MULTINATIONAL PRODUCTION: EFFECT ON ... - SSRN papers

MULTINATIONAL PRODUCTION: EFFECT ON BRAND VALUE Johny K. Johansson* University of Washington and Israel D. Nebenzahl** Bar-Ilan University Abstract. Direct foreign investment in manufacturing abroad has a number of consequences for the firm. One aspect, particularly salient when the company's image is tied to its home country, is the impact of the DFI upon customer perceptions of the brand. The present study shows how changes in perceptions can be assessed prior to the investment decision, and how the brand value consequences of a particular location can be estimated. The proposed method is illustrated using data from a Japanese company's entry into the U.S. There are many indications that the firm-specific advantage a company possesses in the form of its brand name is often tied closely to the country where the firm is located. Apart from the everyday observations recorded in the popular press (such as the "Coca-Cola is America" association created during WW II), there is also ample proof in the academic literature (see, for example, the survey on country-of-origin effects by Bilkey & Nes 1982). The IBM and Ford names are apparently intimately connected with the United States, just as Toyota and Nikon are with Japan. The multinational expansion of a firm therefore poses a dilemma for management: How can the economic necessity of manufacturing abroad be balanced against the potential loss in brand name value? In which host countries will the risk be minimal? Could one not hope for an added boost to the image by investing in a country with a favorable image? In many cases these questions are moot. The manufacturing located abroad might involve only some of the components in the final assembly, *

J.K. Johanssonis AffiliateProgramProfessorof Marketingand International Businessin the GraduateSchool of Business,Universityof Washington.His most recent articles focus on marketing successes and failures in the Japanese multinationals. ** Israel D. Nebenzahl is Lecturerat Bar-Ilan Universityin Israel, where he manages his own consulting firm in marketingand advertisingresearch. His academicresearchfocuseson country-of-origineffectsin internationalmarketing. Thanksare due to the Japanesecompanythat sponsoredthe study and releasedthe data. CraigHuber,now with Hewlett-Packard, providedable assistancewiththe computerruns. Received:August 1985;Revised:February1986;Accepted:April 1986.

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JOURNAL OF INTERNATIONAL BUSINESS STUDIES, FALL 1986

and the customers would not care much about where these parts were produced. Furthermore, even if the complete product were manufactured abroad, the customers might by and large be unaware of that fact (in particular if it is not advertised). And even if awareness is high, the customers might well dismiss any sense of cognitive dissonance by reference to the ubiquity of foreign goods, especially in the United States ("Anyway, one never knows where products are produced nowadays. . . "). But there are cases where production location matters. Quite generally the emergence of global markets and multinational production locations seems to have been accompanied by an enhanced rather than submerged sensitivity to country differences on the part of the consumer. (see, for example, Nag 1984; Erickson, Johansson & Chao 1984). As more information about the various countries and their economic capability becomes available, the individual's understanding of the differences is more clearly articulated. But accompanying this increased understanding is also a more precise delineation of preferences (see, for example, the results documented in Johansson, Douglas & Nonaka 1985, about automobiles). People not only know what they do (not) like, they also know why. This does not prohibit them from purely affective behavior, where the country stereotype directly influences behavior. A case in point is perhaps the negative reaction greeting Chrysler's "revelation" that the K-car is now built in Mexico, even from existing customers who were perfectly happy with the car's performance (see Nag 1984). It is clear that for some of these disgruntled customers, their sense of having "helped America" by purchasing an American car had also been violated. This study presents the way one Japanese automobile company has used market research to try to pinpoint the brand image consequences before shifting to an overseas manufacturing location. The paper presents a methodology and the associated measuring instruments used to quantify the potential losses and gains. It also illustrates the proposed method by an empirical evaluation drawn from a pilot study in the U.S. CONCEPTUALIZATION AND DESIGN Preliminaries

The most logical methodology for assessing the change in brand image after a shift in manufacturing location would be field-experimental. Using measures of image prior to the shift and then contrasting those to the brand image existing after the shift one could evaluate the degree to which brand value had gained or deteriorated. The problem with this approach for the purpose of DFI decisions is that the information is needed prior to selecting the location. The procedure used relies instead on relatively standard (and therefore low-cost) survey procedures. The shift in manufacturing location (the ".treatment"in the experimental context) is introduced explicitly in the survey questionnaire, but only after the initial brand image has been assessed. The question of awareness cannot be directly addressed (since

