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Research Overview: Buy American
Chris: Today we’re going to discuss the Buy American concept. More specifically, we're going to take Dr. Vikas Mittal's research on the strategy and dive into this particular motivator of consumer behavior.
Dr. Mittal, can you start us off by giving us a brief overview of the research and your findings?
Vikas: Everywhere you go today, 'Buy American' is a big thing. Our current political landscape has basically brought it up, and everybody's into it.
The idea of branding through a country of origin dates back to almost 100 or 200 years ago when there was trade between different countries. The main, basic idea was that countries had natural advantages in terms of resources that allowed them to specialize. China had silk, India had spices, the Middle East had fruit and that's how trade happened.
There was some sense that because countries had natural advantages, the quality of the stuff that they produced was also superior. That's how this idea of the country of origin came through. Then, as technology took over – you can think of it as industrialization – this idea of the country of origin took a back seat because technology brought standardization.
For example, the printing press: a book produced in London is probably the same quality as a book printed in America or in China. So this concept almost disappeared. It resurfaced sometime in the early 1900s in the form of what people call ethnocentrism.
Ethnocentrism is this idea of supporting your own country. The original idea of the country of origin was based on the quality of the products in different countries. This other concept literally means supporting your country in the form of economic development and employment. In America, this happened in the 1960s, ‘70s, and ‘80s; in the days when we saw a lot of flight of industry.
Today, the idea of 'Buy American' has elements of all of these. But in some fashion, it also incorporates this idea of what is called “country animosity.” There are some countries that are our friends and some that aren’t, and that may be a reason to buy or not buy from them.
It's a complex issue, and the biggest mistake companies can make is to conflate 'Buy American' with patriotism. They are not the same thing.
The other mistake companies can make is to jump on the bandwagon of 'Buy American,' thinking that if they can show themselves to be American made, people will run out to buy more of their product.
Buy American vs. Patriotism
Chris: You said patriotism and 'Buy American' aren't the same. But to the consumer it can look like the same thing. What's the distinction between them? Can you talk a little bit about that partition?
Vikas: Patriotism can be understood like loyalty to your country. It’s like putting your country first. The concept of 'Buy American,' which is rooted in the idea of consumer ethnocentrism, means that I want to engage in commerce in some way that helps the economic development of my own country.
Some people might want to buy a car that is locally produced because it might also create local jobs. But these might not be the same people who will enlist in the Army.
Bo: Doing some research, I found out about the Buy American Act of 1933. What was happening then? Industrialization was changing; there was a shift in the economy from the industrial age to the age of technology.
Things were changing, so Hoover had to pass an act to get Americans to buy. Then in the ‘60s and ‘70s, when technology and computers were coming in, and that paired with the Cold War. What ended up happening is that in the period when Regan was saying, “Buy American,” the concept was getting mixed up with Cold War ideas, and it became a patriotic kind of thing.
Now we’ve got President Trump saying, “Buy American” while a similar transfer in the economy is happening. Only this time it is from technology to robotics. From a branding standpoint, the natural reaction – to Dr. Mittal's point – is to start conflating and mixing up all of these different themes.
People are going to buy local because they want to support their community, but it's not a "go-to-war" kind of thing. Yet, grasping the concept is still confusing now that it is sticking itself back into the conversations around how we market our product.
Buy American vs. Country Branding
Vikas: People also tend to confuse 'Buy American' with country branding. Country branding is the idea that if a product or service can be associated with a country – and it doesn't necessarily have to be produced there – it will take on some of the characteristics of the country.
For example, Italy is renowned for its artistic expression. If you show people a set of clothing and say, “This was made in Italy,” and some other piece of clothing and say, “This was made in a different country,” it is more likely that the clothing made in Italy will have better resonance.
Similarly, Japan is known for its tenacity, its quality function movement, TQM. And those associations persist. France is known for cooking and its flavors, so wine and France seem to go together. That's the idea of country branding.
If a company here in the U.S. wanted to take advantage of the “Made in America,” you would have to think of those American characteristics that you want your product to represent, and that's how you would go forward.
Bo: Apple is a great example for that. Not much of it is made in or manufactured here, but on the back of their boxes, they've always had “Designed in California.”
The idea of the United States being known for innovation, engineering excellence, new technology and coming up with interestingly-designed objects fits the brand. They've decoupled the concept of “made in” and “designed in.” But by separating these functions, they made the attribute of design fit with America.
Vikas: That's the first piece of country branding. You need to figure out what are the product attributes or benefits that you want, and what are the country attributes that can be laid over your products' brand. Then, you must define what can be presented to the customer that makes sense.
For example, in terms of universities, America is known for its research capability. Americans routinely win Nobel Prizes and such. Because of that, a lot of universities and education institutions brand themselves as American. To a lot of people, an MBA from an American university has more meaning than the same MBA from another university in a different country.
