A Branding Strategy for Emerging Market Firms
Entering Developed Markets
Peter Magnusson
Sarah M. Haas
Hongzin Zhao
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ABSTRACT. Firms from emerging markets face several challenges when entering and trying to
compete in developed markets. One of these obstacles to success is the negative country of origin
effects that these firms face. By viewing the country of origin phenomenon through the lens of signaling
theory, we propose that firms can reduce the noise caused by the made in . . . label by adopting a branding
strategy that consumers connote with a positive country image. In an experiment focusing on brand
names from Hungary and Vietnam, we find that this strategy neutralizes noise caused by the country of
origin label and leads to favorable product evaluations.
KEYWORDS. Emerging markets, brand strategy, country of origin, signaling theory
Firms headquartered in emerging markets
face several challenges in their efforts to compete
in developed markets. A lack of international
experience and limited financial resources (Hussain and Jian, 1999) force these firms into
becoming low cost providers or equipment
manufacturers for large corporations situated
in the developed world. The result is that
their products are considered commodities and
competing on price, which tends to lead to
lower levels of performance (Brouthers and
Xu, 2002). An additional obstacle to emerging
market firms’ (EMFs) success in the developed
world is the negative stigma that consumers
in the developed world have toward products
made in emerging markets. Negative countryof-origin (COO) effects cause consumers to have
lower expectations of quality and thus, most are
not willing to pay as much for products from
emerging markets (e.g., Verlegh and Steenkamp,
1999; Peterson and Jolibert, 1995; Roth and
Romeo, 1992).
It is clear that EMFs face an uphill battle in
their efforts to compete in the developed world.
Nevertheless, firms and governments from
emerging markets are becoming increasingly
ambitious and set goals to develop their own differentiated brands with the ability to command a
premium price on international markets (Khermouch et al., 2003). To accomplish these goals,
researchers and firm managers alike are trying
to develop creative strategies to help offset some
of these potential negatives and turn developed
markets into profitable opportunities for EMFs.
For example, former competitors have joined
forces to pool their resources and jointly change
consumers’ negative perception of their products
in developed markets. Both South African and
Chilean wine growers (Tylee, 2002) have used
this strategy in order to improve their products’
Peter Magnusson, Sarah M. Haas and Hongzin Zhao are all affiliated with the Boeing Institute of
International Business, John Cook School of Business, Saint Louis University, Saint Louis, MO.
Address correspondence to Peter Magnusson, Boeing Institute of International Business, John Cook School
of Business, Saint Louis University, 3674 Lindell Blvd., Saint Louis, MO 63108. E-mail: zhaox@slu.edu
Journal of International Consumer Marketing, Vol. 20(3–4), 2008
Available online at http://jicm.haworthpress.com
C 2008 by The Haworth Press. All rights reserved.
doi: 10.1080/08961530802129490
95
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JOURNAL OF INTERNATIONAL CONSUMER MARKETING
image abroad. In Taiwan, the government spends
considerable amounts of time and money to raise
the perception of Taiwanese products around
the world (Amine et al., 2005). Brouthers and
his colleagues have spent substantial research
efforts exploring how EMFs can succeed in
developed markets (Brouthers and Xu, 2002;
Brouthers et al., 2005b). Recently, Brouthers
et al. (2005b) applied signaling theory to the
COO phenomenon and suggested that EMFs
can counteract the negative effects of COO
perceptions by acquiring familiar brand names
from developed markets. The brand’s equity
reduces the noise effect caused by the made
in . . . label which otherwise prevents consumers
from objectively evaluating the product. As a
result of this reduced interference, EMFs can
compete in developed markets on a more level
playing field (Brouthers et al., 2005b).
However, as we show in later sections, this
strategy faces its own limitations, and therefore,
in this paper we suggest and test an extension
to this strategy. We extend their use of signaling
theory to the COO literature and suggest that
emerging market firms can reduce the negative
effects of the made in . . . label by adopting
brand names that conjure positive images for
the consumer. This strategy has successfully
been used (more or less intentionally) by several
firms from developed countries. For example,
telecommunications giant Nokia, that today
most people know is a Finnish company, benefited early on thanks to its Japanese sounding
name and the positive connotations people drew
between Japan and high technology products, a
connection they would not have made between
Finland and high technology (Tausz, 2001).
