Country of origin from a management perspective of emerging market companies

Since the 1960s, researchers dealing with the problem of international marketing have drawn attention to the phenomenon of the country of origin (COO) effect [Schooler, 1965; Nagashima, 1970], which arises on the rational, affective, or normative base and is transferred to the attitudes toward companies, products, or brands originating from a given country [e.g., Josiassen and Assaf, 2010]. The COO was initially understood as the country of manufacturing (COM) [e.g., Nagashima, 1970; Nagashima, 1977]. Many authors have criticized it as a too narrow construct and have called for the conceptualization of the COO as a multidimensional construct [e.g., Chao, 1993; Papadopoulos and Heslop, 1993], considering other dimensions such as country of assembly (COA), country of design (COD), country of parts (COP), country of corporate ownership (COCO) [e.g., Insch and McBride, 2004], and country of brand origin (COBO) [e.g., Takor and Kohli, 1996; Phau and Prendergast, 2000].

The papers on the COO and its dimensions have been predominantly based on the consumer-oriented studies focused on the consumers’ evaluations of products/brands with a foreign origin and the consumers’ perception of domestic vs foreign products/brands [e.g., Steenkamp et al., 2003]. Researchers underline the impact of the perception of the COO on the brand equity, including on the brand awareness [Yasin et al., 2007; Sanyal and Datta, 2011], the brand image [e.g., Zdravkovic, 2013], the brand loyalty [Yasin, et al., 2007], and on the brand strength [Sanyal and Datta, 2011], and the purchase intentions [e.g., Hamin et al., 2014; Garrett et al., 2017]. Scholars postulate the continuation of the studies on this phenomenon and the adoption of a strategic/management perspective [Beverland and Lindgreen, 2002; Brodie and Benson-Rea, 2016; Hynes et al., 2014].

Moreover, in view of the unequivocal results of the previous studies, a few authors state that the issue of the COO effect is no longer relevant in the context of global supply chains [Usunier, 2006] and that consumers do not know the country of product/brand origin [Samiee et al., 2005]. In the recent decades, significant changes have been taking place in the global economy, including location of production in different countries, often in emerging markets, outsourcing of manufacturing final products, components or parts to foreign suppliers, and intensification of international trade. As a result, the production of many goods is often involved more than one country, and it is increasingly difficult to identify COO clearly.

Due to the progressive process of internationalization of companies from emerging markets [e.g., Erdoğmuş et al., 2010; Witek-Hajduk, 2010; Daszkiewicz and Wach, 2013; Chailan and Ille, 2015], authors stipulate the necessity to explore international marketing strategies applied by the companies from emerging economies [e.g., Teagarden, 2008; Fastoso and Whitelock, 2010]. Scholars underline that companies from the emerging markets often face the challenge of confronting the negative stereotypes [Russell and Russell, 2010] that may adversely affect consumers’ perception of their products and brands [Park et al., 1986; Strebinger, 2004; Magnusson et al., 2011]. Brands and products from emerging markets are often perceived by foreign consumers as being of lower quality and not meeting international standards [Zhang et al., 2010], which may limit consumer confidence in these brands and tendency to pay higher prices for them [Magnusson et al., 2008]. The response to these challenges may be the application of strategies that take into account the COOs impact on the perception of the products and brands, as well as on the customers purchasing decisions [e.g., Herstein et al., 2014; Chailan and Ille, 2015].

One of the industries in which the above-described processes take place is household appliances. In 2017, the global household appliances market was worth around 501,532 million USD, and is projected to reach 767,451 million USD in 2025 [AMR, 2018]. Enterprises from emerging markets (e.g., China, South Korea, Poland, Turkey, etc.) have a growing share in the home appliances market, including their production [e.g., Euromonitor International, 2016; Applia, 2018]. Apart from well-known brands from developed countries, brands that are owned by emerging market companies, and brands licensed by these entities have a growing share in the global home appliances market. According to Statista [2019], in 2019, Midea Group (China) with sales that amounted to 39,8 billion USD, and Gree Electric Appliances (China, 28,5 billion USD), Qingdao Haier (China, 26,8 billion USD), Whirlpool (USA, 21 billion USD), Electrolux Group (Sweden, 14,3 billion USD), LG (South Korea, 9,7 billion USD), and SEB SA (8 billion USD) were the largest global household appliances manufacturers. In turn, in 2018, the share of household appliances companies in terms of the value of sales on the Polish market amounted to: Samsung – 18.4%, Bosh – 16.1%, Beko (Arçelik) – 13.0%, Amica – 12.0%, Electrolux – 11.7%, Whirlpool – 6.9%, LG – 4.2%, Siemens – 3.2%, and Indesit – 3.0% [Rzeczpospolita, 2018]. According to studies, the COO and its dimensions significantly influence purchase decisions of household appliances [Diamantopoulos et al., 2011; Stadelmann and Schubert, 2018].

