosmetics and skin care products accounted for 47%, followed by 23% in bath and shower, and 22% in hair care products (see figure 2). Because of the increased imports, the bigger supply of foreign cosmetics made it possible for Chinese consumers to obtain these “luxury” foreign cosmetics easier and they became available in more different places, also in the drugstores in the smaller towns.

Table 2: China’s Import (and Export) Value of Cosmetics in US million $

Year Import Export

1996 26.0 81.5 1997 25.5 92.0 1998 34.3 125.1 1999 42.7 127.1 2000 65.8 187.8 2001 67.7 238.8

Source: Li (2003) China Cosmetic Market

Figure 2: Imported cosmetic products per category

(32)

32 |

The largest suppliers of imports came from the USA in 2001, representing 25% of total imports. Other major suppliers by ranking include France, Japan, Hong Kong, Taiwan, and Singapore (see table 3 and figure 3).

Table 3: China’s cosmetic imports by Country

4.3. The Chinese consumers of cosmetics

China is a diversified country, which makes it impossible to “sell to the mass”. Preferences for different cosmetics by consumers can be explained by different reasons (Prasso, 2005). Firstly, old and young consumers have different preferences. Elderly people are still influenced by the past, where young consumers are sensitive for trends. Secondly, there are big differences between rural and urban consumers and their preferences. And thirdly, men are becoming more important cosmetic consumers. In order to describe the Chinese consumer market for cosmetics it is impossible to describe Chinese consumers in general. In order to these statements it is important to describe the “Chinese consumer” of this research. The biggest spenders on luxury items are individuals aged 25-35, and the customer base in China lies predominantly in the wealthier urban markets of China’s coastal areas; US market research firm AC Nielsen suggest that at least 600,000 people in Shanghai alone are (potential) consumers for such items. Men are becoming more important, but still women are the main focus in China. For these reasons, young urban Chinese women will be the focus of this research.

4.3.1. Chinese consumers of cosmetics are being pulled in two directions

Although young Chinese women are spending during the years more on luxury “western” cosmetics, it is important to know that young Chinese women can also not be generalized. This group is being pulled in two directions: one that embraces the future and one that is influenced by the past (Marketing Matters, 2006). Dating back to the ancient culture, pale, even skin implied a fragile quality was associated with beauty, as well as the implication of a higher social stature. Even as the cities in China have become more modern with more women working in professional jobs, this standard of beauty has remained. They love the foreign cosmetic “luxury” brands, but they are also traditional in their perception of beauty. For example, Chinese consumers’ desire for even skin tone and quality is

Country Value ($1,000) % of share

USA 49,348 25.39 France 33,131 17.05 Japan 24,993 12.86 Hong Kong 13,167 6.78 Taiwan 12,617 6.49 Singapore 11,186 5.76 Source: Li (2003) China Cosmetic Market

Figure 3: Imported cosmetic products per country

(33)

33 |

different from the solution-mentality of American and European women, who address problems such as wrinkles.

4.4. The level of consumer ethnocentrism of Chinese consumers of cosmetics

As described in the first paragraph of this chapter, at this time the cosmetic market in China is dominated by foreign brands. These foreign companies have financial strength and effective marketing strategies. According to these statistics you can state that Chinese consumers do not have a high level of CET, because they actually prefer and continue buying foreign products.

But, it should be noticed that besides the overwhelming power of the foreign companies in the market, local Chinese cosmetic companies are gaining popularity. According to the Chinese cosmetic market analysis by Li (2003) hundreds of domestic cosmetic companies have sprung over the last decade, and a number of them have becoming fast growing companies. Examples of these Chinese brands are Dabao, Yumeijing, Meijiajing, and Dingjiayi. Most of these companies produce low end products with low prices, but also a few making high end products that can almost match their foreign counterparts. Chinese consumers gain a growing interest in local cosmetic products, because these Chinese companies are close to the consumers and they can adjust themselves faster to market changes and consumer preferences than many foreign enterprises. In the future Chinese private companies are expected to develop faster as China’s new policy allows them to gain access to bank loans and stock markets for business expansion.