For Nokia, this was a coincidental benefit.
However, the New York City-based founder
of Häagen-Dazs who started his ice cream
production in the 1920s realized the potential
of an international-sounding brand name. Today,
almost a century later, Häagen-Dazs ice cream is
still perceived as premium, imported ice cream
by many consumers. These are two examples of
companies who through their brand names were
able to allow a positive country image (although
not the image of the firm’s home country) spill
over and create positive brand equity. We suggest
that EMFs can, by effectively managing their
branding strategies, offset the negative effect
from their home countries’ perceived image, and
create a favorable COO image.
This study makes several contributions to the
literature: First, we advance and test a strategy
adopted by EMFs to help them compete in developed markets. This responds to calls for further
investigations of the strategic implications of
product-country image related marketing strategy (Papadopoulos and Heslop’s 2002), and
specifically whether brand equity can neutralize
COO information (Pharr, 2005). Second, we
add to the COO literature by extending the use
of signaling theory to the COO phenomenon.
Signaling theory is a recent theoretical advancement and one that deserves further empirical
exploration. Third, many “emerging markets”
studies have focused mainly on one country,
China. In this study, we extend the literature by
examining COO effects and the ability of firms to
negate it in the context of Hungary and Vietnam.
This is appropriate because they represent two
emerging markets in two different regions that
are taking on an increasingly important role in
the world economy.
The article is organized as follows: First, we
review the COO literature and the foundations
of signaling theory. Based on this review, we
develop a set of hypotheses regarding the effect of branding on product evaluations. Our
hypotheses are tested in an experimental setting,
focusing on Hungary and Vietnam as emerging
markets. We conclude by discussing the implications of our research and suggesting avenues
for future research.
THEORETICAL FRAMEWORK AND
HYPOTHESES
A Review of the Country-of-Origin
Phenomenon
Consumers make purchase decisions based
on informational cues that are available to them
either prior to the purchase or at the time of
purchase. These cues can be either intrinsic or
extrinsic. Intrinsic cues refer to the physical
make-up of the product, including flavor, color,
and texture. Extrinsic cues are external to the
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Magnusson, Haas and Zhao
product but related to it. These include price,
brand name, and country of origin. Each cue
provides the user with the basis for evaluating
a product (Liefeld, 1993). Due to the inherent
difficulties consumers have in gaining access to
intrinsic cues prior to purchasing, consumers are
forced to make product evaluations and purchase
decisions largely based on extrinsic cues (Huber
and McCann, 1982).
In international marketing, the COO cue
has become of great interest to both managers
and researchers. Dichter (1962) was the first
to suggest that a product’s COO can have a
“tremendous influence on the acceptance and
success of products” with the first empirical tests
conducted by Schooler in 1965. Since then, COO
and its potential effects have received a lot of
attention by researchers and it has been called
the most-researched issue in international buyer
behavior (Tan and Farley, 1987). Papadopoulos
and Heslop (2002) categorized over 750 major
publications on the topic in the past 40 years.
Although results sometimes have been contradictory, and there are some indications that COO
effects may not be as strong as first thought
(Samiee et al., 2005), there are some general
conclusions that can be drawn:
1. Country of origin does affect product
evaluations—The main general conclusion of COO research is that COO does
affect consumer perceptions of products
(Schooler, 1965; Bilkey and Nes, 1982;
Roth and Romeo, 1992; Peterson and
Jolibert, 1995; Verlegh and Steenkamp,
1999; Ahmed and d’Astous, 2003).
2. The effect of COO differs based on several
factors–Economic development has been
shown to be an important factor in COO
studies. There is a smaller COO effect
between products that are from developed
countries than there are in comparisons
between a more developed country and
a less developed country (Verlegh and
Steenkamp, 1999; Papadopoulos and Heslop, 2002).
3. Consumers develop pricing expectations
based on country images–Consumers not
only draw quality and attitude conclusions
based on a product’s COO but they also
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expect products from less developed countries to be priced lower than products from
more developed countries (Papadopoulos
and Heslop, 2002; Jo, 2005).