MULTINATIONAL PRODUCTION

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the location decision is yet to be made), but by questioning survey respondents about existing production locations for a given brand one can get a sense of an individual's knowledge. The questionnaire can also be used to estimate directly the monetary equivalents of the loss (or gain) in brand value. Brand and Country Image

The conceptualization underlying the questionnaire construction derives directly from previous research on brand name value. The brand image is specified in terms of a multi-dimensional product space, based on the perceptual scores on a number of salient attributes. The same attributes can be used to measure stereotypes of countries as makers of the product in question. It is then possible to map respondents' perceptions into a joint product/country space, and define distances in this space as measures of the degree to which a particular brand name is identified with a certain country. These perceptions can be solicited early in the questionnaire, allowing the existing brand images to be assessed without triggering country-of-origin associations involuntarily. The aim is not to disentangle brand and country images

-

an impossible task in many instances -

but to avoid

increasing the salience of the country-of-origin artificially. The second section of the questionnaire then opens up the issue of multinational production locations, addressing the degree to which the respondent is aware of existing manufacturing locations for the brands previously rated. The respondents can then be given some potential new manufacturing locations for each brand, the purpose clearly stated as one of eliciting their immediate reaction should the product prove to be manufactured in these new countries. This kind of question does exhibit a high degree of "demand"characteristicsin that respondents are well aware of the purpose of the question, and are directed to consider explicitly the shift in countryof-origin. In the case of a new location not yet chosen, however, what can be gleaned from individuals is precisely their first considered reaction to the new location. It is important not to "anchor" the respondents' answers by immediately asking for their evaluative ("good-bad') reaction to the new country/ brand combination. Instead, asking them to answer by first rating the new combination on the original image dimensions the questionnaire can make the respondents process the information cognitively before the evaluative questions are asked. Thus, instead of having to give an immediate overall evaluation, the respondents should first be asked to cognitively process the new information by re-scoring the perceptual items for the new brand/ country combination. The loss (gain) in brand name value can then be assessed through an overall rating question and a "dollar-preference"scale anchored at an average level for the product made in the home country (see Appendix for the exact formulation of the question in the auto case). It can be expected

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that after the extended scoring of the new brand image, the preferences responses would be considered, show consistency, and have as much validity and reliability as one could hope for with this type of hypothetical assessment. As is shown in the empirical illustration, the results on the whole justifies this optimism. It deserves to be emphasized again that when the concern is with ultimate action, this kind of survey questionnaire approach falls short. It can solicit behavioral intentions but in the final analysis when the customer is faced with a real-world decision these intentions might not be followed. To trace the effects of a location shift upon ultimate action nothing short of an expensive field-experiment (as in a test market) would seem viable. Data Collection

The structure of the questionnaire, in particular its delaying of the new country-of-origin questions makes it necessary that personal or phone interviewsbe used. These can be relativelyinexpensive, however, depending upon the number of items required to map out the product and country spaces. Where relatively few items suffice, the time spent per respondent might be no more than 25-30 minutes in the auto illustration presented below the time required was 45 minutes, due to the larger number of items investigated. The issues involved in selecting respondents pose no new problems. The standard requirementsof representativeness(relative to the target segment) and properly qualified respondents are important. In our experience inttrcept interviews work rather well, especially in the case where the product interest is high (as generally with automobiles). These considerations constitute the basic conceptualization and research design employed in our research. In order to show how the ideas work in practice an actual application is probably the most useful vehicle. The rest of the study will therefore discuss one such application in depth. AN EMPIRICAL ILLUSTRATION Decision Context

The success of the Japanese companies in the U.S. market has led to the trade imbalance that gradually has bolstered the protectionist spirit of U.S. lawmakers. A natural reaction among the Japanese firms has been an interest in assessing the pros and cons of manufacturing on American soil. In the automobile industry Honda's entry into Ohio to manufacture motorcycles and then autos represents one example of such barrierinduced DFI. One of the questions often raised by observers is whether the quality of the products manufactured in the U.S. are as good as those made in Japan. The question is not academic: when VW announced the plans for production of their Rabbits in Pennsylvania there were efforts made by many customers to buy the cars still made in Germany. The sales and


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market share figures for the Rabbit showed an initial upswing as U.S. production started in 1978 but within two years they turned down as customers encountered reliability problems (Business Week 1984, p. 52). Thus, the Japanese auto companies will generally want to ensure that their is not compromised by locating in the their brand value reputation U.S.

