Product Life Cycle

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Date Submitted: 09/21/2012 11:10 AM

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What Is Product Life Cycle Hypothesis

Attempting to explain patterns of international trade, Raymond Vernon observed a circular phenomenon in the composition of trade between countries in the world market. Advanced countries, which have the ability and competence to innovate as well as high-income levels and mass consumption, become initial exporters of goods. However, they lose their exports initially to developing countries and subsequently to less-developed countries and eventually become importers of these goods. Vernon’s hypothesis was an attempt to advance the trade theory beyond the static framework of the comparative advantage of David Ricardo and other classical economists to explore hitherto ignored or unexplained areas of international trade theory such as timing of innovation, effects of scale economies, and the role of uncertainty and ignorance in trade patterns. His intent was not to propose a biological analogy such as is understood by the theory of product life cycle as commonly understood by marketing theorists.

Vernon’s product cycle is a macro-level attempt to generalize patterns of trade between nations based on empirical data. It offers innovation and economies of scale as predominant explanatory variables. Vernon hypothesized a circular pattern of trade composition that occurs between trading partners in different stages of economic growth. Vernons hypothesis identifies four stages that the trade patterns go through.

1. Introduction: New products are introduced to meet local or national needs, and new products are first exported to similar countries, that is, countries with similar needs, preferences, and incomes. If we also presume similar evolutionary patterns for all countries, then products are introduced in the most advanced nations. This is the traditional idea of the home country as the producer of first-of-a-kind products and the exporter of products to countries with similar needs, preferences, and incomes.

2. Growth: A copy...