Oxstones Investment Club™The purpose of this article is to communicate about necessity of the national governments to contribute to advancement of economic standing of their countries by participating in enhancement of a country-of-origin effect (COE). Support to the COE works as one of the areas where the government structures can assist in creation and maintenance of a business-supportive environment.
Various goods can be shipped across borders and delivered to the end users. Sometimes end users may develop certain perceptions and conclusions about the same type of products and services coming from the same country. According to C. Min Han, the COE may be explained in the following way: “when consumers are not familiar with a country’s products, [the image of such a country of origin] may serve as a halo from which consumers infer a brand’s product attributes and which affects [the consumers’] attitude toward the brand indirectly through product attribute rating” (1989: 221). Extending Han’s thought, it may be added that the positive COE even strengthens when the consumers become pleasantly familiar and satisfied with the country’ products.
Origination of an effective positive COE is extremely important for emerging and pre-emerging markets. For such markets every positive opportunity needs to be utilized.
The government structures should not install excessive control over private enterprises. In particular, normally the government structures do not need to take over the control of over the COE image. Historically, private enterprises already contributed a lot to the promotion of COE. Examples include, but are not limited to Argentinian coffee, Belgian chocolate, Swedish cars, Iranian carpets, and Japanese electronics. Certainly, the private sector should keep its current role in the orchestration and maintenance of the COE in relation to various industries.
Nevertheless, the COE can benefit even further from participation of other supportive stakeholders. The government, as a stakeholder, is interested in creation of supportive business environment in cooperation with corporate structures of producers/service providers, distributors, professional associations, and lobbying firms. The enhanced COE ultimately would lead to an increase in successful exported sales. In their turn, increased purchases of exported goods translate into increased flows of cash equivalents into the producing country. As the next link in a chain of impacts, these flows of cash equivalents participate in the increase of the Gross Domestic Product (GDP). These cash flows are taxable and therefore, the government would receive its analog of the return on investment. Without increase of taxation rates, the governmental income would be higher due to an increased volume of sales. Based on an available international demand, in order to enable companies to produce more and to invest in maximization of production-oriented assets, it may be appropriate for the government even to reduce taxation rates. The increased volumes will still deliver significant amounts from taxes to the government. More importantly, the increased cash flows and therefore, the producers’ increased net income will enable the corporate structures to originate more new jobs. The lower unemployment would lead to reduction of social costs, in other words to at least partial solutions to many social issues. Such a scenario would be a win-win for all stakeholders.
The GDP is much more relevant to the COE compared to the Gross National Product (GNP). The GDP encompasses all products and services produced within the geographic boundaries of a country. Instead, the GNP includes all products and services generated by the public and private entities from a country while such a physical generation of products and services can transpire anywhere. While the COE may have a second-hand positive impact on the GNP, the GDP definitely serves as a major indicator in relation to the COE. The second-hand impact on the GNP in this particular case means that a company benefiting from the positive COE may decide to expand operations internationally while still acting as a major domestic producer.
But when the expansion becomes feasible due to the supply-demand correlation and other factors, the COE encourages expansion in a country associated with such this COE. For example, a strong COE of Germany in manufacturing of machinery works among the factors encouraging firms of any country of ownership to expand manufacturing of machinery within the geographic borders of Germany. Therefore, new jobs and other relevant benefits would grow in Germany.
The government’s support to the COE already produced tangible results in different countries. Good developments pertained to the national markets of various sizes.
The American National Exhibition in Moscow in 1959 deserves to be mentioned as an extraordinarily successful example of the government’s involvement in the COE. This exhibition was sponsored by the U.S. Government. A couple of millions Soviet attendees, living under the conditions of the Soviet communism regime, had a unique and unprecedented opportunity to observe regular American consumer goods. In 1959, such consumer goods remained absolutely unaffordable and unavailable for the ordinary citizens in the USSR, but abundantly accessible for the everyday activities of American families. Many exhibits were even cheap items according to the American standards of living. These contrasts resonated in the conclusions of the Soviet attendees of the American National Exhibit and led to important changes in political and economic views for many of them.
More recent activities of successful government’s support to the COE include, but are not limited to the backing of the technological sector in South Korea and Japan as well as tourism-attracting policies in Belize and Cyprus. In addition, in some cases the national governments extend the COE and promote informational programs highlighting quantitative and qualitative macroeconomic facts in relation to the positive images of their respective countries as good places for the foreign direct investment (FDI). As an outcome, the COE helps a country to be memorized as an attractive location for business operations. Successful examples of such programs include solidification of an image of economic achievement in Botswana and UAE; and the governmental emphasis on success in the structural market-oriented reforms in Tanzania and Lithuania.