The illustration presented here draws from a pilot study done for one company in 1984 to assess the chances that their brand name would lose value following a manufacturing move to the U.S. Instead of focusing only on a production location in the U.S., it was decided to enlarge the study and include a number of other potential locations from which exports to the U.S. markets could possibly be undertaken if trade restrictions against Japan were instituted. Image Items

The brand image items for automobiles are generally well established. A number of studies have pointd to the key concerns of most car-buyers in the U.S. (see, for example, Agarwal & Ratchford 1980; Berger, Stern & Johansson 1983). Since the present study also attempted to evaluate the images of the different countries as car-producers, a few items were derived from the country-of-origin literature (in particular Nagashima 1970). These sources led to the original set of image items. This set was then critically examined in order to make sure that those features along which the auto company possessed some competitive advantage (some firmspecific advantage, or a location-specific advantage due to its "Japanness") were represented. It is important that the company gets insights into what dimensions will be most affected by the move. In case the reevaluation of the brand name value derives from perceptual shifts in dimensions defining the strength of the company, a move is considerably more risky than otherwise. The final set of image items comprised the following thirteen attributes: Reliable Reasonably priced Exclusive Good workmanship Innovative Pride of ownership Durable Economical to run Stylish High quality Low service costs For young people High performance The items were presented in bipolar form as seven-point scales. Stimulus Objects

The selection of the cars and countries to be considered was guided by the firm's competitive situation and the potential production locations. In this pilot study only a subset of the competitors and the countries were selected. The car-makers included Chevrolet and Buick from the U.S. and Honda and Mazda from Japan. The countries consisted of the two home

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JOURNAL OF INTERNATIONAL BUSINESS STUDIES, FALL

1986

countries (U.S. and Japan), and in addition West Germany, S. Korea, Mexico and the Philippines. West Germany and the Philippines were not countries considered as potential entry points for this particular evaluation, but it was decided to include them in order to get a sense of the realistic range of results. West Germany was hypothesized to represent possibly the top car-maker country to many respondents, while the Philippines would be the most unlikely and least proficient country (while still a possible future entrant). For managers attempting to interpret whether a shift in brand value is "large" or "small" it becomes quite useful to have a sense of where the end-points of the scales are anchored. In the case of automobiles the stimulus object is not necessarily uniquely defined by reference to just the global name (like "Honda," say). The respondents will sometimes make discriminations between various models of the same make ("Honda Civic" and "Honda Accord," for example) and perhaps even within model (the "Honda Civic" 4-door versus the 2-door version, say). These potential differences become important when the decision is whether to manufacture the Accord or the Civic abroad, for example. It might certainly be that one model is easier to transfer than another, and that the customers for one would care much less about country-of-manufacture than customers for another. In the present study these in-depth extensions of the basic design were foregone in the name of cost efficiency, however. Questionnaire

The actual questionnaire followed closely the general principles outlined above. The initial section elicited the brand name and country images, using the seven-point bipolar scales tapping into the thirteen attributes. Because of the relative size of the task involved, each of the respondents was given only two of the brands and three of the countries, the selection of brands and countries rotated between respondents to insure a balanced set of responses to each combination. After the perceptions had been captured the respondents were asked to give an overall affect rating ("Something I like - Something I don't like") for the brands and countries. The next part of the questionnaire introduced explicitly different countries-of-manufacture and ascertained the respondents' degree of awareness and knowledge of multinational production. The questions were direct and straightforward ("Whereare Hondas built?,"for example) followed by a probing "Do you know of any other countries?" in order to pursue the issue further. The questionnaire then directed the respondents' attention to the fact that many new countries are now or will potentially be car-makers. The the question of evaluating some "actual or potential" make/ country combinations was broached and the original thirteen image items scored for a subset of the possible combinations (corresponding to the two brands and three countries already evaluated).


