CHAPTER 1 INTRODUCTION 1.

1 Background When we market our products or brands, whether they are foreign or local products, we need to have a good marketing strategy. As we know, marketing strategy consists of segmentation, targeting, positioning, and 4Ps (Product, Price, Place, and Promotion). A good marketing strategy can be developed only when we have already conducted a market analysis for our product or brand. At the stage of marketing analysis, we analyze 4 main aspects which are competitor, consumer, company, and changes (external factors). This thesis will analyze mostly on Consumer area and one of the aspects being analyzed from that area is the Country of Origin (COO). 1.2 Country of Origin (COO) The Country of Origin of produc t, which is typically operationalized or

communicated through the phrase Made in, is an extrinsic product cue (an intangible product attribute) that is distinct from a physical product characteristic or intrinsic attribute. As such, COO cue is similar to price, brand name, or warranty in which none of these is directly related to the product performance. COO plays a big role when consumers determine whether they want to buy the product or not. For example, when people want to buy micro electronic products, people tend to choose products Made in Japan rather than other product which is not Made in Japan, because Japan is already well known in micro electronic products. The names of foreign brand products are usually associated with the COO of the brand. Many brands take promotion of such brand means either highlighting the COO as has been the case with American Jeans, Marlboro cigarettes, Italian pasta and French perfume such as Chanel or

alternately, ignoring the COO depending on the perception of consumers in the foreign country market (Kinra, 2005). According to Papadoupuolous et al, 1993, many companies take a good advantage from using positive association with the COO in marketing their goods as for example, the favorable association of Germany with beer, Sweden with cars, and Japan with microelectronics. However, COO can be a negative impact for certain products, for example Kao and Shiseido, while successful in Japan and other Asian countries, Kao and Shiseido had a difficult time penetrating the European and US market, because people in Europe and US think Kao and Shiseido are specialists in Asian skins (Kotabe and Helzen). If the COO stereotype is negative, it can pose formidable barriers for marketers attempting to position their goods within a foreign market according to Johansson (1994). There are some cases that many international products do not need emphasizing their COO like in the case of hand phone industry such as Nokia, Samsung, Motorola, Sony Ericsson for developing their brand images, they need nothing related with their COO and also do not use their national COO when promoting and marketing their products. 1.3 Indonesian and Indian Consumer Market Development It is interesting to analyze Indonesian market with comparison to the Indian market because both markets have been a battle field for both domestic and foreign brands in the country. In the 1980s and 1990s and beyond, Indonesia and India have been characterized by main structural change in their consumer market development, increasing number of competition, product availability in terms both of quality and quantity, as well as increased level of consciousness and tendency to consume. The ongoing trend towards development of Indonesian and Indian economy during the past

two decades has served as a major issue in its movement towards global economy and the access of foreign brand from Europe, US, Japan and lately China and Korea into this market. However giving an access to the foreign brands to the local market also provides access to local brands to enter their market. A great and fast growing urban middle and upper class consumer market also creates bigger opportunity for foreign brands to grow in Indonesian and Indian market. A multitude of foreign branded goods are now freely used as well as easily available in Indonesian. Related trends such as decrease in interest rate increase the consumption and investment in Indonesia. Asian Development Banking estimated that Indonesian economy will grow at 6 percent in the year 2007 and will be 6.3 percent at the year 2008 (Antara News, 2007). It is more or less similar with Indian economy. Indonesian market along with decrease in import duties of goods has opened the way for entry of companies among others, from Germany, France, US, Korea, Japan, and China. The main tactic of those companies when entering Indonesian and Indian market is creating a strategic partnership with local company to make more variation in foreign branded goods to Indonesian and Indian. Other than the above tactics many foreign companies also undertake foreign direct investment by setting up their factory in Indonesia to increase their efficiency in their production. In Indonesian market foreign companies like Toyota (Japan), Honda (Japan), Suzuki (Japan), Mercedes Benz (Germany), are prevalent in the Indonesian car market, as well as foreign TV brands, ranging from Sony (Japan), Samsung (S. Korea), Toshiba (Japan), to local brands such as "Polytron (Indonesia). Similarly, the washing machine market is dominated by "LG, and the refrigerator market by brands such as "SHARP" (S. Korea). In the consumer non-

