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Product Life Cycle Theory

The product life cycle theory proposes that a company will first export a new product and later invest directly in other countries as the product moves through different stages: (1) initial production and consumption occurs only in the home country, (2) mass production and exports to other developed countries begins as the product matures, and (3) production shifts to developing countries which then export the standardized product to developed nations.

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Er Gaurav Singh Saini
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556 views4 pages

Product Life Cycle Theory

The product life cycle theory proposes that a company will first export a new product and later invest directly in other countries as the product moves through different stages: (1) initial production and consumption occurs only in the home country, (2) mass production and exports to other developed countries begins as the product matures, and (3) production shifts to developing countries which then export the standardized product to developed nations.

Uploaded by

Er Gaurav Singh Saini
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Product Life Cycle Theory Raymond Vernon developed the international product life cycle theory in the 1960s.

The international product life cycle theory stresses that a company will begin to export its product and later take on foreign direct investment as the product moves through its life cycle. Eventually a country's export becomes its import. Although the model is developed around the U.S, it can be generalised and applied to any of the developed and innovative markets of the world.

developed during the 1960s and focused on the U.S since most innovations came from that market. This was an applicable theory at that time since the U.S dominated the world trade. Today, the U.S is no longer the only innovator of products in the world. Today companies design new products and modify them much quicker than before. Companies are forced to introduce the products in many different markets at the same time to gain cost benefits before its sales declines. The theory does not explain trade patterns of today.

The product life-cycle theory is an economic theory that was developed by Raymond Vernon in response to the failure of the Heckscher-Ohlin model to explain the observed pattern of international trade. The theory suggests that early in a product's life-cycle all the parts and labor associated with that product come from the area in which it was invented. After the product becomes adopted and used in the world markets, production gradually moves away from the point of origin. In some situations, the product becomes an item that is imported by its original country of invention.

3 stages: New product stage: The product is produced and consumed in the US. No trade takes place. Maturing product stage: massproduction techniques are developed and foreign demand (in developed countries) expands. At this stage the US exports the product to other developed countries. Standardized product stage: Production moves to developing countries, which then export the product to developed countries.

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