Now, country animosity basically means that countries’ good or bad relationships with each other may affect the perception of the product. For example, China and Korea, or the U.S. and Russia. In these cases, the negative effect from the country transfers into the product. This does not mean that you have negative feelings toward the country. However, part of this depends on what customers think will be the social stigma.
Considering the way relationships are with some of the countries in the Middle East right now, you might feel perfectly fine buying something that's made in any of these countries, but you might also think twice based on ideas like “What will my friends think? What will my colleagues think?” That's the country animosity angle that companies worry about.
Chris: I have to assume that, whatever your perception is for a country or product, there's some bias that speaks to the human inability to remove all prejudice. If people perceive a country to be inferior, for example, a product of theirs that is actually fantastic could be considered bad quality.
Bo: Well, that's branding. At the end of the day, gold is just a rock. It's just a rock pulled out of the ground, that, at some point, somebody told us was scarce. So for thousands of years, we continue to pull it out of the ground. My wife’s perception of paying a lot of money for metal compared to somebody else’s varies according to their background.
Japan, for instance. When we were growing up as kids in the 1970s, a little too close to Pearl Harbor and World War II, everything was made in Taiwan. I don't remember “Made in Japan” statements until the ‘80s when the public consciousness of the United States – going back to country animosity – shifted. World War II was a long time ago. Japan attacked America a long time ago. And all of a sudden, “Made in Japan” became a thing. Those things are all part of that psyche that makes you decide about the value of things.
To Vikas' point, if all of the sudden, other than Vodka, there were a bunch of Russian products in the marketplace, it wouldn’t be surprising if American buyers found it hard to associate with them. Because they've heard so many negative things about them for a long time, even though the products may be great, they still might not feel like buying them. This is an example of emotions going into brand associations.
Chris: We've talked about country branding, country animosity and consumer ethnocentrism. In your research, you mention these three, and local identity as a factor that goes into the greater equation of 'Buy American.' Can you talk a little bit about that local identity piece?
Vikas: Local identity is an even less patriotic emotion. It's a subset of things. It refers to the idea that people who care about local causes tend to behave differently than people who care about global causes.
Now, many people who care about local causes and have a very strong local identity are not necessarily patriotic. Many people who are very patriotic need not be high globalists or high localists.
Chris: Look at what's happening in Barcelona right now. They have a strong local identity but it's not at all tied to their country pride, right?
Vikas: Correct. You can think of localism as a field of vision. It shows up in different ways: the kind of books you read, news that you might be listening to, charities where you donate your money, causes you support, etc.
Research shows – and we ran almost 25 different studies – that people who have a stronger local identity tend to be less price-sensitive. Meaning, they're willing to pay more for a product compared to people who have a global identity.
If you think about it, Apple is tapping into the local identity concept when it brands itself “Made in California.” Everybody goes to these local produce markets and invariably ends up paying almost two times more for a product, and they don't feel guilty. They feel good about paying twice as much because they’re supposedly supporting a local cause. A local identity kicks in and people just pay up.
Walmart has been doing a lot of rebranding lately. It's been rebranding itself in terms of 'Buy American' by supporting local causes. For a company that's competing head-to-head with Amazon, pricing power will become important. But Walmart's ability to not compete only on price will make a big difference in their ability to have a higher margin.
In that sense, Walmart is thinking through this correctly. They are creating a strategy that makes sense by pushing on local identity, consumer ethnocentrism and the 'Buy American' movement.
Now, they don't try to brand themselves in terms of country branding. They don't try to push a sense that Walmart is a quintessentially America company because Walmart is everywhere. They need to adopt the local identity of wherever they are to make sense out of their current strategy.
Is Buy American a Uniquely American Phenomenon?
Chris: I know your research focuses on the 'Buy American' concept, but do other countries have something similar to that? Or is this a uniquely American phenomenon?
Vikas: These things come in waves. A lot of countries will do it. Even a lot of states will do this, although rather poorly. Sometimes the tourism department will get some infusion of money, and it will go on a rip trying to push whatever the local thing is. It doesn't work out well.
These things do work out for a company when it's not done as a movement but, instead, integrated into the brand itself. That's when it works out.
You cannot think of a more global company than Apple. The majority of the company's profit is parked outside the U.S. The majority of the supply chain is outside the U.S. Yet, it has been able to maintain an American ethos about the brand because it gels with this idea of American innovation, high design and California being at the forefront. That's how you do it well.
Chris: Right. Silicon Valley is the Mecca of innovation so that association is why it's valuable for them to maintain the “Made in California.”
Bo: Regarding your question about if others have done it: yes, other countries have done it. It always happens. Look at history. We talked about it at the beginning with the Buy American Act in 1933.
Going back to Vikas' Walmart example; Walmart's original tagline was “Lowest prices, guaranteed.” Then it became “Always Low Prices.” Not the lowest price but “Always Low Prices.” Then it changed again to “Save Money, Live Better.”
This is an example of what Vikas is talking about. That brand is truly American, but for years it got beat up for “killing small-town America.” Somehow, over time, they've been able to transition. But these transitions worked because they were true to their brand.