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The subsequent section of the questionnaire asked the respondents to give their overall evaluation of a complete set of the selected brands and countries, using a seven-point "Good-Bad" scale. This was followed by the "dollar preference" ratings. Here respondents were asked to state how much more (or less) they would be willing to pay for a certain make not built in its home country (see Appendix for the exact formulation of this important question). The final part of the questionnaire covered questions about the importance of a product's country-of-origin, the familiarity with the product class, and some background socioeconomic information. The Interviews

The data for this pilot study were collected during four weeks in April 1984. The respondents were selected by interviewers at four different shopping malls in northern New Jersey. The intercept interviews lasted on the average about 45 minutes. People were screened according to age and possession of valid driver's licenses, and whether any relatives were employed in market research, advertising, or the auto industry. Failure to give their name and address (for follow-ups and interviewer checking) disqualified the respondent. Each of the ten interviewers was asked to complete 32 interviews, with brands and countries randomized between the respondents. To avoid interviewer bias, each interviewer covered all possible combinations of cars and countries. The interviewers were instructed to collect data for at least 50% male respondents. The final sample comprised 320 completed interviews with individuals over 21 years of age. Sample Profile

The average respondent in the sample shows the following profile: Age: 41-50 Marital Status: Married with children at home (25% single) Income: Approximately $35,000 annual household income Occupation: White-collar worker Sex: Male (43% female) Ethnic background: European (Anglo-Saxon) Union member: No (20% members) Number of cars owned: More than one (46% one car, 12% more than two) Involvement in car purchase: High (mean = 5.7 on a 7-point scale) Knowledge about cars: High (mean = 5.1 on a 7-point scale). DATA ANALYSIS Image Results

The first analysis of the data centers on the assessment of the brand and country images. The simplest analysis consists of a computation of the

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MULTINATIONALPRODUCTION

means for each across the thirteen attributes. The brand images are given in Table 1, the country images in Table 2. The tables also give the mean scores on the overall affect question ("Something I like - Something I don't like"). Concentrating first upon the brand images, the averages displayed in Table 1 suggest the following: 1. Buick is consistently the highest rated car, and Chevy scores higher than either Honda or Mazda. 2. Mazda is rated higher than Honda. 3. The biggest differences between the American and the Japanese makes occur in terms of "Reliability" and "Something I like." In both cases the advantage is on the American side. The reliability results diverge from the repair records documented by Consumer Reports which consistently favor the Japanese cars. This is perhaps an artifact of the sample selection. 4. Buick's strengths lie mainly in their perceived "Stylishness," their "Exclusiveness" and the "Pride of ownership" generated. 5. Mazda beats Honda particularly in terms of "Stylishness," by being more "Exclusive" and by not being targeted so much towards the younger end of the market. The Buick-versus-Chevy differences mirror to some extent the Mazda-versus-Honda differences. The country images in Table 2 also exhibit some expected results and a few surprises. 1. West Germany is consistently seen as the best car-producing country while the Philippines is perceived as the worst, both expected results. 2. The U.S. is viewed as a better car-producer than Japan in terms of many of these dimensions, a result diverging from the typical treatment of the differences in the popular press. Again the particular sample selection might be the cause of this disparity. 3. S. Korea and Mexico are perceived as car-producers of very similar capability by these respondents, with Mexico holding perhaps a slight edge. This is another surprise considering the fact that Korea already produces its own cars. 4. The items showing the greatest differences between the existing carproducing countries and the new ones include "Something I like" and "Pride of Ownership," both emotional appeals. There are differences also in perceived "Reliability," "Workmanship" and even "Service costs," with the new countries expected to produce cars cost more to service.

5. Japan is perceived to produce cars that are "Economical to run" but also of lower "Durability"and higher "Service costs." American cars score higher on "Reliability"

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be more "Exclusive" and yielding more "Pride of ownership."