The possibility of buying local cosmetic products, that are becoming better in quality, higher of status, lower in price, but most importantly specifically developed for the Asian consumer, and strongly supported by the government, probably leads to a growing interest in local products by Chinese consumers. Besides cognitive aspects of deciding to buy local products, Chinese consumers can perceive more normative pressures for buying local products. Now there is the possibility to choose between foreign and local, and the first hype of buying foreign products is gone, Chinese consumers are probably also driven by morality to buy local cosmetics.

4.4.1. Hypotheses on CET and willingness to buy domestic cosmetics

As already described in chapter 2, researcher found that there is a relation between CET and WTB domestic products. According to the findings within this chapter, it is expected that there is a positive relation between the level of CET and WTB domestic products by Chinese consumers. Chinese consumers, who are having a low level of CET, are negative on buying domestic cosmetics, because their moral beliefs do not hold them back from buying foreign products. On the other hand, Chinese consumers who are having a high level of CET are expected to be positive on buying domestic products.

(34)

34 |

collectivistic. They cherish traditions of beauty, and opinions of their “member group” are important. All these characteristics of CET lead to a positive WTB domestic cosmetic products. The first hypothesis can be formulated as follows:

H1a: Chinese consumers have a high level of CET

H1b: There is a positive relation between the level of CET of Chinese consumers and the WTB domestic.

4.5. The country of origin effect on Chinese consumers of cosmetic products

There is changing perception of beauty in China, influenced by the perception of beauty of the west. The aesthetic taste during the Cultural Revolution (1966-1967) advocated for a “revolutionary beauty style” like short hair for women and unisex style; make-up and dyed hair were a horror. The opening of China put an end on the idea of homogenisation of the sexes. The beauty standards themselves changed. Economic reforms made it possible for almost every Chinese household to have a new ideal of beauty appealed, influenced by American, European, and Japanese movies and conveyed by the press.

Chinese consumers have become as every brand-consciousness as their Western counterparts. A survey conducted by the China Economic Weekly in 2000 found that 70% of the women under the age of 35 consider brand and COO a key factor when buying cosmetics.

American products are among the largest popularity in the Chinese cosmetic markets anno 2005 according to Li (2003), but they fierce strong competition from a number of international players. These players are mostly from France, Germany, Switzerland, Japan, and Korea. Especially young consumers in China are more open to buy foreign products. Dividing the preferences along genders, Stewart (2005) wrote in her article at the “China Law Blog” that female consumers are primarily interested in American “beauty products” because they prefer the “Western Style packaging” of cosmetics. But also the French cosmetic products have become very popular during the years. Where the American products are popular for its high fashionably, the French products are popular for its allure and luxury.

(35)

35 |

4.6. Quality judgement of cosmetic products by Chinese consumers

In terms of COO effect, academics have found significant impact of perceived quality and risk of cosmetic products by Chinese consumers. According to Siu and Wong (2002), Chinese consumers perceive safety of local products drastically lower in comparison to products from Japan and the USA. By introducing a high level of product sophistication to the market in the early 1990s, foreign firms have gained consumers’ trust and China’s consumer class has learned to expect high quality from foreign products. The success of foreign cosmetics and toiletries stems in part from the belief that foreign products are safer than domestic ones. Foreign brands are assumed to comply with international health standards. Local media regularly report horror stories of the damaging effects of untested and fake cosmetics. According to the local newspaper “Guanzhou Daily” 200,000 people nationwide were victims of untested, mostly fake cosmetic products in 1999. Counterfeisance is a serious threat to the local industry. While sales of fake products have cut the revenues of both domestic and foreign manufactures in China, they have also led to consumers’ distrust of local brands, encouraging the purchase of foreign ones (Business China, 2001).

4.6.1. Hypotheses on quality perception and willingness to buy domestic cosmetics

In order to the findings in the literature on the comparison of the quality perception of domestic and foreign products, it should be expected that Chinese consumers are expected to be negative about the quality of domestic products. This negative perception is mainly caused by the perceived low safety. When it comes to the quality perception of foreign products, Chinese consumers are expected to be positive. This means that foreign products are perceived of higher quality then Chinese cosmetics. According to these findings the following hypotheses can be formulated:

H2a: Chinese consumers are negative on the quality perception of Chinese cosmetics H2b: Chinese consumers are positive on the quality of foreign cosmetics

H2c: Foreign cosmetics are perceived of higher quality then Chinese cosmetics

It could be expected that there is a positive relation between quality perception of domestic products and WTB domestic, because Chinese consumers are not willing to buy Chinese cosmetics because of the low quality perception. In order to this relation the following hypotheses could be formulated.