In view of the growing importance of enterprises and brands from emerging markets and few publications on the COO taking the perspective of managers of companies from these countries, the authors decided to answer the following research questions: (1) What is the understanding of the COO construct from the perspective of managers of emerging market companies? and (2) What is the perceived strategic importance of COO and its dimensions from a management perspective?

This paper is organized as follows. First, the literature pertinent to the phenomenon of the COO and its dimensions are summarized. Next, the research method is outlined to be followed by a presentation of the study findings. The paper concludes with a discussion of the outcomes, limitations, and suggestions for further studies.

From the 1960s, numerous publications on international marketing point to the phenomenon of the COO effect [e.g., Schooler, 1965; Nagashima, 1970]. Based on the literature review, Aichner [2014] emphasizes that COO “is the most researched international aspect of consumer behaviour” [Tan and Farley, 1987], “the most widely researched phenomenon in international literature on business, marketing and consumer behaviour” [Peterson and Jolibert, 1995], and is “one of the most important phenomena affecting product ratings” [Kumara and Canhua, 2010].

COO effect means the impact of the perception and assessment of the country on the perception and assessment of products, brands, and businesses derived from it, which may translate into customers’ purchasing behavior [e.g., Tan and Farley, 1987; Peterson and Jolibert, 1995; Verlegh and Steenkamp, 1999] and attitudes toward companies, products, or brands coming from this country [e.g., Verlegh and Steenkamp, 1999; Sikora, 2008, 2007; Fastoso and Whitelock, 2010; Josiassen and Assaf, 2010; Kuźmińska-Haberla, 2013; Rashid et al., 2016].

The forerunner of research on this issue was Schooler [1965], who was the first to confirm the occurrence of this phenomenon and consumer perception of products through the prism of the label “made in” [Schooler and Sunoo, 1969]. According to, for example, Dinnie [2004] and Josiassen and Assaf [2010], in many early publications, the term “county of origin” is understood as one-dimensional – the country in which the product is made [e.g., Nagashima, 1970; Nagashima, 1977]. Many scholars [e.g., Chao, 1993] criticize the original understanding of the COO as only the COM, and postulate its conceptualization as a multidimensional construct that includes a larger number of dimensions constituting it, such as: COA, COD, country of components/COP [e.g., Chao, 1993], and COCO [e.g., Thakor and Kohli, 1996]. Some authors underline that there are more and more so-called “hybrid products” that have affiliations with various countries, for instance with COP, COA [e.g., Ahmed et al., 2012]. Some scholars [e.g., Thakor and Kohli, 1996; Dinnie, 2004] postulate also the necessity of using the concept and researching the COBO or culture of brand origin rather than the country of product origin. Thakor and Lavack [2003] and Thakor and Kohli [1996] use the “brand origin” construct defined as place, region, country “to which the brand is perceived to belong.” In turn, Lim and O’Cass [2001] propose the term “culture of brand origin,” which they operationalize, among others, through the prism of the original culture behind the brand. Other researchers [e.g., Thakor and Kohli, 1996; Usunier, 2011; Brodie & Benson-Rea, 2016] postulate the “country/culture of the origin of the brand” constructs (COBO) that represent an integrated approach to the COO, and are defined as the place, the region, the COO of the brand, with which the brand is associated. Taking into account the above postulates, Jaffe and Nebenzahl [2006, p. 29] propose using the term “country of association” (COAS) defined as “a country with which the consumer associates certain products as their source, regardless of the place where the product is actually produced.” Also Roth and Diamantopoulos [2009] criticize the construct “COO” as too “narrow and misleading” and recommend using constructs referring to the image of the country, such as (1) country image [Roth and Romeo, 1992], (2) product-country image [Papadopoulos and Heslop, 1993], or (3) country-related product image [Nes and Bilkey, 1993].

The COO and its dimensions indicated in the literature are presented in Table 1.

Based on a literature review, Dinnie [2004] states that one of the key areas of research on the COO is the impact of its dimensions on shaping effective corporate strategies, including marketing ones. Firms represent different approaches to using COOs in their marketing strategies [Hynes et al., 2014]. In the case of positive associations attributed to the COO, companies can directly or indirectly communicate the origin of a product/brand to customers, counting on the ethnocentrism of local consumers or on positive stereotypes attributed to the country by foreign consumers [Aichner, 2014]. Companies from countries with a worse image, that is a problem often encountered by emerging markets’ firms, may hide the COO of their products/brands, suppress the impact of the COO effect or “borrow” a better image of another country, for example, using brand names that suggest the country of descent with the desired image [e.g., Kim, 2006; Sikora, 2007].

