Introduction

Poster Session

E-Commerce and Country-of-Origin Effects

Francis M. Ulgado, Ph.D. (contact author)

Associate Professor of International Marketing

Georgia Institute of Technology

DuPree College of Management

Atlanta, GA 30332-0520

U.S.A.

Phone: 404-894-4360

Fax: 404-894-6030

E-mail: francis.ulgado@scheller.gatech.edu

John R. McIntyre, Ph.D.

Professor of International Management

Georgia Institute of Technology

DuPree College of Management

Atlanta, GA 30332-0520

U.S.A.

Phone: 404-894-1463

Fax: 404-894-6030

E-mail: john.mcintyre@scheller.gatech.edu

Work in Progress Draft

Please do not quote or reproduce without the consent of the authors

Submitted to the Annual Meeting of the Academy of International Business

March 2000

E-Commerce and Country-of-Origin Effects

Abstract

This paper examines the Country-of-Origin effects in an e-commerce environment.� In addition to Country-of-Brand and Country-of-Manufacture effects, the paper investigates the presence and significance of Country-of-E-commerce Infrastructure.� It develops hypotheses regarding such effects amidst varying customer and market environments, such as business vs. consumer buyers, levels of economic development and product type, and proposes a methodological framework to test the hypotheses.

E-Commerce and Country-of-Origin Effects

Introduction

Recent years have witnessed a rapid increase in the range of multimedia technologies available internationally.� Among them, the Internet technology has dramatically changed the shopping environment for individual consumers and businesses throughout the globe.� The number of consumers worldwide purchasing through business-to-business as well as business-to-consumer e-commerce media ("e-commerce hereafter) has been skyrocketing these days.� However, preliminary statistics indicate that the level of growth and development of internet and e-commerce infrastructure varies across countries and has generally lagged behind the United States.� Meanwhile, current research has also indicated the continued prevalence of country-of-origin effects on consumer perception on products or services that they purchase.� This study investigates the presence and significance of country-of-origin effects on buyer perception in the e-commerce environment.� While, country-of-brand and country-of-manufacture dimensions have been investigated in the past, this paper adds country-of-e-commerce infrastructure effects.� These three variables are selected to be examined under different business-to-business, business-to-consumer, and level of development environments.

The E-Commerce Environment

�� The size of the worldwide market for e-commerce was about 66 billion dollars in 1999 and is expected to grow to about 1 trillion dollars this year.� In the U.S. alone, this is expected to reach $33 billion by the end of this year (Nielsen//Net Ratings Holiday, E-Commerce Index, 1999).� While this significant global growth is widely expected and documented, it has also been observed that the rest of the world lags behind the United States.� In contrast to the U.S. for example, regions such as Asia, Latin America, and Eastern Europe are behind in development and growth of e-commerce in terms of infrastructure, buyer acceptance, and use.�� Moreover, different countries themselves also exhibit varying degrees of growth and development relative to their neighbors in the same region� (see Figures 1, 2, and Table 1).�

(Figure 1 about here)

(Figure 2 about here)

(Table 1 about here)

Even amongst developed countries such as Canada, Japan, and Western European nations, the U.S. remains far ahead of the game. (see Figure 3).

(Figure 3 about here)

It is therefore not surprising that according to recent studies, U.S. web sites such as Yahoo! or Amazon dominate the international market.� Similar studies also indicate that in general, business-to-business e-commerce so far exceeds business-to-consumer transactions on the internet.