4. A country’s image can be changed but
it is a slow process–Papadopoulos and
Heslop (2002) recommend three strategies
for countries to help improve their image:
(1) A focused overall marketing plan is
needed; (2) penetration pricing and other
incentives can be useful to help overcome
initial resistance; (3) even with a good
marketing plan, it is still a slow process to
change a country’s image. Special events,
like the Olympics, can speed up this
process (Jaffe and Nebenzahl (1993).
In sum, it is evident that the made in . . . label
can have a potentially strong effect on a firm’s
ability to succeed in international markets.
Particularly worrisome for firms from emerging markets are that COO effects tend to be
especially adverse against firms from emerging
markets. Despite a country’s government’s and
firms’ efforts to shed this negative perception, it
can be a long and sometimes near-impossible
challenge to overcome this negative effect.
Therefore, EMFs can benefit from developing
strategies that reduce COO effects. Signaling
theory can help us understand how COO effects
work and what firms can do to lessen the
destructive effect.
Country of Origin Effects and Signaling
Theory
Brouthers et al. (2005b) introduced signaling theory to the COO literature. Signaling
theory is founded on the assumption that in
information transactions, there are information
asymmetries (Spence, 1973; Rao et al., 1999;
Kirmani and Rao, 2000). For example, EMFs
possess valuable information about their product
such as its “real” quality or value for money,
but consumers are unable/unwilling to gain
access to this information. Therefore, firms
must try to reduce this information asymmetry.
When consumers in developed markets evaluate
products from emerging markets, there are two
signals (product cues) that are, for our purposes,
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relevant. The first one is the made in . . . label
and the second one is the firm’s brand name.
However, according to the premises of signaling
theory it is only the brand name that is a valid
signal, the COO information is NOT. For a signal
to be valid, for information to be accepted as true,
the signal must have a cost to the sender if the
information is untrue (Rao et al., 1999; Kirmani
and Rao, 2000; Barone et al., 2005). A firm can
guarantee its signal through product warranties
or loss of brand equity (Erdem and Swait, 1998).
“If quality turns out to be lower than claimed, the
firm forfeits money in the case of a guarantee or
loss of brand equity in the case of a brand name”
(Brouthers et al., 2005b).
Based on this logic, the COO information is
not a valid signal because it lacks a bonding
component. Rather, the COO information serves
the function of noise in the system interfering
with the firm’s attempts at signaling to its
customers (Brouthers et al., 2005b). Although
one could argue that country equity is at risk
if firms send false signals, consumers can easily
retaliate against a firm’s false signal (e.g., refrain
from purchasing their products, take advantage
of warranty programs), while it is much more
difficult to retaliate against a COO cue (Bhattacharya, 1980; Rao et al., 1999).
Based on the application of signaling theory to the COO phenomenon, EMFs can
boost the brand’s signal and reduce the noise
from the COO cue by developing a marketing/manufacturing agreement with a familiar
brand or acquiring a familiar brand and using
it to pursue a branding strategy (Brouthers et
al., 2005b). The idea is that consumers like
well-known brands, it reduces their search costs
(Keller, 2003) and they believe that a company
that invests in a brand is likely to be willing
to protect its brand equity investment (Kirmani
and Rao, 2000; Barone et al., 2005). In an
experimental setting, Brouthers et al. (2005b)
evidenced that EMFs acquiring familiar brands
improve their perceived quality.
However, Brouthers et al. (2005b) fail to mention some potential limitations to their suggested
strategy. First, China’s Lenovo is heralded as a
successful example of a firm able to acquire an
established brand, IBM. However, most EMFs
suffer from a scarcity of financial resources and
are unable to afford the $1.75 Billion that Lenovo
had to pay IBM to get naming rights for five
years (Roberts et al., 2004). Second, IBM had
fallen behind in the PC race and lost some of
its brand equity. This presents another potential
problem for EMFs attempting to acquire familiar
brands. If the brand name is for sale, it is likely
that the brand has fallen on hard times and in
effect the EMF may overpay for the right to
use a formerly popular, but currently struggling
brand name.