The COO effect depends on the specifics of products or the profile of consumers. The impact of COO in the case of low-involvement products is smaller when compared to high involvement products (more important) [e.g., Dinnie, 2004]. The COO is particularly important, for example, in the case of luxury goods by strengthening heritage or historical roots [Chailan, 2010]. According to Pecotich and Ward [2007], experts or well-informed consumers use the COO carefully or as a “limited aggregate construction” only if the information is compatible with the brand or with the level of functional quality, and, in turn, “consumers-novices” use the COO as a “halo effect,” regardless of brand and physical quality of the product.

Some scholars [e.g., Hynes et al., 2014] emphasize that still the majority of studies examining the relationship between the image of a country and product/brand strategies take on the consumer perspective, and there are few publications representing the management/strategic approach. According to Rashid et al. [2016], the authors of one of the few studies on the understanding and meaning of the COO from the management perspective, the COO is considered by informants from large-size fashion retailers and manufacturers in the United Kingdom as the multidimensional construct and the strategic imperative. It is manifested in a variety of ways depending inter alia on brand positioning, long-term strategic plans, expertise, and brand values. According to them, the COO has a significant impact on marketing activities and creating brand image in the fashion industry. Respondents, however, differ in the perceived importance of the individual dimensions of the COO: from the perspective of the retailers, the country of brand design is very important, and for the owners of the manufacturers’ brands – the COO of raw materials and the COM.

The understanding and importance of COO dimensions have not yet been sufficiently examined, in particular, from a strategic, managerial perspective. For this reason, to answer the research questions, a qualitative approach was applied [e.g., Denyer and Tranfield, 2006], using in-depth interviews with managers. Such an approach is justified and recommended when the issues to be examined are poorly recognized [Gummesson, 2000; Cassell et al., 2006], and it enables insight into managers’ opinions on the understanding and strategic importance of the COO and its dimensions for the companies from emerging markets, including Polish companies operating on the international market. Purposeful sampling recommended by many authors in qualitative studies [e.g., Saunders et al., 1997] was applied. Interviews were conducted with 11 managers representing 9 companies from the household appliances market, originating from the following emerging markets according to the Morgan Stanley Capital International (MSCI) typology [2018]⁽¹⁾: Poland, Turkey, South Korea, and Slovenia/China. We selected managers from companies selling household appliances in the foreign markets, also under the brands managed by these firms (trademark owners or licensees) (homogeneity). Companies differ in terms of the degree of their internationalization (number of the foreign markets, share of sales on foreign markets in total sales), the share of sales under their brands, the international sourcing strategy (in-house production vs outsourcing/offsourcing), the location of production facilities, where products are manufactured, the country of company/brand origin (heterogeneity) [Styśko-Kunkowska, 2014]. The studied companies were identified based on the information obtained from the APPLIA experts (association of employers of the household appliances industry) and industry reports. Overall, characteristics of the surveyed companies and respondents are presented in Table 2.

To ensure credibility, triangulation of methods and data was used. The primary method of obtaining data was individual, direct, and semi-structured in-depth interviews with 11 high-level managers of the surveyed companies/their branch offices in Poland, responsible for the strategies on the international market, including Central and Eastern Europe. The informants were assured anonymity. Semi-structured questionnaire included open questions recommended and often used as a research instrument in in-depth interviews, including in research on COO [Rashid et al., 2016]. All interviews were recorded. Each interview lasted about 1.5 h. The transcripts of recorded interviews were developed. To extend the scope and verification of data obtained through interviews, data from secondary sources (e.g., industry reports, companies websites, industry magazines) [Yin, 1994] were also obtained. Key issues and topics were identified using thematic content analysis. Categories in the study were determined on the basis of data obtained – “data driven coding” (inductive approach) [Pickard, 2007]. The analysis started with coding, line by line, to identify the topics, and then these themes were compared and contrasted, which made it possible to reduce the data, summarize them, and then identify the themes [e.g., Miles and Huberman, 1994].