Still, the actions of the governmental structures in relation to the COE need more carefulness and attention compared to the similar programs, orchestrated in the private sector. National security has to remain the most important part of duties of any government. While the flourishing GDP certainly contributes to satisfaction of national security, all potential aspects of national security shall be taken in consideration. In relation to this topic, the aspect of segmentation can be mentioned.
Akhil Gautam concludes that “segmentation is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs and applications for the relevant goods and services” (2012: 150). In many applicable situations, segmentation functions as a very useful and effective mechanism. Steven Ramirez recently came up with a conclusion that “segmentation now matters more than ever” (2013). Each potential segment of consumers receives the best sounding message. But the government agencies have to be very careful with a pitfall of a false impression of preference towards some particular segments in a foreign society.
Two types of segmentation pertain to this topic. The first type can be called segmentation for groups. Segmentation for groups deals with different groups/segments of potential end users within the same country. Another type is segmentation for target countries. The segmentation for target countries means segmentation for the countries other than the one whose own government tries to strengthen the COE. For example, if the government of Indonesia would target strengthening the COE of Indonesia among the consumers in Chile, Gabon, and Denmark, in this case Chile, Gabon, and Denmark would be considered the target countries.
As it has been mentioned, for the government structures, segmentation for groups would become extremely counterproductive. The private companies still can apply segmentation for groups. The private companies’ message of segmentation can successfully resonate across national borders. Examples include, but are not limited to the selection of the best advertising message addressing the needs of women with young children in different areas, or the needs of students in different areas. Of course, any discrimination is unacceptable in any shape or form. A private company can create a reputation of a provider of products and/or services for individuals younger than twenty five or older than sixty five. As long as employees and other stakeholders of such a company are treated fairly and respectfully regardless from their ages, the reputation for a target audience for products and services would not mean age-based discrimination and ignorance. However, a governmental agency of a foreign country cannot generate even a slight suspicion of inappropriate preference towards particular age groups and ignorance towards other age groups, especially in the scale of an entire country.
On the other hand, segmentation for target countries would work for both marketing divisions in the corporate structures and the government structures. Segmentation for target countries, if ethically applied, works in respect to cultural diversity in different countries and definitely acts against discrimination. Such segmentation targets the optimal ways of communications, the most preferable for partnership. Therefore, in accordance with segmentation for target countries, the optimal message for each society needs to be composed. In some cases it may be appropriate to customize the message even further, for the best reach to the different areas and cities within the target country.
In particular, the research of Geert Hofstede (1980; 2001; 2005) on cultural diversity proves to be extremely beneficial in order to figure the best ways to approach different national cultures. Hofstede, a dedicated well-qualified laborer, turned an engineer, turned an international cross-functional team manager, turned a lead international scholar in cultural diversity, very carefully and respectfully analyzes various perceptions, views, priorities, and traditions in different countries all over the world. His studies prove to be beneficial for governmental, commercial, military, academic, and charitable entities.
Exact activities of the government structures in order to build a stronger COE in the foreign lands may include several directions. Creation of an export-friendly legislative climate is a must. Orchestration of trade shows has variety of benefits. Active dialog with professional associations and lobbying firms brings a lot of opportunities. The government structures may support and/or sponsor visits for various groups of professionals and students from abroad to their country. Various additional educational initiatives may apply. Special government-sponsored messages, delivered by the media, may resonate very well all over the world. Utilization of social media may be especially productive. The government officials may include a broad circle of corporate leaders into their delegations during their economy-oriented foreign visits. All these initiatives may complement the measures already taken by the corporate entities.
Economic strength of a country belongs to the main responsibilities of any national government. Solidified efforts for the COE development will send a clear message of economic support from the government.
Bibliography
Gautam, Akhil (2012). Market segmentation. International Journal of Management and Information Technology, Volume 1, Issue 3, 150-154.
Han, C. Min (1989). Country image: halo or summary construct? Journal of Marketing Research, Volume 26, Issue 2, 221-229.
Hofstede, Geert (1980). Culture’s consequences: International differences in work-related values. Beverly Hills, CA, USA: Sage.
Hofstede, Geert (2001). Culture’s consequences: comparing values, behaviors, institutions and organizations across nations. Thousand Oaks, CA, USA: Sage.
Hofstede, Geert, and Gert Jan Hofstede (2005). Cultures and organizations: Software of the mind. New York: McGraw-Hill.
Ramirez, Steven (2013). Segmentation now matters more than ever. ABA Banking Journal. (http://www.ababj.com/component/k2/item/3933-segmentation-matters-more-than-ever). Published on September 6, 2013. Accessed on September 8, 2013.
Tags: American-made products, business-government relations, COE, country brand perception, country of origin effect, country perception, country reputation with consumers, GDP, Hofstede, product attribute ratings, segmentation, segmentation for countries, segmentation for groups