Instead, we suggest an alternate strategy. We
suggest that EMFs can neutralize negative COO
effects by creating brand names that conjure
a positive country image in the minds of the
customer. This type of branding strategy has
long been popular among firms from developed
countries. Omaha-based ConAgra Food’s Swiss
Miss hot chocolate attempts to benefit from consumers’ favorable perception of Swiss chocolate, and Florida-based Outback Steakhouse
differentiates itself from the numerous other
steakhouses in the U.S. market by adding an
exotic Australian atmosphere. These examples
indicate that using a branding strategy that makes
consumers perceive the product as being from
a different country and taking advantage of
that country’s positive country equity can be a
successful strategy.
Experiments have shown that foreign branding can have strong effects on the perception
of products. Leclerc et al. (1994) show that
perceptions of hedonism and utilitarianism vary
significantly depending on whether the brand
name has French or English spelling. Additionally, they find that the brand name has a stronger
impact on product perceptions, which is an
indication that the COO cue only serves as noise
in the product evaluation process, and is not a
valid signal, although the perception of products
whose brand name and made in . . . label are
congruent is even more effective. Ozretic-Dosen
et al. (2007) also find that the brand cue is a more
important factor than the COO cue for Croatian
consumers.
Based on the above examples, the theoretical
advancements in applying signaling theory to the
COO phenomenon, and prior research on the use
of foreign branding, we suggest that emerging
market firms can improve the perception of
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Magnusson, Haas and Zhao
their product by selecting a brand name that
conjures up positive images in the minds of
their customers. This presents two potential
strategies. Firms can either choose to select a
branding strategy which consumers associate
with the home market or it can select a branding
strategy associated with the global champion
for that product. Prior COO research has found
that consumers are likely to perceive domestic
products as superior (Batra et al., 2000), especially highly ethnocentric consumers (Shimp
and Sharma, 1987; Samiee et al., 2005). From
a mimetic isomorphism perspective, Brouthers
et al. (2005a) show favorable performance for
EMFs that imitate the strategy of the firms in the
developed host market.
On the other hand, Roth and Romeo (1992)
found that whereas Japan has a highly favorable
image for autos, its image for leather and
crystal is much lower. Porter’s (1990) diamond
of national competitive advantage shows how
different countries develop competitive advantages in different industries. French wine and
perfume are considered global leaders. German cars, Swiss watches, Japanese electronics,
American computer software, Belgian chocolate, Irish stout, Portuguese port wine, Italian
leather products, and so on are also considered
global champions in their respective industries.
Thus, EMFs may also benefit from creating
favorable associations with the global champion.
Following these arguments, we propose the
following hypotheses:
Hypothesis 1: A product made in an
emerging market that bears a brand name
associated with the consumer’s home market will have a more positive evaluation
than a product made in an emerging market
that bears a brand name associated with the
emerging market.
Hypothesis 2: A product made in an
emerging market that bears a brand name
associated with the global leader will have
a more positive evaluation than a product
made in an emerging market that bears a
brand name associated with the emerging
market.
Hypothesis 3: A product made in a global
leader market that bears a brand name
99
associated with the global leader will have
a more positive evaluation than any other
brand name/made in . . . combination.
METHODS
Experimental Design
Our hypotheses were tested in an experimental setting designed to measure subjects’
responses to manipulations of COO associations
with branding strategies. Based on the previous
COO literature, we chose to examine two wellknown and relatively generic products: watches
and leather briefcases (Roth and Romeo, 1992).
Switzerland has a superior country image for
watches and Italy has a superior country image
for leather briefcases (Porter, 1990), so these
countries along with the home market, USA,
were used as control countries and for the
creation of brand associations. As the focal
emerging markets, we selected Hungary and
Vietnam. Hungary was selected as a representative of the increasingly important Eastern
European countries, and Vietnam represents the
emerging economies in Southeast Asia.
