Vernon's Product Life Cycle Theory

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Vernon’s international product life cycle theory (1996) is based on the experience of the U.S. market. At that time, Vernon observed and found that a large proportion of the world’s new products came from the U.S. for most of the 20th century. It was concluded that U.S. was the first to introduce technological driver products. Vernon theory was used to explain certain types of foreign direct investment made by the U.S. companies after the Second World War in the manufacturing industry. The U.S. has become a major importer of many of the goods that had once developed, produced and exported. Vernon’s international product life cycle is used to attempt to explain why this happened. According to Vernon, in the first stage the U.S. transnational companies create new innovative products for local consumption and export the surplus in order to serve also the foreign markets. According to the theory of production cycle, after the Second World War in Europe has increased demand for manufactured products like those proposed in USA. Thus, America firms began to export, having the advantage of technology on international competitors. In the first stage of production cycle, manufacturers have an advantage by possessing new technologies. However at these early stages of production, the products were not standardized as the nature of the goods has implications such as price elasticity, the communication throughout the industry and also the location of the product itself. As the product starts to mature, the conditions also start to change. A certain degree of standardization takes place and the demand of the products appeared elsewhere. As demand has increased, overseas markets were imitating those products at a cheaper labour and overall cost. The U.S. firms were forced to perform production facilities on the local markets to maintain their market shares in those
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