Country of Origin Effect

The country of origin effect is the economic consequence of associations made between a good and its value based on the geographic region from which it was exported.  In culture, these associations can persist across markets and transcend multiple generations.  Over time, the relationship strengthens between people and the brand that manufactures a particular good. As a result, biases form.  These biases are what drive unfounded preferences for a particular brand; even when comparable (many times less expensive) alternatives exist.

The $5 billion Scotch Whisky industry exports 1.23 billion bottles each year (2017) and more Scotch is enjoyed around the world than Irish, American and Canadian whiskies combined.  This speaks to the 180 markets where the spirit is sold.  The Scotch Whisky Regulations 2009 include explicit provisions for the manufacture, marketing, movement from Scotland to another country, sales descriptions, distillery name and locality and region geographical indications; all of which impact branding and labeling of the spirit.  The first provision, manufacture, includes the requirement that all whisky made in Scotland must be Scotch and any Scotch sold under any brand name must have been made at that respective distillery.  The Regulations include more explicit requirements for the distilling process; including raw material inputs and additives, which are only water and a specific type of coloring (if they must use it).  The words “Scotch Whisky” and “Scotch” are words protected by UK law and all distilleries that produce the spirit are referenced in the Regulations. Even the geographic region of Scotland where the spirit was distilled must be accurately stated on the label (i.e. "Highland"). 

A geographical indication (GI) is a sign used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin. In order to function as a GI, a sign must identify a product as originating in a given place. In addition, the qualities, characteristics or reputation of the product should be essentially due to the place of origin.  Since the qualities depend on the geographical place of production, there is a clear link between the product and its original place of production.  The Scotch Whisky Association (SWA) aims to ensure the spirit is protected by the Geographical Indication (GI) system.  In the Regulations mentioned above, the UK is adamant that the Scotland climate is essential in all steps of the process from raw inputs to maturing conditions.

Irish Whiskey, on the other hand, has undergone scrutiny for its lack of similar rules and regulations.  Many Irish whiskey distilleries are in favor of more stringent requirements for a variety of reasons relating to product quality and image.  Many bottlers sell Irish whiskey under their brand label and the liquid is completely sourced.  However, Irish whiskey is beginning to get traction in more markets having sold 10.6% more in 2018 than 2017 and is in 135 markets worldwide.  Perhaps Irish whiskey could benefit in the marketplace from the exclusivity that the UK has provided Scotch.  Perhaps Scotch distillers could benefit from fewer regulations - there are some that aren’t against the notion.   All brands for both Irish whiskey and Scotch spirits are impacted by what is ‘allowed’ in their product category, and all of this matters because of the perceived value we assign to its place of origin; and, what is allowed into their product categories involves the enforcement of regulations that specify how the product can be labeled and branded.  It is entirely possible for an American distillery to begin making their version of Scotch, but, from the customer's perspective, the simple fact that they could not label it "Scotch Whisky" would immediately devalue the spirit relative to a true Scotch.