Our study employed four different ANOVAs
based on the two different product types and the
two different emerging markets. The baseline
value in each test is the emerging market product
with a matching brand name. This baseline group
in each ANOVA is compared with four other
groups. The first two groups also represented
products made in the emerging markets but with
brand names from either the host country (USA)
or brand names with a positive country image
(Switzerland for watches, and Italy for leather
briefcases). The last two groups represented
products made in the USA with a U.S. brand
name or Made in Switzerland (Italy) with a
Swiss (Italian) brand name. The experiment was
designed to measure differences in consumers’
responses of the perceived quality of watches
and leather briefcases depending on the combination of made in . . . and brand name.
Pretests
We selected the focal emerging markets
and products based on prior COO literature.
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JOURNAL OF INTERNATIONAL CONSUMER MARKETING
However, a pretest was needed to determine
the brand names for each product and country
combination. To test the hypotheses it was
necessary to create brand names that would
cause the consumer to make inferences about
the origin of the product. To accomplish this,
we first examined real brand names from all of
the markets of interest. Second, a list of potential
brand names were created for Hungary, Vietnam,
Switzerland, Italy, and the USA by modifying
existing brand names and by using translation
programs to generate five to six fictitious brand
names for each country. Subsequently, twentyfour subjects, similar to the ones who participated in the actual experiment, were asked to
evaluate the list of brand names and identify the
origin of each brand name. Based on the pretest,
we confirmed that the brand names connoted
images of the intended country. Furthermore,
we selected brand names that scored neutral
on a seven point scale on likeability for further
experimental analysis. The brand names selected
for inclusion in the study and the ads are listed
in the Appendix.
Sample, Instrument, and Measurement
All respondents were students in the business
school at a Midwest university. The survey was
administered as part of a larger data collection
effort during class sessions. Each student was
exposed to one watch ad and one leather ad,
and several additional ads which were used for
different research purposes but served as control
ads in this study. The complete survey was
administered to 237 subjects. Due to non-variant
answers throughout the survey or blank pages,
the number of usable observations for this study
was reduced to 413 with a per group n ranging
from a low of 21 respondents to a maximum of
32 respondents.
Advertisements were created that were in the
format of a magazine ad. Each ad consisted of a
picture of the product and a small slogan for the
product (Figure 1). The slogan was included to
limit COO bias that can sometimes be generated
due to a lack of available product cues (Bilkey
and Nes, 1982; Verlegh and Steenkamp, 1999).
Additionally, each product had a brand name
FIGURE 1. Example of Ads (Reduced Size)
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Magnusson, Haas and Zhao
and made in . . . information. The advertisements
were printed on paper and the subjects were
asked to observe the ad and then answer a series
of questions about the product. We recognize
that it is well accepted that attitude toward the
ad has a strong influence on the attitude toward
the brand (MacKenzie et al., 1986; Gresham
and Shimp, 1985). We controlled for this effect
by using the same ad for all groups and only
manipulating the made in label and brand name.
Perceived quality was used as the dependent
variable. Respondents were asked to indicate on
a seven point semantic differential scale how
attractive, well made, durable, and satisfying the
product was (Brouthers at al. 2005b). Reliability
analysis showed a Cronbach’s Alpha of.91, well
above the suggested .70 cutoff (Nunnally, 1978).
Based on this, and its frequent use in previous
research, the four items were averaged to create
a single dependent variable.
ANALYSIS AND RESULTS
We used four separate ANOVAs to test our
hypotheses. Planned contrasts were used to
test for differences between the groups. The
first two hypotheses proposed that products
from emerging markets that employ a foreign
branding strategy associating their product with
either (1) the consumer’s home market or (2)
the global leader will be perceived superior to
products from emerging markets that employ a
domestic branding strategy. The third hypothesis
suggests that products from a country with a
superior country image and an associated brand
name will be perceived better than all other
brands.
Vietnam and Watches
The first test supports all hypothesized relationships. The overall ANOVA is significant and
the group means are in the expected direction.
Significance tests show the Vietnamese brand
name/Made in Vietnam combination’s perceived
quality is significantly lower than the other
groups. Similarly, the congruent Swiss combination was perceived significantly higher than
all of the other groups. There are no significant
101
differences between the Swiss or U.S. brand
names that were made in Vietnam and the U.S.
brand/Made in the U.S. combination.