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These are only highlights of the findings in Tables I and 2. For management purposes - and with an appropriately representative sample this relatively simple analysis can proceed much further and yield deeper insights. For illustrative purposes, however, these points should be sufficient, and of more interest is the next step in the analysis. Joint Space Mapping In order to display for management the positioning of the makes and their relationship to the various countries, it is often useful to employ a joint space mapping. As the name suggests, this technique allows brand and country positions to be matched in the same product space. The first step in the analysis is the derivation of a representation of the space in fewer dimensions than the thirteen attributes. Then the scores for both brands and countries on the dimensions are calculated and used to map each of the stimulus objects into the reduced space (see Johansson & Thorelli 1985). Since the reduced space is easier to comprehend, management usually prefers working with the visual joint space maps rather than the figures in Tables 1 and 2. The derivation of the reduced space was done here via a principal components analysis (PA2 in SPSSX) with a Varimax rotation. The resulting eigenvalues are given in Table 3. TABLE 3 Factoringthe 13 Attributes (Thefive largesteigenvalues) FACTOR 1 2 3 4 5

EIGENVALUE 6.85 1.29 .98 .68 .59

PCTOF VAR

CUM PCT

48.9 9.2 7.0 4.9 4.2

48.9 58.2 65.2 70.1 74.4

As can be seen, two values are above 1.0, the standard cutoff point (see, for example, Nie, et al. 1975, p. 479) and it takes five dimensions to explain about three-fourths of the original variation in the data. The two-dimensional space with the accompanying factor loadings are displayed in Figure 1. The vectors displayed represent the highest loading attributes of the thirteen used in deriving the space. The end-point of each vector represents the correlation (the "loading") between the individual attribute and the underlying dimensions. The figure also incorporates the "liking" responses, making it possible to interpret the direction in which preference increases. From the attributes given it is possible to generate an interpretation of the space. The horizontal axis consists of items that measure the degree to which a particular car or country represents something that makes its owner proud,, that stands out as stylish, something that basically

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JOURNAL OF INTERNATIONALBUSINESS STUDIES, FALL 1986 FIGURE1 Attribute Space Mapping

Economy

ECONOMICAL TO RUN LOWSERVICE COSTS

HIGHPERFORMANCE

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I DON'TLIKE SOMETHING PRIDEOF OWNERSHIP Status

SOMETHINGI LIKE

appeals to the status-oriented individual. The vertical dimension, on the other hand, represents the economical aspects of automobile ownership, whether the car is inexpensive to service, and is economical in use. The two dimensions of the space have therefore been labeled "Status" and "Economy," respectively. The brands' and countries' positions are displayed in Figure 2. The positions are based on the factor scores on the two significant dimensions As can be seen, there is considerably more diversity in terms of status than in terms of economy. Buick scores highest on status and affect (liking), while the three countries without any car entry (S.Korea, Mexico, and the Philippines) score lowest. It is also interesting to note that Mexico and the Philippines are suspect on the economy dimension as far as these respondents are concerned.

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FIGURE2 Country/Brand Image joint Space Map

Economy

Something I Don't Like

S. KOREA 0

HONDA 0

W. GERMANY

CHEVY

0

O MAZDA 0 0O JAPAN

U.S. 0 O BUICK

Status

THE PHILIPPINES

o

Something I Like 0 MEXICO

Figure 2 shows that Ch-evroletis seen as more of an average U.S. car than Buick. Similarly, Honda is less typical a Japanese car than Mazda. W. Germany, as expected, is the highest-rated car-making country, but Buick is on the whole perceived as superior to the average German car. And it is perhaps surprising that to these people a German automobile seems more economical than a Japanese car. Some of these results, to reiterate, might well be different in other parts of the U.S., but the findings should serve to illustrate the kind of diagnostics that the joint space analysis can provide. It is also possible to identify how a particular subsegment of the target population perceives these cars and countries. An example is given in Figure 3, where the 15% of the respondents who own a Japanese car are portrayed.


