Players who were generated on your team - via initial signup, tutorial players (true stars), or the draft - are counted as homegrown.
My estimate is that the Local & Homegrown portion of your weekly Merchandise is a multiplier of the Team Sales portion, based on the percentage of your team's total salaries that are Local. And in that calculation, the salary of a Homegrown player counts for 1.5x the percentage (in the numerator, not the denominator)
So my rough estimate is, if you have 8 players:
Homegrown @ $20,000
Homegrown @ $20,000
Local (your country's flag but not generated by your team) @ $10,000
Local @ $10,000
Foreign (not your country's flag) @ $10,000
Foreign @ $10,000
Foreign @ $10,000
Foreign @ $10,000
Then the "Local Salary" is calculated at:
$20,000 * 1.5 + $20,000 * 1.5 + $10,000 + $10,000 = $80,000
Compared to your total salary of $100,000 would mean an 80% scaling factor for the Local & Homegrown merchandise.
(I know from my own merchandise these last two seasons that my numbers aren't completely accurate down to the penny, but they're in the ballpark and close enough for planning purposes)