Chinese consumer attitudes toward automobile country of origin.

• Author: Okechuku, Chike

1. INTRODUCTION

   China has witnessed explosive economic growth during the past thirty years since opening up to the rest of the world. It now dominates world manufacturing and, in 2010, became the world's largest exporter and the second largest economy in the world after the U.S., with a GDP in 2010 of $10.9 trillion (CIA World Factbook, 2011). With a consumer market estimated at more than 1.3 billion people and an economy growing at more than 10 percent annually, China has been a magnet for foreign direct investment and joint ventures. The introduction of foreign brands has had tremendous impacts on both the consuming and manufacturing sector of the economy. In the consuming sector, it has provided a greater diversity of choice, better quality, more attractive appearance and variety of designs, though at generally higher prices than domestic alternatives. The introduction of foreign brands also helped to alleviate the shortages in consumer goods that existed prior to China opening up to the rest of the world due to insufficient production capacity (Guo, 2005). In the manufacturing sector, the introduction of foreign brands has had the effect of generally elevating the quality of local products which must compete with the foreign goods. Following the opening up of China, the higher quality and more expensive foreign brands were initially thought to be meant for the rich and sophisticated. However, as time passed, foreign investment restrictions were eased, which led to greater availability of foreign products. Restrictions on private ownership an entrepreneurship were also eased, leading to an increase in personal incomes and greater affordability of foreign goods to increasing proportions of the population. Because quality and price gaps still remain between foreign and domestic goods in many product categories, Chinese consumers are sensitive to country of origin issues in product decisions (Guo, 2005).

   The purpose of this study is to contribute to the literature on the country of origin phenomenon from the perspective of the Chinese consumer. Very few studies have addressed this issue as it relates to the Chinese consumer despite the fact that, in China, as in other developing economies where the quality of domestic products is poor, the country of origin of a product is a top-of-the-mind issue in many consumer decisions (Zhang, 1995; Okechuku and Onyemah, 1999). In particular, this study investigates (a) the importance of a product's country of manufacture relative to other attributes in the Chinese consumer choice, and (b) the relative importance of aspects of 'country image' in the Chinese consumer preference for foreign products.

   A systematic investigation of the country of origin phenomenon in developing economies is important because it has implications for domestic manufacturers, for foreign manufacturers, marketers, exporters and other channel intermediaries doing or wishing to do business in those countries. It also has implications for developing-country governments and policy makers who are trying to establish domestic manufacturing competency in the face of relentless competition from established foreign brands, and for academics interested in understanding consumer behavior in developing economies.

2. LITERATURE REVIEW

   2.1 Country of origin in consumer choice

   Researchers have studied the impact of the country of origin of a product on consumer choice for over forty years since Schooler (1965) first observed that products that were identical in every way except for the country of origin were evaluated differently. The country of origin, like price and brand name, constitutes an extrinsic cue in consumer product evaluations (Bilkey and Nes, 1982; Hong and Wyer, 1989; Papadopoulos and Heslop, 2002; Ahmed and d'Astous, 2008). Extrinsic cues such as price, brand name, country of origin, tend to be used in the absence of intrinsic cues or direct experience with a product to infer hard-to-evaluate attributes such as the quality, performance, and reliability of the product (Han and Terpstra, 1988; Ahmed and d'Astous, 2008). Thus, a consumer may use his/her perceptions of the country of origin of an unfamiliar brand to make inferences about the probable quality and/or other intrinsic attributes of the brand. Whether the inferences are favourable or unfavourable depends on the on the decision-maker's country of origin stereotypes.

   Studies conducted in developed countries show that consumers in these countries tend to prefer products from their own or other developed countries to those from less developed countries (Wang and Lamb, 1983). In particular, they tend to prefer domestic products to products from other countries (Okechuku, 1994; Verlegh, 2007). There is extensive evidence showing that Americans prefer American-made products to foreign products (Bruskin Report, 1985; Gallup, 1985). Other research findings suggest, however, that the preference for domestic products is not universal but varies from country to country (Papadopolous, Heslop, and Beracs, 1990). Wang and Lamb (1983) have proposed a hierarchy of countries based on their level of economic development. Products from countries low in this hierarchy are perceived to be of lower quality than products from countries higher in this hierarchy. Okechuku (1994) found that American, Canadian, German, and Dutch consumers preferred domestic TV sets and/or car radios first and foremost, followed by brands made in other developed countries, and lastly those made in the developing countries. The study also found that the importance of the country of origin varied widely from country to country, being highest among American respondents for TV sets and among German respondents for car radios.

