Amar KJR NayakIMXIMB

1
Amar KJR Nayak/IM/XIMB
International Investment and International Trade
in Product Life Cycle Raymond Vernon
2
Amar KJR Nayak/IM/XIMB
It puts less emphasis upon comparative cost
doctrine and more upon

• Timing of innovation
• Effects of scale economies
• Roles of ignorance and uncertainty in influencing
  trade pattern

3
Amar KJR Nayak/IM/XIMB

• It considered three aspects to explain its
  viewpoint
•  
• Location of new products 
• Maturing product
• Standardized product

4
Graphical explanation
5
Amar KJR Nayak/IM/XIMB

• Location of New Products
•  Assumptions
•  
• There is a large gap between the knowledge of
  scientific principle and the embodiment of the
  principle in a marketable product.
• Producers in any market are more likely to be
  aware of the possibility of introducing new
  products in that market than producers located
  elsewhere would be.

6
Amar KJR Nayak/IM/XIMB

• The United States market did offer some unique
  location advantages
•  
• High average income of consumers
• High unit labor cost and relatively large capital
  as compared to practically all other markets

7
Amar KJR Nayak/IM/XIMB

• New product development has a few location
  constraints
•  
• Producers are concerned with the degree of
  freedom for changing their inputs
• Price elasticity of demand for the product is
  comparatively low (high degree of
  differentiation)
• Need for swift and effective communication on the
  part of the producer with customers, suppliers,
  and even competition

8
Amar KJR Nayak/IM/XIMB

• The Maturing Product
•  
• As the demand for a product expands, some degree
  of standardization usually takes place
• Need for flexibility declines encourages
  long-term commitment
• Concern for cost of production takes over concern
  for product characteristics

9
Amar KJR Nayak/IM/XIMB
The Maturing Product

• Sum of marginal cost of production
  and transport cost as compared to cost of
  production in the export market will determine
  whether to invest in the export market. (Ex. High
  cost of transport led Otis Elevator to invest
  early in foreign markets)
• Produce in other developed countries

10
Amar KJR Nayak/IM/XIMB

• The Standardized Product
•  
• Lower cost of labor is the attraction for
  manufacturing in the less developed countries
• Manufacture and market in less developed
  countries
• Export from other advanced countries
• Export from less developed countries to U.S