It’s hard to guess what President Lincoln might have thought about his namesake toy—Lincoln Logs building sets—being manufactured in China for decades. But Honest Abe would surely relish recent news that K’NEX Brands LP, Pennsylvania-based maker of the small wooden playthings, now produces them in Maine.
The toymaker is not alone. In markets as diverse as hosiery, flooring, refrigerators, grills, and plumbing supplies, companies are reevaluating their offshore supply chains. Sometimes the shift in thinking is prompted by health scares associated with foreign-sourced products; for example, pet food recalls helped to fuel an upsurge in US-made edibles for dogs and cats. During the economic slump, many clothing and furniture customers pressured sellers to support domestic factories by stocking American goods. There are also new sales opportunities: in 2013, Walmart promised to boost its purchases of US-made products for Walmart and Sam’s Club stores by $50 billion over the next decade. The retail behemoth followed up last summer with an unprecedented “open call” for more than 500 American manufacturers to pitch their wares to its executives. “This is a commitment around manufacturing and more economic renewal,” said Walmart US’s former chief merchandising and marketing officer Duncan MacNaughton. “We see it as a critical issue for us in the American economy.”
His view appears to be shared by a large majority of ordinary shoppers. According to a 2013 survey by Consumer Reports National Research Center, 78 percent of Americans preferred to buy a domestically made product over an identical one made elsewhere. Over 80 percent of those committed to buying American cited the importance of retaining jobs and strengthening US manufacturing in the global economy, while 60 percent expressed concern about overseas labor practices or believed that American goods are superior to foreign substitutes. In another shopper survey conducted by Perception Research Services International, four out of five respondents said they notice “Made in the USA” claims on packaging—and 76 percent of those who noticed the claim were more likely to buy the domestically produced product.
A key impetus for the “Made in the USA” resurgence is more about business expenses than survey results. Manufacturing abroad—especially in China—no longer offers the cost advantage that was, until recently, overwhelming. Citing “rising Chinese wages, higher US productivity, a weaker dollar, and other factors,” a 2011 Boston Consulting Group report predicted that the cost gap between the US and China will close within five years, bringing to an end the days of routinely viewing China as “the default option.”
But despite all the good news for devotees of buying American, the wave of companies returning to US factories is still far short of a tsunami. Some firms remain nervous about making long-term investments in stateside plants, equipment, and personnel. According to a recent report in the Wall Street Journal, “many US-based designers of consumer products over the past two decades have grown comfortable contracting with overseas manufacturers. Some doubt they can get the same expertise, efficiency and flexibility in the US.” Companies also recognize that the costs of American production, while currently on a downswing, could escalate down the road. Ultimately, the issue for such holdouts boils down to this: does “Made in the USA” have staying power? Can they count on stable—and hopefully growing—consumer preference for domestic products?
Here’s another way of phrasing the central question. Beyond surveys, which only measure attitudes at a single point in time, is there rigorous evidence that people really care where things are made? The answer of marketing and communication scholars: unequivocally, yes. Numerous studies document the power of what researchers call Country of Origin (COO) effects—findings that are clearly relevant to business leaders considering a sourcing change.
It’s been known since the 1980s that consumers routinely use COO as a proxy for quality, unless they are motivated to carefully scrutinize a product’s claims—say, by a high price or because the purchase is very important to their lives. However, even shoppers who think hard before making a choice can be induced to focus on COO information if marketers deliberately call it to their attention, say some consumer researchers. For example, in a 2000 article in the Journal of Consumer Research, Zeynep Gürhan-Canli of the University of Michigan and Durairaj Maheswaran of New York University suggested that high-motivation consumers can be “primed” to make positive COO associations by new and compelling examples of the country’s assets. And it’s not just what people believe about the quality of a country’s products that matters; Maheswaran of NYU and Cathy Yi Chen of Singapore Management University argued in a 2006 Journal of Consumer Research paper that brand choice can also be influenced by positive or negative emotions stirred up about a nation’s history, political circumstances, or actions in the world. This means that sales of seemingly innocuous products like socks or cooking utensils could decline—or spike—because their COO is involved in, say, the Middle East conflict.
A team of communication scholars found that a country’s product-related image—like “Japan makes the best computers”—influences brand evaluations even when COO information is presented as a peripheral cue to consumers who do not expect to consider it. In a 2005 experiment conducted by Scott S. Liu of the University of South Florida and Keith F. Johnson of the University of Southern Mississippi, participants viewed ads for notebook computers, which provided sufficient information to form brand judgments. Then, as a kind of afterthought, they were told which brands were “Made in China” or “Made in Japan.” Consistently, participants judged the brands “good” or “bad” based on their preliminary ratings of products made in those countries. Observing that “COO is capable of producing automatic influence on consumer thought and action,” Liu and Johnson concluded in the The Journal of Advertising: “The general practical implication… is that COO may be more powerful than what has traditionally been thought and detected.”
In a 2011 British study reported in the Journal of International Marketing, two professors took a different tack, posing the question: what happens when consumers associate products with the wrong COO? Even strong brands, they hypothesized, could be hurt if linked to a country with a weak reputation on such relevant dimensions as design, prestige, and workmanship.
Focusing on a dozen UK brands of microwave ovens, George Balabanis of the City University of London and Adamantios Diamantopoulos of the University of Vienna designated five microwaves as strong and seven as weak based on market performance. Next, they administered a survey to a random sample of UK consumers, asking them to identify each brand’s COO or to indicate “don’t know.” The misidentified brands were divided into two categories: in one, the incorrect COO had a more favorable image than the correct COO, and in the other, the incorrect COO had a less favorable image than the correct COO.
They found that misidentification significantly affected consumer judgments. When a brand was linked to an inferior COO, its image clearly suffered—regardless of whether it was strong or weak, or whether its real COO was favorable or not. The damage was still worse for strong brands, which also took a hit on purchase intentions. This led the researchers to comment: “…Brands have (considerably) more to lose than to gain if their true origins are misclassified.” Moreover, Balabanis and Diamantopoulos found that a consumer’s inability to identify COO (the “don’t know” response) was just as harmful to perceptions and intentions as an unfavorable linkage. “It appears that classification to any COO is preferable to nonclassification,” they wrote. “…Brand names that provide no clues as to their likely origin might negatively affect consumers’ brand image perceptions and purchase intentions.”
For business leaders, perhaps the most compelling evidence of all comes from a 2012 article in the Journal of International Marketing. In a series of studies in Germany, Nicole Koschate-Fischer and Katharina Oldenkotte of the University of Erlangen-Nuremberg and Adamantios Diamantopoulos of the University of Vienna found that people not only had favorable opinions of products from well regarded countries—in the course of an experiment, they actually paid a premium for these products. Of particular interest to US marketers, participants were willing to spend significantly more for products they were told were American brands of sports shoes and DVD players than for comparable products identified as South Korean. Pointing out that “being able to ‘monetize’ the COO effect is of great significance because price… [has] direct and disproportional impact on profitability,” these authors also warned: “…Relocating plants or production facilities to a COO with a less favorable country image for the sake of cost savings should be weighed against the possible margin losses that may result from the lower WTP [Willingness to Pay] that also may result from the move.”
Of course, a rosy outlook for “Made in the USA” assumes that American manufacturing will retain the aura of quality and value it enjoys today. At least in theory, this could change with business scandals or political unrest. In the foreseeable future, however, it’s hard to argue with the Boston Consulting Group’s prediction: “The US will become an increasingly attractive option, especially for products consumed in North America…[and] can look forward to a manufacturing renaissance.”