   Consumers tend to prefer domestic products in countries where there is strong patriotism, national pride (Darling and Kraft, 1979), or consumer ethnocentrism (Heslop and Papadopolous, 1993; Shimp and Sharma, 1987). On the other hand, preference for domestic products tends to be weaker in economically underdeveloped countries (Okechuku and Onyemah, 1999; Wang and Yang, 2008; Josiassen and Harzing, 2008; Pappu, Quester, and Cooksey, 2007; Usunier and Cestre, 2008). Consumers in the former socialist countries of eastern and central Europe, which are now transforming into market economies, prefer western to domestic products (Papadopolous, Heslop, and Beracs, 1990; Ettenson, 1993). Ettenson (1993) found that price was relatively less important than the country of origin in Russian, Polish and Hungarian consumer purchase intentions for TV sets. Klenosky, Benet, and Chadraba (1996) found that Czech consumers preferred German cars and TV sets, but not Polish cars and TV sets, to those made in the Czech Republic. Levin (1993) found that Mexicans are obsessed with American products. Jaffe and Martinez (1995) found that Mexicans have a poor perception of domestic goods, rating American and Japanese household electronic products superior to Mexican-made brands. Okechuku and Onyemah (1999) found that Nigerian consumers preferred automobiles assembled in Germany, Japan, and South Korea to those assembled in Nigeria. Superior workmanship, reliability, and technological advancement were the main reasons for their preference.

   It is clear, then, that consumers in different countries respond differently to the country of origin cue (Okechuku, 1994; Leonidou et al., 2007). It also appears that country-of-origin assessments are dynamic in nature (Darling and Wood, 1990). That is, as a country develops economically, its country of origin image tends to improve at home and abroad.

   The country of origin, the country of manufacture/assembly, and the country of design can all have different effects on consumer product evaluation (Chao, 1993). As an example, some affluent Hong Kong consumers will not buy German luxury cars assembled in mainland China. They prefer those assembled in Germany, even though they cost more (Financial News USA, 2010). Thus, these consumers would react favourably to the country of origin (Germany) but not to the country of manufacture (China).

   2.2 The Chinese Automobile Industry

   The automotive industry in the People's Republic of China has been the largest in the world, measured by production volume, since 2008 and continues to be the fastest growing. The Chinese automobile industry has been in rapid development since the early 1990s. The rapid growth in the Chinese automobile industry has been in response to China's rapidly growing middle class. Foreign automobile manufacturers formed strategic alliances with local companies, with Chinese government-limited 50% ownership, to capitalize on this growth and to obtain low-cost manufacturing. Annual automobile production in China first exceeded 1 million in 1992. By 2000, China was producing 2 million vehicles. From 2000, production grew rapidly to 6 million in 2006, 8 million in 2007, 13.8 million in 2009, and 17.2 million in 2010 (Jones, 2011). Although the growth rate declined in 2011, the automobile industry in China still sold 18.5 million new vehicles. Another 850,000 vehicles were exported in that year, with Russia, Brazil, and Iran accounting for most of the export value. Of the 2009 vehicle production, 44.3% were made by local brands such as BYD, Lifan, Chang'an (Chana), Geely, Chery, Hafei, Jianghuai (JAC), Great Wall, and Roewe. The rest were made by foreign manufacturers operating in 50/50 joint ventures with Chinese government-owned companies. These include Volkswagen, Mitsubishi, General Motors, Hyundai, Nissan, Honda, Toyota, Mercedes, Ford, BMW, etc. (Wikipedia, 2010).

   General Motors is the number one auto company in China, followed by Volkswagen, each with more than 10% market share (Tang, 2009). Foreign joint venture manufacturers currently account for about 70% of the domestic automobile market (Chang, 2012). New Chinese government plan aims to see the domestic manufacturers' market...