Vietnam and Leather Briefcases
The second test also supports the hypothesized relationships. Again, the Vietnamese brand/Made in Vietnam combination
is perceived significantly inferior to all other
brand/made in . . . combinations (Table 1). Likewise, the Italian brand/Made in Italy combination was perceived superior to all other groups.
There are no significant differences between the
U.S. or Italian brand names that were made in
Vietnam and the U.S. brand name/Made in the
U.S. combination (Table 2).
Hungary and Watches
Whereas the experiments with Vietnam as the
focal emerging market received strong support
for the hypotheses, the results for Hungary are
less convincing. The ANOVA with Hungary
and watches was only significant at the p < .1
level. In terms of differences between groups, the
Swiss brand/Made in Switzerland was perceived
higher than three of the other groups, which
lends partial support to the third hypothesis. The
Hungarian brand/Made in Hungary combination
was perceived better than any combination that
involved the U.S. brand name, contrary to what
was hypothesized (Table 3).
Hungary and Leather Briefcases
The results for Hungary and leather briefcases
were in the expected direction. Our follow-up
test shows that the Hungarian brand name/Made
in Hungary combination’s perceived quality was
significantly weaker than for two of the other
groups. The Italian brand name/Made in Italy
combination was perceived superior to three of
the other groups. Again, no significant differences were found between the U.S. and Italian
brand names that were made in Hungary and
the U.S. brand/Made in the U.S. combination.
Overall, in this experiment we find support
for hypotheses 1 and 3, but no support for
hypothesis 2 (Table 4).
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TABLE 1. Vietnam and Watches
Between Groups
Within Groups
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Made in/Brand
Name Pair
Mean
S.D.
N
Mean Sq. (d.f.)
F
Sig.
6.79 (4)
1.20(122)
5.65
.000
1
2
3
Made in Vietnam/
Vietnamese Brand Name
Made in Vietnam/
US Brand Name
Made in Vietnam/
Swiss Brand
4.43
1.25
25
4.27
1.06
25
3.82a,b
0.89
28
4
Made in US/US
Brand Name
4.44
1.11
22
5
Made in
Switzerland/
Swiss Brand
5.20c
1.14
27
Note. a significantly lower than Group 3, p <.1.
b
significantly lower than all other groups, p <.05.
c
significantly higher than all groups, p <.05.
TABLE 2. Vietnam and Leather Briefcases
Between Groups
Within Groups
Made in /Brand
Name Pair
Mean
S.D.
N
Mean Sq. (d.f.)
F
Sig.
12.29 (4)
1.61 (121)
7.65
.000
1
2
3
Made in Vietnam/
Vietnamese Brand Name
Made in Vietnam/
US Brand
Made in Vietnam/
Italian Brand
4.04a,b
1.38
32
4.46
1.40
24
4.42
1.38
24
4
Made in US/US
Brand Name
5
Made in Italy/
Italian Brand
Name
5.00
1.25
21
5.72c
0.87
27
4
5
Note. a significantly lower than Groups 2 and 3, p <.1.
b
significantly lower than 4 and 5, p <.01.
c
significantly higher than all groups, p <.05.
TABLE 3. Hungary and Watches
Between Groups
Within Groups
Made in/Brand
Name Pair
Mean
S.D.
N
Mean Sq. (d.f.)
F
Sig.
3.03 (4)
1.33 (122)
2.29
.06
1
2
3
Made in Hungary/
US Brand Name
Made in Hungary/
Swiss Brand
Name
4.38
1.08
30
4.84
1.28
21
Made in Hungary/
Hungarian Brand Name
4.62
1.16
27
Note. a significantly higher than Groups 1, 2, and 4, p <.05.
Made in US/US
Brand Name
4.44
1.11
22
Made in
Switzerland/
Swiss Brand
Name
5.20a
1.14
27
Magnusson, Haas and Zhao
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TABLE 4. Hungary and Leather Briefcases
Between Groups
Within Groups
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Made in/ Brand
Name Pair
Mean
S.D.
N
Mean Sq. (d.f.)
F
Sig.