The major findings of this study demonstrate that the COO is perceived by managers of companies from emerging markets operating on the household products’ market as a multidimensional construct. The study shows that generally the understanding of COO is consistent within the existing literature. Informants interpret the COO by indicating the dimensions of this construct already presented in the literature, such as the COM [e.g., Chao, 1998], COA [e.g., Tse and Lee, 1993], COP [e.g., Han and Terpstra, 1988], COD [e.g., Insch and McBride, 1998], COCO [e.g., Thakor and Kohli, 1996], and CuOBO/COBO [e.g., Lim and O’Cass, 2001]. Moreover, the informants indicate also new ways of understanding of the COO construct, such as (1) country of technology/innovation origin (COTO) (the country from which technology/innovations come, from which production processes were transferred), country of technical culture origin (COTCO) (the country from which the technical culture of production originates), (2) country of service network localization (COSNL) (the country where the repairs are made, including the warranty service, and where the spare parts are available), (3) COOCO (the country from which the organizational culture of a given company originates), and (4) COBL (the country perceived as the first one in which the brand was sold).

Managers of the household appliances companies originating from emerging markets differ in their perception of the importance of the COO dimensions. COO dimensions, such as the COM, COA, and COP, are recognized as the strategic imperatives primarily from the point of view of the international sourcing strategy, by informants from both companies that manufacture household appliances in their own factories and companies, whose business model assumes commissioning the production of a significant part of the offered products. The COM, COA, and COP are perceived strategically important for emerging markets’ firms because the location of production or supply from emerging markets gives benefits such as lower costs, while in the case of large household appliances, the low geographic distance from the country of production/assembly to the export market is also important due to the lowering of logistics costs. The informants stress also the importance of the COO in the meaning of the location of the service network due to the fact that it has an impact on the costs and quality of service, which is important for both distributors (including retailers) and consumers.

However, managers of companies from emerging markets differ in the assessment of the importance of the COM and COA as the strategic imperatives from a marketing perspective. They rather ignore the strategic importance of the COM/COA from this perspective, justifying that owners of well-known household appliances brands from highly developed countries also outsource the production of their branded equipment to manufacturers from emerging markets. The household appliances offered under different brands, both from developed and emerging countries, are often manufactured in the same factories localized inter alia in emerging markets, and individual factories usually have to meet certain quality standards. This is in line with the conclusions of Usunier [2006] that the issue of the COO effect is no longer relevant in the context of global supply chains. On the one hand, respondents argue that consumers are aware of the global supply chains, also in the household appliances’ market and they have easy access to such information, but on the other hand, consumers are often are not aware of the country of product origin [Samiee et al., 2005]. However, the informants from the companies ordering the majority of production in China stress the negative impact of the COM of the products ordered by the company on the image of their brand, as already underlined by, inter alia, Zhang et al. [2010]. The COP is generally of rather little strategic importance for emerging markets’ firms from a marketing perspective, as it is difficult for consumers to know where these components come from, although in the case of some household appliances, the COO of a key sub-assembly may have an impact on consumers’ perception of equipment quality [e.g., Al-Aali et al., 2015].

The results of the study indicate that managers of emerging markets’ firms differ in terms of the perceived strategic importance of the COBO from a marketing perspective. In particular, the managers of the large companies offering products branded with their own brand names or under licensed brands emphasize that the COBO is more important than the COM, COA, and COP due to a better perception of brands from highly developed markets by consumers compared to brands from emerging economies [e.g., Magnusson et al., 2008; Zhang et al., 2010]. However, managers notice the changes in the attitudes of young consumers toward brands originating from emerging markets. The results of the study confirm that the COBO is strategically more important in the case of exclusive household appliances and technologically advanced products, including large household appliances, and of lesser significance – in the case of products/brands positioned as economic [e.g., Dinnie, 2004].

In conclusion, the perceived importance of the COO ant its dimensions varies from a management perspective of companies from emerging markets. COM, COA, and COP are perceived as important strategic imperatives especially from a perspective of international sourcing strategy and less significant from a marketing strategy perspective especially for the owners of internationally recognized brands. There is no doubt that COBO is perceived as more important strategic imperative than COM, COA, and COP in the household appliances industry context. This qualitative approach contributes to the existing literature by developing a deeper understanding of the phenomena of the COO dimensions in a managerial/strategic context and from the perspective of companies from emerging markets, and complements a literature based predominantly on the quantitative consumer-oriented approach [e.g., Hamzaoui and Merunka, 2006; Josiassen and Assaf, 2010]. The paper also contributes toward literature on the internationalization of firms from emerging markets and international marketing in terms of how these firms associate the COM, COA, COP, and COBO as a strategic imperatives.

With regard to the recommendations for future research, it would be worthwhile to identify management approaches to the COO dimensions of managers of companies from both emerging and developed countries and representing various industries. Taking into account the results of this research, it would be also worthwhile to study the impact of the international brand strategy used in response to the COO effect on the brand and company performance on the foreign markets.