Consumer-Imposed Restrictions
Consumer-Imposed Restrictions
Government-imposed legal measures are not the only trade barriers to otherwise competitive goods: Consumer desires also may dictate limitations. For example, consumers may prefer buying domestically made goods, even though they are more expensive. They also may demand that merchandise be altered so substantially that scale economies from exporting are infeasible. The reasons for preferring domestically made products may include nationalism, a belief that foreign-made goods are inferior, or a fear that service and spare parts will not be easily obtainable for imported wares.
Nationalism
The impact of nationalistic sentiments on investment movements is not assessed easily; however, some evidence does exist. There have been active campaigns at times in many countries to persuade people to buy locally produced goods. In the United States, for instance, attempts have been made to boycott Polish hams, Japanese Christmas ornaments, and French wines. Some U.S. manufacturers have promoted "made in the USA" to appeal to consumers in areas that have been hit with import competition.15 Fearful that adverse public opinion might lead to curbs on television imports, some Japanese firms announced the establishment of production plants in the United States.16
Product Image
The link between product image and direct investment is clearer than the one just discussed between nationalism and direct investment. The image may stem from the merchandise itself or from beliefs concerning after-sales servicing. In tests using commodities that were identical except for the label of country origin, consumers were found to view products differently on the basis of product source.17 Although there are examples of eventual image changes, such as the general improvement in the image of Japanese products that occurred concomitantly with the decline in image for U.S. products, it may take a long time and be very costly for a company
to try to overcome image problems caused by manufacturing in a country that has a lower-image status for a particular product. Consequently, there may be advantages to producing in a country with an already-existing high image.
Delivery Risk
Many consumers fear that parts for foreign-made goods may be difficult to obtain from abroad. Industrial consumers often prefer to pay a higher price to a producer located nearby in order to minimize the risk of nondelivery due to distance and strikes. For instance, Hoechst Chemical of Germany located one of its dye factories in North Carolina because the textile industry in that region feared that delivery problems would plague the cheaper German imports.
Product Change
Often a company must alter a product to suit local tastes or requirements, and this may compel the use of local raw materials and market testing. Test marketing and altering a product at a great distance from the production is most difficult and expensive. Coca-Cola, for example, sells some drinks (made from local fruits) abroad that are not available in the United States. It is definitely much cheaper to make these drinks overseas.
The need for product alteration has two other effects on company production. Initially, it means an additional investment; as long as an investment is needed to serve the foreign market anyway, management might consider locating facilities abroad. Next, it may mean that certain economies from large-scale production will be lost, which may cause the least-cost location to shift from one country to another. The more the product has to be altered for the foreign market, the more likely that the production will be shifted abroad. Two of the factors influencing the decision of Volkswagen to set up U.S. production facilities, for example, were the ever-increasing safety requirements set by the U.S. government and the desire for new options by U.S. consumers, which were different from those needed to sell in other parts of the world. But these changes were not sufficient to garner a large share of the U.S. market, and Volkswagen announced the closing of its U.S. assembly operations in 1987.
Government-imposed legal measures are not the only trade barriers to otherwise competitive goods: Consumer desires also may dictate limitations. For example, consumers may prefer buying domestically made goods, even though they are more expensive. They also may demand that merchandise be altered so substantially that scale economies from exporting are infeasible. The reasons for preferring domestically made products may include nationalism, a belief that foreign-made goods are inferior, or a fear that service and spare parts will not be easily obtainable for imported wares.
Nationalism
The impact of nationalistic sentiments on investment movements is not assessed easily; however, some evidence does exist. There have been active campaigns at times in many countries to persuade people to buy locally produced goods. In the United States, for instance, attempts have been made to boycott Polish hams, Japanese Christmas ornaments, and French wines. Some U.S. manufacturers have promoted "made in the USA" to appeal to consumers in areas that have been hit with import competition.15 Fearful that adverse public opinion might lead to curbs on television imports, some Japanese firms announced the establishment of production plants in the United States.16
Product Image
The link between product image and direct investment is clearer than the one just discussed between nationalism and direct investment. The image may stem from the merchandise itself or from beliefs concerning after-sales servicing. In tests using commodities that were identical except for the label of country origin, consumers were found to view products differently on the basis of product source.17 Although there are examples of eventual image changes, such as the general improvement in the image of Japanese products that occurred concomitantly with the decline in image for U.S. products, it may take a long time and be very costly for a company
to try to overcome image problems caused by manufacturing in a country that has a lower-image status for a particular product. Consequently, there may be advantages to producing in a country with an already-existing high image.
Delivery Risk
Many consumers fear that parts for foreign-made goods may be difficult to obtain from abroad. Industrial consumers often prefer to pay a higher price to a producer located nearby in order to minimize the risk of nondelivery due to distance and strikes. For instance, Hoechst Chemical of Germany located one of its dye factories in North Carolina because the textile industry in that region feared that delivery problems would plague the cheaper German imports.
Product Change
Often a company must alter a product to suit local tastes or requirements, and this may compel the use of local raw materials and market testing. Test marketing and altering a product at a great distance from the production is most difficult and expensive. Coca-Cola, for example, sells some drinks (made from local fruits) abroad that are not available in the United States. It is definitely much cheaper to make these drinks overseas.
The need for product alteration has two other effects on company production. Initially, it means an additional investment; as long as an investment is needed to serve the foreign market anyway, management might consider locating facilities abroad. Next, it may mean that certain economies from large-scale production will be lost, which may cause the least-cost location to shift from one country to another. The more the product has to be altered for the foreign market, the more likely that the production will be shifted abroad. Two of the factors influencing the decision of Volkswagen to set up U.S. production facilities, for example, were the ever-increasing safety requirements set by the U.S. government and the desire for new options by U.S. consumers, which were different from those needed to sell in other parts of the world. But these changes were not sufficient to garner a large share of the U.S. market, and Volkswagen announced the closing of its U.S. assembly operations in 1987.
Comments
Post a Comment