The Importance of the Country of Origin Effect

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The Importance of the Country of Origin Effect

Thomas Brownlees

CEO and Founder,
440 Industries

Introduction

The “Made In … ” label is something that we now much less likely to notice on our products, as fewer and fewer companies are able to maintain a cost-efficient domestic manufacturing production. On the other hand, countries which traditionally had a low reputation for quality are now stepping up their game and achieving standards of production which are comparable to the more developed economies.

The “country of origin effect” contributes heavily to the perceived value of a product, and fashion firms need to manage this element strategically. The country of origin effect relates to the values that consumers traditionally associate to a country’s reputation for excellence, and delivers value both to a domestic and international audience.

Here are the main topics we are going to cover in this post.
1. The Country of Origin Effect
2. A brief history of the fashion industry in Italy
3. The “Made in Italy”
4. The business reality in Italy
5. Conclusions

1. The Country of Origin Effect

As companies expand internationally, they gain the opportunity to re-organise their value chain (as discussed in this post: A Brief Introduction to the Fashion Industry). Moving a company’s manufacturing processes abroad can serve a variety of purposes: cost reduction, transport efficiencies or even avoidance of tariff barriers.

In international marketing, outsourcing production is a very effective strategy to reduce costs and achieve a more competitive price point. On the other hand, the degree of quality control and production standards of a product can be heavily impacted by this decision, as companies trade quantity for quality.

In the world of fashion and luxury, some firms have decided to resist this cost-reduction opportunity and decided to maintain domestic production, and with it the standards of excellence that can provide a competitive edge to the brand.

The country of origin effect plays two vital roles for both the domestic and international markets:

It reinforces the value of a brand in relation to foreign markets. This is achieved by stressing the legacy of excellence and craftsmanship associated with a geographical location. The “Made in Italy” and “Made in France” labels allow Italian and French products to provide a sense of quality and craftsmanship which few other countries can claim.
It appeals to a national sense of pride when selling products to the domestic market. As an example, the “Made in the USA” label, allows a firm to leverage a sense of patriotic sentiment. In this case, the COO does not focus on the location of manufacturing, as much as on a brand’s alignment with the values of the American Dream.

The concept of “Made In” in fact is can be used elastically – to say the least-, to include a geographical denomination related to other segments of the value chain, for instance, the Research and Development stage. This is the case for Apple, which for instance uses the expression “Designed in California, assembled in China”.

To some extent, each “Made In” label can covey different sets of values which connect to the intangible heritage of a country. In France, the COO associates products to forms of art. Made in Italy is a blend of design and comfort.

2. A brief history of the fashion industry in Italy

Italy as a country has played a fundamental role in the evolution of fashion manufacturing, and the Made in Italy label has become a global synonym of quality. Studying the development of the Italian fashion industry can assist us in understanding how this COO effect was created and retained by the “Made in Italy” label.

To capture the trajectory of Italy’s fashion manufacturing revolution, we need to focus on three typologies of business players who were able to influence the growth of the Italian fashion industry over the last 50 years: designers, entrepreneurs, and the textile industries.

Moreover, the Italian fashion system underwent three distinct cycles, lasting an average of 15 years each:

Stage 1: the development of industrial production from the 1950s to the 1960s. During this stage, Italian companies were mainly fashion apparel manufacturers, who physically created on behalf of French designers the “total looks” of French maisons.
In 1951, in the Sala Bianca of Palazzo Pitti in Florence, the first Italian fashion show took place. This show delivered the first statement on the state of fashion in Italy or the ‘Italian Fashion Look’. Through Pret-a-porter lines in evident competition with the French couturiers, Italian designers created garments for a new category of users. In this occasion the first statement about Italian fashion was made: Italian designers pursued quality, but they also targeted a wider audience of customers who wanted to be dressed sharply and comfortably.
Stage 2: from the mid-1960s to the mid-1970s. In these decades, the demand for haute couture clothing decreased, as a new mid-tier mass market was starting to take form. Not all manufacturing companies were able to adapt to the requirements of a more flexible fast market. This prompted new models of manufacturing, whereby the relationship between manufacturing firms and fashion designers grew closer to cater to a new generation of users. At the same time, new visionary designers established their maisons, reinforcing the value of Italian fashion towards both domestic and international customers. As the fashion cycles needed to be faster and produce higher volumes of products, the Italian manufacturers caught the opportunity to scale and reach scale economies.