�� In addition, while the internet may be seen as a marketing medium or tool that would globalize business, the literature suggests that the varying cross-cultural environments across countries in terms of the legal, political and cultural variables have resulted in different purchase behaviors and attitudes towards e-commerce.� In countries such as China, government regulation and intervention in e-commerce has been more significant, resulting in a relatively more politically influenced and legally constrained commercial environment.� The uncertainty and risk resulting from such a situation has hampered the development of the infrastructure and the attitudes of consumers. Finally, even in "wired" cosmopolitan Hong Kong, cultural traditions and preferences have hampered U.S.-proven e-commerce formats such as online grocery shopping.� The lack of supporting financial infrastructure in other countries has also hampered the development of e-commerce.� For example an Asian-based online toyseller has resorted to processing online orders through U.S. banks since no local banks are willing to do so.��

In more economically developed areas of the world, most consumers in European countries are legally required to pay by the minute while online, significantly influencing their ability to participate in e-commerce.�� Even in communications technology-savvy countries such as Sweden, Denmark and Finland most households use the internet primarily for activities such as e-mail, information, and working at home, and significantly less for e-commerce.�� In other countries that do exhibit e-commerce activity research has found varying consumer behavior.� For example, web-site preferences have been shown to vary across e-consumers of the United Kingdom, France and Germany.

Given such varied and complex cultural, legal and political influences on the e-commerce experience in other countries, it is not surprising that internet-based companies have had difficulty expanding their markets internationally.� For example, London-based Boo.com, a sports and urban fashion "e-tailer", has had its European expansion of its multicultural brands to a sophisticated clientele stymied by different software, supply chains, currencies, EU regulations, and tax and customs laws.

Country-of-Origin Literature

One issue that such international e-marketers face is the possible influence of country image on their potential buyers.� The influence of the perception of a country by a consumer can significantly affect their perception of a product or service associated with that country and the resulting buyer behavior.� Such influence has been termed "Country-of-Origin" effects on consumer perception.� Various research have offered a range of definitions explaining COO (e.g., Bilkey and Nes 1982; Han and Terpstra 1988; Johansson, Douglas, and Nonaka 1985; Thorelli, Lim and Ye 1989; Wang and Lamb 1983).� However, as we have increasingly found the separation of manufacturing or assembly location from the country with which the firm or brand is associated with, the term "origin" has become vague.� This can be clarified by differentiating between country-of-brand (COB), the country with which the brand or firm is associated, and country-of-manufacture (COM), the country in which the product is made.� Thus, uni-national products can be defined as those whose COB and COM are the same, whereas bi-national products are those whose COB differs from the COM.� We can also extend this further to define multi-national products in which COB differs from not only a� COM, but multiple COMs given by multiple countries of assembly and sources of component parts.� The effects of bi-national products have been observed by Ulgado and Lee (1993) and Hauble and Elrod (1999).�� Others have further decomposed the COM effect into Country-of-Design, Country-of-Assembly, and Country-of-Parts (Inch and McBride 1996).

There has been a substantial amount of studies supporting� significant effect of COO on consumers' product evaluations (see Bilkey and Nes 1982, Johansson, Douglas and Nonaka 1985, and Ozsomer and Cavusgil 1991 for a review).� Consumers prefer products from some countries over others (Tongberg 1972; Yaprak 1978).� Such preference bias for products generally exists across levels of economic development of countries, indicating their hierarchical nature (Schooler 1971; Tongberg 1972; Wang and Lamb 1983).� Studies have shown that country identification generally has a positive effect on product evaluations for some, relatively more developed countries (Darling and Wood 1989; Gaedeke 1973; Han and Terpstra 1988; Papadopoulous, Heslop and Beracs 1990), while it has a negative impact for other, lesser developed countries (Khanna 1986; Krishnakumar 1974).� The significant COO effect has also been found in industrial purchasing or business-to-business� situations (Nagashima 1977; White 1979; White and Cundiff 1978).

While arguments have been made doubting the prevalence of the COO effect (Samiee 1994), recent empirical evidence shows that the effects still presist (Johansson 1997; Papadopoulis, Heslop, Szamosi and Ettenson 1997; Saghafi and Puig 1997; Nebenzahl and Jaffe 1997).� However, the universality of the significant COO effect is seriously questionable as many studies have found variables that moderate the effect.� For example, studies have found the COO effect to be consuming country-specific (Cattin, Jolibert, and Lohnes 1982; Nagashima 1970), product-specific (Bannister and Saunders 1978; Kaynak and Cavusgil 1983; Lumpkin, Crawford and Kim 1985) or consumer-specific (Anderson and Cunningham 1972; Eroglu and Machleit 1988; Wall and Heslop 1986; Wall, Heslop, and Hofstra 1988; Shimp and Sharma 1987).� Therefore, it is believed that the emphasis in future COO studies should move towards specifying the conditions under which consumers show different COO effects, instead of documenting the general effect.� Following this logic, one interesting question is: Do consumers rely heavily on country information in the internet environment?� This paper attempts to� investigate the answer to this question and related issues.

