International Product Cycle - Definition & Explanation
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What is International Product Cycle?
The international product cycle concerns the stages of product development in the international market. It is best explained by the Product Life Cycle theory, developed by researcher Raymond Vernon. According to Vernon, products go through five stages of production:
A product can be characterized based upon its stage in the lifecycle as well as the nature or effects of the product in the market. Vernon identified 3 product categories:
- New Product
- Maturing Product
- Standardized Product
Per the Product Lifecycle theory, new products are comprised of local parts and labor. Often this are custom-manufactured parts and the efforts of the inventor.
Once established and entering the growth phase, product parts and labor are sourced more broadly - outside of the immediate location (outsourced). Also, the product may be offered for sale in the international market.
A mature product that sells in high volume generally requires parts and labor from even broader sources. This may include outsourcing various aspects of the product (manufacture of parts, assembly, shipping, etc.). The requirements for production increase and there is increased demand from non-local (often global) markets.
Because of comparative advantages in the cost of production, the product may be completely manufactured in a nation that is not where it is primarily sold (often a developing nation). This is particularly true for high-end goods.
Eventually, the product will become obsolete. That is, it will succumb to competitive products or replacement goods. This may happen at different rates based upon the characteristics of the market in which it is being sold.
Academic Research on International Product Cycle
- The international product cycle and globalization of production, Lai, E., & Federal, S. (2008). This article looks at the globalization of production in relation to the international product cycle.
- Foreign Investment and Asia's, Particularly China's, Rise in the Television Industry: The International Product Life Cycle Reconsidered, Gao, Z., & Tisdell, C. (2005). Journal of Asia-Pacific Business, 6(3), 37-61. The article illustrates five international investment cycles. It also looks at waves and direct investment in the TV industry. The two models of investments can be looked at using the international product cycle of Vernons model. The model contributed to the rapid rise of the television industry in Asian countries. International product cycle theory ignored FDI in Asian countries.
- International investment and international trade in the product cycle, Vernon, R. (1992). In International Economic Policies and their Theoretical Foundations (Second Edition) (pp. 415-435).
- The product cycle hypothesis in a new international environment, Vernon, R. (1979). Oxford Bulletin of economics and statistics, 41(4), 255-267. The writer looks at the product cycle hypothesis a new international environment.
- Test of a product cycle model of international trade: US exports of consumer durables, Wells Jr, L. T. (1969). The Quarterly Journal of Economics, 152-162. The article looks at factors such as a test of the product cycle model of international trade and US exports of consumer durables.
- The globalization of technology: what remains of the product cycle model?, Cantwell, J. (1995). Cambridge Journal of Economics, 19, 155-155. The article looks at the hypothesis of innovation that is located in the parent companys home country. In the US, this hypothesis is rejected by evidence drawn from 100 years of official data. In the second hypothesis technology, leaders lead the international dispersion. Technology leaders have been ahead for the last 20 years instead of globalization taking center stage.
- Intellectual property rights, licensing, and innovation in an endogenous product-cycle model, Yang, G., & Maskus, K. E. (2001). Journal of International Economics, 53(1), 169-187. Innovation and licensing are processes that require resources. This article looks at the product cycle and its effects on Intellectual Property Cycle incentive firms in the South. Having a strong IPR not only reduces the cost of licensing contracts but also increases the licensors rent share. Through all this, innovation and technology will rise. Strong IPRs effects on wages between region are not clear.
- A product life cycle for international trade?, Wells Jr, L. T. (1968). The Journal of Marketing, 1-6. It is important to understand the pattern of the international product cycle since many products patterns are predictable in international trade. Through these companies will come up with improved policies which will lead to improved profit margins.
- The Product Cycle Model of International Tradea Multicountry Crosssection Analysis, Hirsch, S. (1975). Oxford Bulletin of Economics and Statistics, 37(4), 305-317. The author looks at a multi-country Cross-section analysis of the Product Cycle Model of International Trade.
- International product life cycle: a reassessment and product policy implications, Ayal, I. (1981). The Journal of Marketing, 91-96. The product life cycle examines the international trade pattern using the US market as a case study. It is one of the best theories that explain the international trade pattern. The applicability of this theory uses export and import patterns of the US and Israel. The study helped to come up with the marked deviation and in planning the international market.
- The product cycle and the world distribution of income A reformulation, Lai, E. L. (1995). The product cycle and the world distribution of income A reformulation. Journal of International Economics, 39(3-4), 369-382.
- A study conducted in the North and South Korea shows that an oversupply of unskilled labor in a country leads to a decline in relative wage. An oversupply of skilled labor, on the other hand, leads to an increase in relative wage. Even though Grossman-Helpman's and Krugman's models are related, both are unique in a special way.