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FIGURE3 Owners of Japanese Makes (15%) joint Space Economy 0

S. KOREA

MEXICO 0

W. GERMANY 0 0 MAZDA

HONDA 0

Something I Don't Like

JAPAN

THEPHILIPPINES

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O CHEVY

Status

0O U.S. Something I Like

0 BUICK

As one might have expected, the perceptions among those who own Japanese cars differ from those of the average respondent. In particular, their perceptions of the level of economy provided by these car-producers vary across a much wider range than those in Figure 2. There are small differences in terms of status, but it is clear that these respondents attribute higher status to their Japanese cars than do the respondents in general. Image Effects from Production Shifts

The type of analysis presented lends itself directly to a graphic visualization of what happens when production is moved abroad. The underlying data, to recollect, consist of the respondents' ratings (on the thirteen attributes) of the make should it prove to be built in a new country. It is therefore possible to replicate the analysis of Table 2 but now for one specific brand at a time. In other words, the six countries represented in Table 2 would appear again, but the responses would be focused on each of them as builder of one particular make.

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To cover all the four brands, it is therefore necessary to replicate Table 2 four times. Such a large set of numbers will generally overload management's capacity for processing. Even the consequences for their own brand are sometimes too complex to comprehend. Table 4 gives one example, for the Honda car entering each of the alternative countries. For our illustrative purposes it is not necessary to analyze this table in depth. Rather it is better to summarize the effects by reporting in detail only the overall liking scale for the four brands and then employ the space maps to summarize the perceptual effects. Table 5 gives the affect scale (liking) for the four brands and the six different countries. Since not all the respondents were asked to respond to all the possible combinations, the sample size for some of the combinations in this particular pilot sample is rather small (the combination of one brand with a new country - such as a Honda built in S.Korea - was rated by only 20 respondents). TABLE 5 Affect Scores for ProductionShifts (Meansacross all respondents) 1-7 Scale: From "Something I Like" to "Something I Don't Like" Japan

U.S.

W. Germ

S. Korea

Mexico

Philipp.

For a Buick Built In...

3.8

3.2

3.2

4.1

4.8

5.4

For a Chevy Built In...

4.1

3.4

3.3

6.0

4.6

5.1

For a Honda Built In...

4.2

4.1

3.9

5.8

5.5

5.1

For a Mazda Built In...

4.1

3.8

4.3

5.2

4.6

5.6

A few specific findings in the table can be highlighted. 1. It seems that moving production to West Germany hurts no one's brand image. Even Buick gains. 2. For the two American cars, Buick seems to suffer least from going abroad. Chevy does better than Buick only in Japan, but both suffer from moving production to Japan. 3. Mazda seems to be affected less negatively by a move abroad than Honda. It loses less when the move is to a low-wage country (S.Korea, Mexico, or the Philippines) and gains proportionately more going to either the U.S. or W.Germany. 4. Both Mazda and Honda stand to gain with these respondents by moving production to the U.S. The Production Shift Maps

The "shocks" administered to people who are told that a Japanese car is now built in S.Korea can be traced in the perceptual maps presented earlier. The induced reconfiguration of the perceptions amounts to a "repositioning" of the brand in the product space. For each of the brands,

117


each alternative production site helps or hinders the achievement of a desirable position in the eyes of the customers. By examining a "production shift map" it becomes possible to identify the most promising choices. Two such maps, one for each of the two Japanese brands, are presented here. Honda will be discussed first. Figure 4 shows the various positionings that the Honda brand could end up with were its cars to be built in any of the selected countries. According to these results, whether Honda builds its cars in Japan or the U.S. is rather unimportant. On the other hand, it would seem that moving to a German location could only bolster its image. Conversely, locating production in any of the three low-wage countries, S. Korea, Mexico or the Philippines would detract considerably from the brand attractiveness. The proximity of the U.S. and Japan images clearly is a result of previous plant locations by Honda in the U.S. While only a small percentage of the 4 FIGURE Image of a Honda BuiltIn... Economy