durables product categories such as tea, coffee, and detergents according to (MARKETING, 2007) the competition from foreign brands has been relatively less in tea and coffee, and there is a predominance of local products as in the case of tea (Sosro), coffee (Kapal Api), but in case of detergents (Rinso), and toothpastes (Pepsodent), foreign brands are still in dominance in these two categorize. In Indian market, foreign companies like Hyundai (S. Korea), Daewoo (S. Korea), General Motors (US), Ford (US), are prevalent in the Indian car market, while TV brands ranging from Sony (Japan), Samsung (S. Korea), LG (S. Korea), also triumph over local brands such as "Videocon" (India), and "BPL" (India). Similarly, the washing machine market is dominated by "Whirlpool" (US), and the refrigerator market by brands such as "LG" (S. Korea), "Godrej" (India), "Voltas" (Indian conglomerate). In the consumer non-durables product categories such as chocolates, tea, coffee, and detergents the competition from foreign brands has been relatively less, and there is a predominance of local products as in the case of tea (Taj Mahal), coffee (Tatacafe), detergents (Nirma), toothpastes (Babool, Dabur, Vicco along with Close- up, Pepsodent), and ice creams (Vadilal, Kwality). (Kinra, 2005). Foreign brands in the Indonesian market have thus begun to compete for both market share and the psychological mind share of consumers. The opportunities in the retailing sector make many foreign investor or local investor bring foreign brands come to the Indonesia; Indonesian market now also holds a position of good reputation with several foreign retail chains setting up their stores. Opportunities in the retailing sector are seen to be increasing with the emerge of fast food chains like McDonalds, Kentuckys, Wendys, Krispy Kreme, department stores like

Sogo, Debenhams, electronics good and exclusive retail outlets like those of Nike, Adidas, Reebok, GAP, and ZARA.

1.4 Scope With reference of the title of this thesis i.e. The effect of Country of Origin on Foreign Brand names in the Indonesian market, the scope of this thesis is Indonesian market especially in Jakarta. The sample is 131 consumers with the age above 18 years old. This study adds to the body of knowledge of country of origin effect, in a massive and fast developing market. Jakarta is chosen for conducting this research because of the following reasons: Jakarta is the capital city of Indonesia Jakarta represents the middle and upper class Indonesian people. Jakarta is the Indonesian economic barometer. Jakarta market is the most exposed market in Indonesia to foreign products or brands. People in Jakarta are easily attracted to foreign brands and products.

This research discussion will be examining effect of COO of the product on foreign brand name product. The product categories comparison will using brand of a product, not COO of the product.

1.5 Aims With reference to a journal on The Effect of Country of Origin on Foreign Brand Names in the Indian market which was published by Prof. Neelam Kinra, the purpose of the research purpose is to investigate consumer attitudes in Indonesia towards local and foreign brand names and stereotypes of country of origin covering the range from positive to negative. This research topic was selected because only a few information on consumer attitudes, preferences, and market behavior with regard to foreign brand names in Indonesia, even though COO image measurements in Asian country markets have been attempted (Pereira et al., 2005, Kinra, 2005). This research also aims to get better understanding of behavior and preferences of Indonesian consumers on foreign and local brands and also investigate consumer ethnocentrism accounts for a positive bias toward local domestic product and a negative bias against product originating from foreign countries, to identify if there was any strong domestic country bias in the choices of brands. 1.6 Benefits In the similar research which was conducted in India and published by Prof Neelam Kinra, we are able to identify the benefit of the research. It showed that the quality of foreign brands was perceived to be generally higher and superior to local brands. Most consumers in India also associate greater accessibility of foreign brands in

the Indian market with better quality at lower prices. Despite high levels of nationalism and preference for indigenous manufacture, as evidenced in high factor ratings on an ethnocentrism scale, which might indicate a positive bias towards local brands, Indian consumers were not prejudiced against foreign brand names. In fact, they evaluated them higher on technology, quality, status and esteem than Indian brands, and attributed higher credibility to those countries-of-origin. The information above informs us about how foreign brands are likely to be seemed in relation to the local products and those originating from other competing countries in Indian market. By using the research conducted in India as the basis, this research is also expected to provide information about Indonesian market with regard to COO issue. This research will also benefit for foreign company who wants to develop marketing strategy for their brands in the local markets and also for local company partnering with foreign companies to define its marketing strategy. 1.7 Structures This paper is structured into these following sections. Section 1 would explain about the background of the case including the analysis of Indonesian and Indian market, scope, aims and benefits of the thesis. Section 2 is about the literature review which consists of various theories that will support the research. Section 3 describes the problems; data and variables used in this thesis study and the research methodology. Section 4 describes the findings of the study and evaluation of the result. This thesis is concluded in section 5 with a summary of conclusion and recommendation for the foreign and local company.