�

Hypotheses

�� The central idea of this research is that In addition to COB and COM effects, the country in which the e-commerce infrastructure is based (COE), also has an effect on consumer perception and behavior.� Statistics have shown for example, that in Latin American countries, there is a greater preference for U.S.-based web sites than for local-based counterparts.� As Table 2 indicates, with the exception of Brazil, Latin American e-commerce users exhibit a positive perception of American web sites, relative to local sites.� It should be noted that relative to its South American neighbors, Brazil maintains the most developed internet infrastructure and e-commerce environment.�

(Table 2 about here)

Moreover, the Table also shows that as time goes by and local web sites grow and develop, the preference for U.S. sites diminishes while preference for local sites increases.� Given these trends and the evidence given by past COO research, we hypothesize:

H1:�� COE effects exist and are positively related to the level of development of e-commerce infrastructure.

However, other studies have indicated that the strength of brand equity, which includes COB effects, and other intrinsic cues such as product attributes can diminish the impact of COM (for instance, Ulgado and Lee 1993).�

�� H2:�� COE effects would be relatively be less salient than COB effects.

Since significant COO effects have also been found in industrial purchasing or business-to-business� situations (Nagashima 1977; White 1979; White and Cundiff 1978), we expect to find the same behavior in an e-commerce environment.� In this case however, the business-to-business experience and familiarity with e-commerce significantly surpasses that of the business-to-consumer community.� Therefore, we expect the impact of COE effects to be less for the industrial buying situation:

H3:�� COE effects exist in business-to-business environments and are relatively less significant than in business-consumer situations.

Past research has also demonstrated that COO effects vary by product category (Roth and Romero 1992; Kaynak and Cavusgil 1983; Han and Terpstra 1988; and Bannister and Saunders 1978).� ��This study �seeks to determine whether �product category influences the strength of the COE cue:

H4:�� The magnitude of COE effects varies according to product cateogry

��

Research Method

Data Collection

Sampling. Data are collected from a sample through written questionnaires supplemented by personal interviews of industrial and consumer buyers of online products in multi-country large metropolitan ares. Countries selected are the U.S., France, South Korea and the Philippines.� These countries vary in terms of level of economic and e-commerce infrastructure development, internet consumer behavior, and cultural environment.� The survey sample is developed from local information sources of individuals engaged in online business-to-business or business-to-consumer purchasing activity.

Design. The study uses a 3 products x 3 countries x 3 COO construct design and specifically manipulates the COB, COM and COE components.� The three product categories selected are printed matter (books, magazines, newspapers), computer-related products, and travel services.� These categories were selected for product familiarity across industrial and consumer buyers, and variability in terms of involvement (high vs. low) and product type (product vs. service).�� Multiple product categories are tested in order to determine whether product type impacted the salience of the COO dimensions. The three countries selected are the U.S., the U.K., and Hong Kong.� These countries were selected in terms of their relative contrast in levels of economic and internet infrastructure development, and e-commerce experience.

�� Questionnaire. Questionnaire booklets are constructed and translated and back translated as needed.� Twenty seven different survey questionnaires are developed, each involving print advertising in the same order (printed matter, computer related product and travel services).� The varying information among the questionnaires is the addition of the country-of-brand cue, the country-of-manufacture information, and the country-of-e-commerce infrastructure cue.� To control for price, none of the products have a sales price included in the ad.� Items using a 7-point likert scale are developed to measure the resulting respondent product perception and purchase intent upon exposure to the advertisement.�

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