International Product Cycle – Definition & Explanation

Cite this article as:"International Product Cycle – Definition & Explanation," in The Business Professor, updated March 23, 2019, last accessed September 19, 2020, https://thebusinessprofessor.com/lesson/international-product-cycle-definition/.

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International Product Cycle Definition

The international product cycle is a model that patterns international trade of products. It focuses on the idea of primary benefit and production characteristics. As a product reaches mass production, the production process tends to shift outside of the creating country. The country that generates a product idea often becomes the consumer of that product.   

A Little More on What is the International Product Cycle

Following a failure by Heckscher-Ohlin model to adequately illustrate the pattern of international trade, Raymond Vernon came up with the Product Life Cycle theory.  Raymond Vernon applies two methods in coming up with his theory, the model of labor-saving and capital-using products that cater to high-income groups.

The author uses the US to illustrate the changes in the trade market. Products that are produced and consumed at a new stage are from the US.  However, when production reaches the point of mass volume production, most techniques used will be foreign. At the third stage of production, shifts to the developing countries.

In summary, this model shows the comparative changes in the trade market. The country that benefits most shifts from a country that comes up with the idea to the country where the actual production takes place.

Product life-cycle

According to Raymond Vernon, products can be categorized into three stages depending on product life and trade behavior in the international trade market.  

  • Standardized products,
  • New Products
  • Maturing Products.

The Product Cycle Theory then introduces five stages of production: Introduction, Growth, Maturity, Saturation, Decline.

Stage 1: Introduction

The first for any producer is to promote a new product in the market. At this stage customers are not aware of the product; hence sales and profits will below. The competition will also be low in the market.

Stage 2: Growth

At this stage, the popularity of the product in the market will have increased. The production company has to increase its promotional budget. The number of sales will also increase hence the cost of production decreases.

Stage 3: Maturity

Compared to the growth stage, the increase in the sale volume and demand level is relatively low at this stage. Many consumers are aware of the product and finding new customers is difficult. Even though the number of competitors have increased at this stage, business is still juicy at this stage; everything seems to be favorable to the producers. Foreign demand will also increase at this stage especially in the developed countries. The increase in foreign demand will see the producer country setting up similar companies in foreign countries.

Stage 4: Saturation

At this stage, competing companies will have taken some portion of the market. Producer companies do their best to attract new customers, but there will neither be an increase nor decrease in the sales volume at this stage.

Stage 5: Decline

At this stage, the product begins a downward decline in terms of sales which eventually affects the profit margins. The economic viability of continuing with the business declines drastically. At this point, the company can choose to discontinue the production or sell the company. Another possible scenario is for the production company to shift its business to a developing country.

Academic Research on International Product Cycle

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