The different slogans and sayings and this 'Buy American' sort of thing are true to who they are. These associate with them as an Arkansas and an American-made company. Their excess and largess translate, even to other countries, because it fits. If it didn’t fit, that would be their pitfall.
You can slap an American flag on your product, and it still may not fit. For instance, Corona could suddenly do that, arguing that they're bottled in America. But it wouldn't work. I drink a Corona when I’m at a beach in Mexico. I don't drink a Corona to be American. That can be the pitfalls with some of these countries. They can try and grab onto something, but it might just not associate well with them.
International Brands that Have Embraced the Buy American Strategy
Chris: Are there any brands that are not American that have tapped into this American sentiment?
Bo: Right. You brought up Toyota, right?
The other day, I was looking for a truck and I had made up my mind that I wouldn’t pay $40,000 for a truck. It's a truck. Growing up in Texas, I made an association that trucks are for work. But they are luxury vehicles now. So it is hard for me, because of that bias, to buy a Toyota Tundra, even though it's a great truck.
They've slapped on their trucks “Made in Texas.” They're tapping into that local sentiment. But it is still hard for me, as a buyer who grew up seeing “Built Ford Tough,” to make the shift to a Tundra; a good-looking and luxurious truck.
Yet, I can associate Toyota and quality. My friends drive their Toyotas for 500,000 miles, and they work perfectly. Why can't I separate my biases and make that switch? Eventually, I will. Time will wear me down, and the practical consumer in me may take over.
But they branded “Made in Japan” for 20 years. From the 1970s to 1990s I was branded “Made in Japan.” So it’s hard for me to now switch to “Made in Texas” and put America in the middle of that. It's a different thing that goes on in my mind.
Chris: So, when you take it from your perspective, you can see how there's probably research that was done on their part that let them know there are people like you out there that do not look at this as a viable product because they think, “When I'm looking for a truck I want something American-made.” So they've now tried to shift that brand a little bit. It's interesting.
Bo: The German part of me goes, “This is a good truck, and it’s worth that much money.” But the Italian part goes, “Wait a minute, this is not a Texas truck.”
But it is made in Texas. It technically is made here, so how do you put all those things together?
Chris: That's an interesting case study.
Vikas: Very interesting, I would say.
Considerations Before Adopting a Buy American Strategy
Chris: If you're going to claim “Made in America,” and you're going to try to tap into this 'Buy American' sentiment, what are some of the things you need to consider before making the plunge?
In other words, before you make the switch to tap into that sentiment, what are some of the things your business needs to consider so that it doesn't fall flat?
Vikas: The first thing a business needs to do is some research to figure out what is their brand. If you're going to go for a “Made in America” or “Assembled in America” type of branding, you need to know what are the benefits that your brand is trying to deliver.
Are there common elements between those benefits? Are there positive associations with your brand and a particular country that you can capitalize on?
You need to have those common elements so that customers embrace them enough to be willing to pay a little bit more for your product. Without that research, jumping on that bandwagon can backfire.
Nowadays, especially in the B2B world, managers are constantly saying, “We are being inundated by Chinese competition that has lower prices.” The fact is that if you're being inundated by Chinese competition that has lower prices, there's something about your brand that you haven't configured correctly. That’s why people see the Chinese competition and your brand as synonymous.
Those are the deeper issues that must be thought through before you just slap a “Made in America” sticker on your product or service.
Bo: From this research, there should also be a deeper understanding of the audience. Is your audience going to accept that? It is not just a matter of the associations making sense… Does it feel right? Can I be associated with that because of the people I'm friends with on Facebook or the way I carry myself in public?
All of those things need to be taken into consideration. But if it's true to who your brand is, then your consumer is going to be aligned with it.
You can't manipulate this. You can't buy every component of your product in China and fabricate it here and then say you're completely made in America. It just doesn't work like that, and you can't trick people today.
Chris: You'll be found out.
Vikas: Think about the Toyota example earlier. That company figured it all out, and they have been at this strategy for almost 20 years now. Of course, there's a communication component to it – the advertising and so on. But the bigger component was setting up factories in the U.S. and completely copying their total quality management approach.
Then, they had the production design. Then they took people from here and sent them to Japan to learn what goes on there, and finally, slowly they hired American managers in Japan.
It was a whole reconfiguration strategy of the value chain that went beyond the communication approach. They literally reconfigured their entire value chain.
On the other hand, you see brands like Tiffany & Co., for example. They try to avoid a strong “Made in America” association because they are a global brand.
If Tiffany sells a lot of stuff in China and the Middle East, for instance, they probably don't want to be thought of as an America brand. They want to prominently associate themselves with a high luxury brand. That's the general idea.
Chris: Excellent. I think we've pretty much covered the 'Buy American' concept. If you haven't read Vikas' piece, you can find it here . It's really fascinating and gives you a different perspective on the Buy American concept. In any case, I really appreciate you guys stepping in. We'll catch you next time. Thanks.