JAPAN 0 Something I Don't Like ~U.S. Status

S. KOREA 0 THE PHILIPPINES 0 MEXICO

Something I Like W. GERMANY 0

JOURNAL OF INTERNATIONALBUSINESS STUDIES, FALL 1986

118

respondents were aware of the fact that Honda was about to assemble Accords in Ohio, its previous endeavor there in motorcycles had led to a general awareness of its multinational stance (although all respondents identified the company as Japanese). Similarly, everybody knew (correctly) that Honda does not produce in any of the other four countries. The previously mentioned "demand" characteristics of these types of evaluations - the respondents' attention was focused onto the shift in multinational production explicitly through the interviewer's question need to be kept in mind when examining the space map in Figure 4. Comparing the respondents' reactions to their country images in Figure 2 it is easy to see that the Honda pattern follows closely the country stereotypes. The demand features of the respondents' task have made country images loom much larger in the evaluations than they would realistically do. FIGURE5 Image of a Mazda Built In... Economy

Something I Don't Like JAPAN 0

U.S. 0

W. GERMANY 0 Status

0 S. KOREA 0 THE PHILIPPINES

MEXICO Something I Like

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Because of this management would do well to consider the directions of the shifts are more important than the depicted magnitudes. In addition, it is useful to compare the brand's re-positioning th that of a competitor's. By checking against the magnitude of the movements of the competitor's brand management can get an idea of how much movement can be expected relative to competition. Figure 5 presents the production shift map for Mazda. The results are quite different between Honda and Mazda. For Mazda going to the U.S. seems to be more beneficial, and the gains from going to West Germany less drastic than for Honda. At the same time there is very little change in the rating of the economy of the Mazda from different production locations, an indication that the respondents view the impact as purely a matter of status. These perceptual results compare directly to the change in affect reported previously in Table 4. From the two shift maps one can see how Mazda in general stands less of a risk in going multinational, the re-positioning centering almost exFIGURE6 Foreign Car Owners (33%) A Mazda Built In... Economy

MEXICO 0

JAPAN 0

U.S. 0

S. KOREA 0 Something I Don't Like

0 THEPHILIPPINES

0 W. GERMANY Something I Like

Status

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clusively on the status associated with the country. For Honda, on the other hand, the production location has a stronger impact on the perceived characteristics of the car, in particular its economy rating. Again, these re-structured perceptions are not as homogeneous among the target population as the figures intimate. Separating out the subsegment of respondents who own foreign cars (33%),for example, one gets the more drastic effects on Mazda's image depicted in Figure 6. These people obviously do not share the perception that U.S. production would be preferable, nor that the Mazda economy rating would be the same wherever the car is built. From a management viewpoint it becomes important, therefore, that the intended target segment for the car model to be built abroad be specified and its particular reaction be surveyed. Dollar PreferenceEffects The final part of the analysis consists of the examination of the monetary consequences of the contemplated production shifts. As shown in the Appendix, the respondents were asked to indicate the amount above or below $9000 they would be willing to pay for the same model car made in a different country. This "dollar preference" scale is an adapted version of a similar scale developed and tested by Pessemier (1963) and others. It has the advantage of forcing the respondents to translate their preferencesinto monetary terms and exhibits therefore more external validity than pure rating scales (Pessemier 1963, p. 23). In Table 6 the average dollar amounts across all the 320 respondents are given. It should be emphasized that although not all the respondents were asked to rate all the possible brand/country combinations on the thirteen image items, the dollar preferencequestion was posed to all the respondents for all possible combinations. TABLE6

Acceptable Pricesfor a BrandName in Different Countries (Baseline - $9000) (Means across all respondents) Japan

U.S.

W. Germ

S. Korea

Mexico

Philipp.

For a Buick Built In...

8688

9000

10258

7527

7519

7351

For a Chevy Built In...

8716

9000

9496

7498

7529

7218

For a Honda Built In...

9000

9101

9379

7603

7614

7300

For a Mazda Built In...

9000

9142

9543

7641

7686

7355

The results in the table mirror quite closely those of Table 5, a welcome result since it enhances the validity of the preference measures. As for the average affect scores both the Japanese cars would seem to gain by producing in the U.S., Mazda slightly more. West Germany confers significant benefits on all of the brands, but especially on Buick. For all the cars the Philippines provide the least desirable location, while the choice between Mexico and S. Korea is a toss-up.