3.43 (4)
1.32 (126)
2.60
.04
1
2
3
Made in Hungary/
US Brand Name
Made in Hungary/
Italian Brand
Name
5.44
1.08
29
5.06
1.11
28
Made in Hungary/
Hungarian Brand Name
4.83a
1.39
26
4
Made in US/US
Brand Name
5.00
1.25
21
5
Made in Italy/
Italian Brand
Name
5.72b
0.87
27
Note. a significantly lower than Groups 2 and 5, p <.05.
b
significantly higher than 1, 3, and 4, p <.05.
DISCUSSION
In this study, we propose and find evidence
that EMFs can benefit from choosing a branding
strategy where they adopt a brand name that connotes a more positive country image than their
home country. Following the logic of signaling
theory, the COO label can be considered noise
in the product evaluation process since it lacks
a necessary bonding component (Brouthers et
al., 2005b; Kirmani and Rao, 2000; Rao et al.,
1999). The made in . . . label distracts the consumer from objectively evaluating the product’s
quality. However, based on our experiments, it
appears as if firms can reduce the negative noise
distraction from the COO and boost their brand’s
signal to its consumers by employing brand
names that connote a positive country image.
Positive associations can be made either with
the host country, in this case the U.S., or a favorable country for that specific product. Previous
findings from the COO literature are supported
in our third hypothesis. In all experiments, the
global champions were perceived superior to the
other groups.
In hypothesis 1, we proposed that EMFs could
benefit from adopting a host country brand name.
In hypothesis 2, we proposed that EMFs could
benefit from adopting a global champion brand
name. Based on our experiments, we cannot
conclusively determine whether there is more
support for one of these strategies over the
other. Although the differences did not reach
statistical significance, the domestic branding
strategy was perceived slightly higher than the
global champion strategy in three of the four
experiments. This is possibly an initial indication
that EMFs can improve their perception more
by adopting this strategy. This is consistent with
prior research which has shown that imitating
host country strategies leads to above average
performance (Brouthers et al., 2005a). However,
this immediately raises the question of whether
firms need to develop domestic-sounding brand
names for each new market they attempt to enter.
This may be prohibitively cost-inefficient and
across several markets it may be wiser to adopt
a global champion branding strategy. Additional
research is needed in this area to determine these
effects across several markets.
Although we found general support for our
hypotheses for both Hungary and Vietnam, the
results were much stronger for Vietnam. It may
be that economic development is the moderating
factor that caused these divergent results. Since
the collapse of the Soviet bloc, Hungary has
taken quick strides toward a market economy.
GDP/Capita has reached $15,000, Hungary’s
total exports exceed $60 Billion, and in 2004
Hungary gained membership in the EU. On
the other hand, Vietnam has been much slower
integrating into the global economy. GDP/Capita
is still only around $3,000 and despite a
population of over 80 Million, compared with
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JOURNAL OF INTERNATIONAL CONSUMER MARKETING
10 Million in Hungary; total exports from Vietnam are just over $30 Billion annually, or about
half of Hungary’s. It is possible that Hungary’s
more developed economy and EU membership
can explain why the negative COO effects were
much stronger for Vietnam. This finding may
also be exaggerated by the location of the
subjects. Midwest consumers/students may be
more familiar and comfortable with European
emerging markets compared with their Asian
counterparts. This may also be compounded
by the relatively recent Vietnam War. Although
none of the respondents in our experiment were
alive at that time, there may still be some residual
animosity toward Vietnam.
Managerial Implications
Our study has direct implications for managers of firms from emerging markets trying to
enter developed markets. The empirical results
show that EMFs can raise their product’s perceived quality by adopting a brand name that
conjures a positive country image. Currently, one
of the primary goals of governments and firms
from emerging market is to be able to gradually
move away from being only manufacturing
centers to developing their own premium brands
(Khermouch et al., 2003). Developing strong
brand equity is a difficult and expensive task
for firms that do not suffer from the additional
burden of a negative country image. For EMFs, it
can be an almost insurmountable task. However,
if EMFs develop brands that invoke a positive
country image, we have provided initial evidence
that EMFs can reduce the negative associations
caused by their negative country image and
increase product evaluations.
This study has also provided further evidence
that COO labels serve as noise in the product
evaluation process. EMFs are not necessarily
destined to compete on low price, due to negative
COO effects. Rather, the COO label serves as
interference to the brand signal, but that firm
strategies, such as the branding strategy suggested here, can reduce this signal interference.