H3: There is a positive relation between the quality perception of Chinese cosmetics and the WTB local cosmetics

It could be expected that there is a negative relation between the quality perception of foreign products and the WTB domestic cosmetics, because when Chinese consumers are positive on the quality of foreign products they are less willing to buy domestic, because they prefer foreign products. The following hypotheses can be formulated.

(36)

36 |

4.7. Symbolic value perception of cosmetic products by Chinese consumers

As described in chapter 3, conspicuous and inconspicuous products have a symbolic value for Chinese consumers. Using foreign cosmetics can be associated with modernity, luxury and novelty by Chinese consumers. Especially young consumers in the big cities of China are increasing interested in cosmetic trends (Business China, 2001). Within the hair care sector, the market for hair dye already has 200 brands competing. Hair dye previously targeted older consumers looking to get rid of grey hair, is becoming popular and more attractive to younger Chinese consumers who are dyeing their hair blond and brown. Because of the higher attraction of cosmetic products from foreign companies by Chinese consumers, beauty giants are battling to win the face of Chinese consumers with both modernity and tradition. In general, global cosmetic brands have a strong symbolic value. Most cosmetic firms also believe that the cachet of their brand lies in being foreign. They believe that is what Chinese consumers want, and therefore they specifically keep the foreign image by using western models and English commercials.

However the competition is fierce, foreign cosmetic companies seek other ways to compete with each other and with domestic firms. For example, because Chinese women equate beauty with a pale skin with fragile quality, the major global cosmetic companies have developed skin-care lines for the Asian market. Some of these global companies (for example P&G) have localised their campaigns by using Asian models. With this strategy they walk away from their global brand image to serve the Asian market. This localization of language, product attributes, advertising content, and product meanings can negatively affect the symbolic value of foreign products (Zhou and Hui, 2001). In this future this can lead to less interest in foreign brands by Chinese consumers, because they are not that special anymore.

Also the threat of counterfeisance is a problem for the symbolic value of foreign cosmetics. Because there is the opportunity to buy “fake” brands, the symbolic value of the “real” products decreases, and Chinese consumers are shivering to buy the expensive “real” brands.

(37)

37 |

4.7.1. Hypotheses on symbolic value perception and willingness to buy domestic cosmetics

Although the literature states that the symbolic value of foreign products has become lower, it should not be expected that the symbolic value has become negative. In the past foreign products were perceived of much higher symbolic value. Nowadays, the symbolic value of Chinese products has increased. It could be expected that the symbolic value of Chinese and foreign products has become similar. In order to these findings in the literature, the following hypotheses can be drawn.

H5a: Chinese consumers are positive on the symbolic value perception of Chinese cosmetics H5b: Chinese consumers are positive on the symbolic value perception of foreign cosmetics H5c: The symbolic value of Chinese cosmetics is similar to the symbolic value of foreign products.

In order to the findings on the symbolic value perception of Chinese cosmetics, Chinese consumers are expected to be positive, which is mainly caused by the creation of strong local brands. It could be expected that there is a positive relation between the symbolic value perception of Chinese cosmetics and the WTB domestic, because Chinese consumers are more willing to buy domestic when the symbolic value of domestic products is high. The following hypotheses could be formulated. H6: There is a positive relationship between the symbolic value perception of Chinese cosmetics and the WTB domestic

When it comes to the symbolic value perception of foreign products, Chinese consumers are expected to less positive, because of the localization of brands and counterfeisance, which makes foreign products less “special’. One could expect there is a negative relation between the symbolic value perception of foreign products and the WTB domestic cosmetics, because when Chinese consumers are negative on the symbolic value perception of foreign products they are more willing to buy foreign products then domestic ones. The following hypotheses can be formulated.