Breaking Free of a Stereotype: Should a Domestic Brand Pretend to Be a Foreign One?

Consumers in many emerging markets exhibit a pronounced preference for western and global brands, while domestic brands are often associated with a cheap but low quality image. Frustrated with the negative country-of-origin (COO) stereotype imposed on them, many domestic brands from emerging markets follow a variety of approaches to disguise their COO and pretend to be foreign. This paper studies the strategic aspects of this phenomenon. We consider an experience good market where consumers learn about each brand’s quality, using its COO as a prior. Each firm can invest in product quality or COO dissociation; the former generates better quality signals while the latter simply masks the firm’s COO identity. The analysis reveals a few main insights. Sharing a reputation leads to a common good problem where firms free-ride on each other’s quality investments. As a high quality firm dissociates itself from the stereotype, it ceases to contribute to the COO image but also prevents its low quality peers from free-riding on it. This incurs a negative direct effect but a positive strategic effect on the group image. Consequently, a country’s COO image may actually improve when more high quality brands shun their identities and pretend to be foreign. In equilibrium, COO image improves monotonically as firms become more efficient in providing quality. However, the prevalence of COO dissociation may first increase then decrease. We discuss the implications of these results for emerging market brands as well as policy makers.