Product Life Cycle Theory
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.[1] A commonly used example of this is the invention, growth and production of the personal computer with respect to the United States.
The model applies to labor-saving and capital-using products that (at least at first) cater to high-income groups.
In the new product stage, the product is produced and consumed in the US; no export trade occurs. In the maturing product stage, mass-production techniques are developed and foreign demand (in developed countries) expands; the US now exports the product to other developed countries. In the standardized product stage, production moves to developing countries, which then export the product to developed countries.
The model demonstrates dynamic comparative advantage. The country that has the comparative advantage in the production of the product changes from the innovating (developed) country to the developing countries. Contents[hide] * 1 Product life-cycle * 1.1 Stage 1: Introduction * 1.2 Stage 2: Growth * 1.3 Stage 3: Maturity * 1.4 Stage 4: Decline * 2 References |
[edit] Product life-cycle
There are four stages in a product's life cycle: * introduction * growth * maturity * decline
The location of production depends on the stage of the cycle.
[edit] Stage 1: Introduction
New products are introduced to meet local (i.e., national) needs, and new products are first exported to similar countries,
The model applies to labor-saving and capital-using products that (at least at first) cater to high-income groups.
In the new product stage, the product is produced and consumed in the US; no export trade occurs. In the maturing product stage, mass-production techniques are developed and foreign demand (in developed countries) expands; the US now exports the product to other developed countries. In the standardized product stage, production moves to developing countries, which then export the product to developed countries.
The model demonstrates dynamic comparative advantage. The country that has the comparative advantage in the production of the product changes from the innovating (developed) country to the developing countries. Contents[hide] * 1 Product life-cycle * 1.1 Stage 1: Introduction * 1.2 Stage 2: Growth * 1.3 Stage 3: Maturity * 1.4 Stage 4: Decline * 2 References |
[edit] Product life-cycle
There are four stages in a product's life cycle: * introduction * growth * maturity * decline
The location of production depends on the stage of the cycle.
[edit] Stage 1: Introduction
New products are introduced to meet local (i.e., national) needs, and new products are first exported to similar countries,