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Product life cycle theory in international business

The location of production depends on the stage of the cycle. Introduction[ edit ] This is where the new product is introduced to the market, the customers are unaware about the product.

Product Life Cycle Stages

To create demand, producers promote the new product to stimulate sales. At this stage, profits are low and there are only a few competitors. For example, a new product invented in the United States for local consumers is first produced in the United States because that is where the demand is, and producers want to stay close to the market to detect consumer response. Characteristics of the product and the production process are in a state of change during this stage as firms familiarize themselves with the product and the market.

No international trade takes place.

The Three Stages of the International Product Life Cycle Theory

Growth[ edit ] In this stagedemand for the product increases sales. As a result, production costs decrease and profits are high. To attract as many consumers as possible, the company that developed the original product increases promotional spending. Maturity[ edit ] In the maturity stage of the Product life cycle, the product is widely known and many consumers own it. In the maturity phase of the product life cycle, demand levels off and sales volume increases at a slower rate. There are several competitors by this stage and the original supplier may reduce prices to maintain market share and support sales.

Profit margins decrease, but the business remains attractive because volume is high and costs, such as for development and promotion, are also lower. In addition, foreign demand for the product grows, but it is associated particularly with other developed countries, since the product is catering to high-income demands.

Product Life Cycle Stages

For instance, in the case of the newly invented product, this rise in foreign demand assisted by economies of scale leads to a trade pattern whereby the United States exports the product to other high-income countries. Other developments also occur in the maturing product stage.

Once the American firm is selling to other high-income countries, it may begin to assess the possibilities of producing abroad in addition to producing in the United States. With a plant in France, for example, not only France but other European countries can be supplied from the French facility rather than from the U.

History Product Life Cycle

Thus, an initial export surge by the United States is followed by a fall in U. Saturation[ edit ] It is a stage in which there is neither increase nor decrease in the volume of sale. Through modification in the attribute of the product is needed to attract new consumers. Competitors product at this stage would have started gaining its market share Stage 5: This occurs when the product peaks in the maturity stage and then begins a downward slide in sales.

Useful Notes on Product Life-Cycle Theory of International Trade

Eventually, revenues drop to the point where it is no longer economically feasible to continue making the product. The product can simply be discontinued, or it can be sold to another company.

International product life cycle

Production may shift to the developing countries. Labor costs again play an important role, and the developed countries are busy introducing other products. For instance, the trade pattern shows that the United States and other developed countries have now started importing the product from the developing countries. On costs and revenues: Low production costs and a high demand ensures a longer product life.

International Business Competing in the Global Marketplace 6th ed.

Product life-cycle theory