Product Life Cycle Theory
- Theories
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- International trade
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- Mercantalism
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- Absolute Advantage Theory
- What is the Comparative Advantage Theory?
- Factor Proportion Theory
- Heckscher-Ohlin theory
- Product Life Cycle Theory
- Theories of Outsourcing
- What is the Theories of Outsourcing?
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- Technology adoption Theories
What is the Product Life Cycle Theory?
Naturally, as the international scenario where trading is done evolves on a daily basis, existing trade theories are continuously at a loss in tackling the ever-rising ambiguities put forth by the emerging trade scenarios. The 1960s was a period of technology explosion in various fields and this directly reflected and influenced on the way international trade is conducted.
Developed by Vernon in 1966, the crux of the product life cycle theory is that technical revolution and the corresponding extension of the market are the decisive factors in setting the blueprint of foreign trade. Though the size of the market is a powerful determinant of the nature of trade at the international level, technology is the crucial dynamic (Morgan 1997)
Product life cycle curve adapted fromlinkThis theory explains that a cycle of trade is created in the process of manufacture of a product originally by a company and then subsequent manufacture by the nation’s allies and other nations and at all places as time goes by.
Illustration
A typical example for the product life cycle theory is America’s trade in the middle of the twentieth century. The U.S was the sole and leading producer of many goods.
Especially in the field of textiles, the US held the monopoly which in due course of time crossed its boundary and transferred it to other nations. Its strategy of selling more physical labour oriented goods is a best example for the product life cycle model.
Strengths of the theory
This model is best suited to products that are based on the customer’s needs manufactured using novel equipment or machinery and it is still early to take the expenses into consideration and only the functional aspects and wide applicability of the product really matters (Vernon 1966, 1972).
Arguments Against theory
Vernon’s theory does not give importance to the section of universal customers as the international trade also comprises of a large section of upcoming global customers apart from the middle income customers.
Therefore different stages of a manufactured product in the cycle cannot be supposed. Also the nations that lost their monopoly could also gain back their lost position by investing more on the research and development