This is consistent with previous research, which
has shown that brand cues supersedes COO cues,
as suggested by signaling theory (Ozretic-Dosen
et al., 2007; Pharr, 2005)
One can question whether it is a good strategy
to “deceive” your customers of the true origin of
your product? However, this might be a crucial
first step that allows the EMF to establish a
foothold in the developed market. Over time,
it might be wise to gradually introduce the
firm’s products under the firm’s original brand
name. This strategy has been seen recently with
Lenovo computers. At first, they promoted the
IBM brand name and gave very little airtime
to the Lenovo name. However, over time, in
more recent advertisements the Lenovo brand
is increasingly taking on a more prominent
role and the IBM name is slowly marginalized.
Since Lenovo is now building its own brand
equity, was acquiring the IBM name a necessary
investment? Or, was the acquisition of the IBM
brand a crucial first step that allowed Lenovo
to gain a foothold in developed markets as
a brand provider and not just an equipment
manufacturer?
A similar evolution can be imagined for firms
adopting the branding strategy suggested in this
article. Entering a developed market with a brand
name associated with a positive country image
allows the firm to gain a vital foothold in the
foreign market. Over time, the brand equity can
be transferred over to the original brand name, as
in the Lenovo case. However, we must caution
that just like it may not be feasible for smaller
EMFs to purchase an established brand name
like IBM, further empirical tests are needed to
test the generalizability of this strategy. It is clear
that this study has raised several new questions
requiring further exploration.
CONCLUSION
This study is subject to a few limitations
that need to be taken into account. First of all,
it is an experiment, and as such the question
of its external validity and application in a
business environment is always at hand. Second,
as “consumers,” we used a student sample. The
use of student samples can always be criticized
for not being representative of the general population. However, in regards to COO research,
the average college student is younger and better
educated than the average consumer. This is
expected to reduce the effect of COO labeling. In
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Magnusson, Haas and Zhao
Verlegh and Steenkamp’s (1999) meta-analysis
of COO effects, they show that there are no differences in effect sizes between student samples
and representative samples. Therefore, it is not
expected that using a student sample biased our
results and it may even have created a more
stringent test environment. Future extensions
of this study may also consider incorporating
additional variables. There may be interactions
between the degree of product involvement and
the ability of brand name to negate COO effects.
This and other potential interactions could be
investigated in future research.
In sum, this study has proposed and tested
that emerging market firms can reduce the
negative effects on product evaluations caused
by their country of origin by entering developed
markets with a brand name that connotes a
positive country image to the consumers. This
is an important extension of the literature since
we provide an additional strategy available to
EMFs that are struggling to enter developed
markets. We also provide evidence that signaling
theory can be applied to the COO phenomenon.
We show that the COO cue serves as noise
that is interfering with the firm’s ability to
communicate with its customers. When firms
employ the branding strategies suggested here,
the amount of noise can be reduced and product
evaluations improve.
We conclude by cautioning that despite the
encouraging results from the experiment, we
do not suggest that the strategy put forward
here should be pursued by all firms or that
all firms would be successful employing this
strategy. There are several factors that deserve
consideration in firms’ branding decisions and
their ability to successfully enter developed
markets. This strategy is one of several potential
strategies available for EMFs and much
additional research is needed to replicate our
findings in additional markets and to explore
whether the findings from this experiment
translate into actual purchase behavior.
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SUBMITTED: April 2006
FIRST REVISION: January 2007
SECOND REVISION: March 2007
ACCEPTED: June 2007
Magnusson, Haas and Zhao
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APPENDIX 1. Dependent Variable
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Perceived Quality Scale (Alpha = 0.91)
Unattractive
Not Well Made
Inferior
Unsatisfying
1
1
1
1
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
6
6
6
6
7
7
7
7
APPENDIX 2. Brand Names
Leather
Watches
Hungary
Minoseg
Karora
Vietnam
Thon Ni
Nha Trang
USA
Uptown
Elevate
Switzerland
Moritz
Italy
La Pelle
Attractive
Well Made
Superior
Satisfying