121

Since these results are based on the whole sample of 320 respondents (as opposed to the limited subsamples of 20 who were given the opportunity to rate a combination of Buick and West Germany, for example, on all thirteen image items), these results tend to be fairly robust. As in the case of the image effects, however, there are considerable demand characteristics here, possibly overstating the monetary consequences of the alternative moves. As before, the best use of the figures in the table is to use relative amounts and direction of the shift rather than actual magnitudes. For example, Buick's $10,258 figure for West Germany should be read relative to its dollar figures for other countries, and relative to other brands' dollar figures for Germany. It shows that Buick of all the brands stands to gain most from producing in West Germany but also lose most by producing in Mexico. Relating Preferences to Perceptions

To explain the dollar preference results it is natural to use regression analysis with the image responses as independent variables. Two kinds of analysis can be performed, one using the derived factors, another the original attribute scores. Since the images of two countries and one brand are involved, however (see below), the latter method tends to be too dataintensive. The first approach is presented here. What is at stake in this analysis is the diagnostic information of why a particular new country/ brand combination was rated high (or low) on the dollar preference scale. The first suggestion is naturally that the new country's image made the difference, that the brand's image has been pulled towards the stereotype of the new country. But this line of reasoning forgets the role of the original brand image and the similarity between the home country and the new location. For example, some brands might do better than others because of a strong brand image, i.e., might travel better because of a sufficiently strong base ("A Sony will always be a Sony," as the firm tries to emphasize.) Even more important is the role of the home-country stereotype. Where the home country shares many of the attributes of the new production location it becomes difficult to argue that the brand image will shift measurably. In fact, one could conceive of cases where the home-country image is already quite close to the image of the new country and thus no change need occur. Using the factor analysis results presented earlier, it becomes feasible to introduce all the relevant positions (home country, old image, new country) by entering the position coordinates (or their differences) in the analysis. The procedure followed here uses the differences. The basic model behind the regression specification consists of the idea that the dollar preference differences are due to one or both of two separate image discrepancies. One consists of the incongruity between the brand and the new host-country image (the "You mean a Buick made in Mexico? You must be kidding!" kind of reaction). The second causal pull


122

on dollar preferences emanates from the differences between the home and the host countries (the "You mean this Japanese car is made in the U.S.?" problem). These two influences can be separately measured using the corresponding distances in the two-dimensional joint image space developed earlier. The regression specification is accordingly the following: Yijk = bo + bIXi,k + b2X2ik + b3X3jk + b4X4ik,

the dollar preference measure for a brand i from homecountryj in a host-country k Xlik = the difference on the status dimension between hostcountry k and brand i X2ik = the difference on the economy dimension betwen hostcountry k and brand i = the difference on the status dimension between hostX3jk country k and home-countryj = the difference on the economy dimension between hostX41i country k and home-countryj. This model can be estimated for the complete sample as well as for various subsegments. A few runs will be sufficient to give a sense of the possibilities. Table 7 presents the beta coefficients and the associated significance levels for seven different regressions. The first run on the complete sample produced quite significant coefficients for all four independent variables. The most important determinant of the dollar preferences is the status difference between the new host country and the brand. A company can apparently improve its brand image significantly by building its cars in a higher-status country. Going to a country that scores high on economy, however, would seem to have a detrimental effect. The differences between the home country and the new host country have a slightly lesser effect, this time positive for both higher status and higher economy. Apparently the higher-rated car-producing country confers some added benefits onto the brand by eliminating the connection to the lesser regarded home country (and, conversely, a lowly regarded host country does damage both directly to the brand and by disassociating the brand from its home country). An R-square of .17 is of course low compared to standard time-series results but actually very reasonable for cross-sectional data (see, for example, the typical market segmentation results as presented by Bass, Tigert & Lonsdale 1968). The loss of observations is mainly due to a conservative cutoff whereby the "No opinions" on any of the image items involved were disqualified. According to these results it makes more sense to attempt improving one's status - or avoid losing it - by concentrating production locations in well-regarded countries and charging a premium price rather than attempting to locate in low-cost countries. Similar results emerge from the where

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