Stage 3: the 1980s and the growth of the Made in Italy. In this stage, the synergy between Italian designers and manufacturing companies became less of a business relationship and more of a partnership. Designers like Giorgio Armani created the first licensing agreements, connecting the two ends of the fashion industry: design and manufacturing. This alliance created high-quality products that boosted the Italian COO, making it an international symbol of quality.

Italian manufacturers were able to achieve premium price points by connecting the high-quality output of their production pipeline with a new vision of Italian fashion.

By making a comparison with those countries (such as India and China) which are now serving as manufacturing hubs for western brands, there is no reason to doubt that in time, these countries too will develop their own prestigious designers and influence fashion on a global scale.

3. The "Made In Italy"

As we have discussed, by looking at the evolution of the fashion manufacturing industry in Italy we can quickly identify all of the elements that made this country internationally famous.

The Made in Italy, is not a label that can be applied lightly or indiscriminately to every product manufactured in Italy. The Made in Italy is an abstract concept, leveraging on the history of fashion in Italy as well as a signature that defines products that Italy specialises in producing. A Made in Italy label testifies a firm’s unique competitive advantages in terms of innovation, style, service and price.

A Made In Italy label is a statement and a manifest, identifying a product with unique characteristics.

A blend of creativity and functionality will inspire a product’s design.
A small volume of craftsmanship manufacturing will testify a product’s quality.
A product’s manufacturing will rely on fashion districts and small family-run businesses that allow for flexibility, specialisation and continuity.
A product will be subject to extensive quality control over the entire production process: from the yarn selection to the garment distribution.
A product will embody “The Renaissance Effect”, a consequence of living in the world’s biggest open-air museum, influenced by the Italian aesthetic sensibility.

These values turn into perceptions for foreign consumers who associate lifestyle value to the Italian brands, such as la dolce vita.

4. The contemporary business reality in Italy

The reality of contemporary the fashion industry in Italy is not only comprised by small family businesses, on the contrary if features 4 distinct categories of players:

Industrial companies. Industrial companies acquire brands (mostly, previous licensors) launch their own brands and develop retail strategies (Moschino\Ferrè\Max Mara\Zegna).
Designers and Entrepreneurs. These players control production and distribution processes; very few licenses are issued to outsourced manufacturers (Armani, Dolce and Gabbana, Versace).
Multi-brand Groups. These groups are fashion conglomerates that acquire brands and designer companies, especially in the luxury segment (Gucci Group, Prada Group).
Pure Designers. As they grow, they usually end up being acquired by industrial multi-brand groups (Valentino).

Over the last 20 years, the Italian fashion firms have grown tremendously and are now looking towards “the East” to outsource its second lines and bridge lines. In this context, it is likely that just like the Made in the USA, the Made in Italy will gain a more intangible value, connected to the inspiration of the product’s design more than its location of production.

5. Conclusions

The COO effect is a tool used by companies to transfer the values of a country to a brand. A company wishing to leverage this element in their marketing strategy should try and strike a balance: on the one hand, by reinforcing value associations which are rooted in heritage, on the other hand, by revitalising a country’s culture, bringing traditional and historical values back into the present.

In this sense, the COO is not a static element, but a dynamic one. Firms should take on the responsibility of renovating its value and making it ‘resonate’ with new categories of customers.

We will analyse this in more detail in the next posts as we discuss the segmentation of the fashion industry.

Sources and Further Research

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The Importance of the Country of Origin Effect The Country of Origin Effect relates to the values that consumers associate to a country's reputation for excellence. Let's see in detail what this entails.

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Thomas Brownlees

I am an Anglo-Italian business lecturer and consultant based in Florence, Italy. In 2017 I started 440 Industries, an education and training company focused on fashion, music, and technology. Our mission is to help students, entrepreneurs and managers in overcoming the challenges of starting, developing and scaling their business in the creative industries. When there's a will, there's a way!