Assignment 3-2 Complex Problem Solving Part 3A: Develop Adequacy in Each Relevant Discipline (Teachback Presentation)
Developed in the 1960s by Raymond Vernon, the International Product Life Cycle Theory (IPLC) attempts to explain: why trade takes place why investment occurs It explores how companies develop products, begin foreign direct investment, deal with competition, and eventually import back to the original country.
There are several stages associated with the product life cycle theory:Introduction of the product to the market.Growth of the market. Maturity of the product. Decline.(Datalicious, 2009)
The first stage is the new product stage. A new product is developed to meet a growing need or demand of consumers in usually more developed countries. Companies introduce these products to a domestic market. Exports are limited as the focus is primarily on growing nationally.
As sales increase, so does the competition. Exports grow to meet growing demand. Production and investment opportunities are pursued abroad as a larger number of competitors enter the market.
Once the product gains wider appeal and acceptance, demand rises domestically and internationally. To meet growing popularity at home and abroad, companies begin to set up facilities overseas. This expands their production capacity and allows them to engage directly with competitors.
Market for the product stabilizes and growth declines. Bringing down the cost of production is the high concern. Facilities are built in low cost and less developed countries to take advantage of:cheaper productionlower labor costs
The original country limits or discontinues production, and products are imported to the original country. A period of decline begins as competition increasingly achieve high levels of production. The market weakens and less developed countries make up the majority of the market.
Put simply, opportunity costis: “The benefits you could have received by taking an alternative action.” (Investopedia, n.d.)
As consumers, we make choices all the time. And each time we make a choice, we give up on acquiring the benefits of the next best alternative (Shukla, 2011). For example: By choosing to go to school and major in Interdisciplinary studies, we give up on majoring in other subjects or going to work full-time. The opportunity cost includes tuition fees, enjoying hanging with friends and family, and not being able to dedicate efforts to a hobby or a particular job.
Opportunity costs can include wages or profits that could have been earned if an alternative action was chosen. However, it is not limited to monetary values. Other non-monetary costs include: time experience knowledge happiness
The theory was explained by Austrian School economist Gottfried Haberler in The Theory of International Trade. He demonstrated that the relevant cost was not the cost from actual production, but the benefits of the alternative not taken (Ebeling, 2000). Companies use an opportunity cost approach to determine the products that are the best candidates for trade. According to Salvatore (1990): “The cost of one commodity is the amount of another commodity that must be given up in order to release just enough factors of production or resources to enable the production of one additional unit of the first commodity.”
Global Business International Product Life Cycle Theory Opportunity Cost
The International Product Life Cycle Theory of Trade
References Aswathappa, K. (2010). International business (4th ed.). Nagar, New Delhi, India: Tata McGraw-Hill. Food and Agriculture Organization of the United Nations. (1997). Introduction to global marketing. In Global agricultural marketing management. Retrieved from http://www.fao.org/docrep/W5973E/w5973e02.htm#product lifemarket life cycle Katsioloudes, M. I. & Hadjidakis, S. (2007). International business: A global perspective. Oxford, U.K.: Butterowrth-Heinemann. Newlands, D. J., & Hooper, M. J. (Eds.). (2009). The global business handbook: The eight dimensions of international management. Burlington, VT: Gower. Daniels, J., Radebaugh, L., & Sullivan, D. (2009). International trade and factor mobility theory. In International business environments and operations. (12th ed.). New York, NY: Prentice Hall. Prove Models. (n.d.). International product life cycle. Retrieved from http://www.provenmodels.com/583/international-product-life-cycle/raymond-vernon/
References Ebeling, R. (2000, July). Gottfried Haberler: A centenary appreciation. In The Freeman7(5). Retrieved from http://www.thefreemanonline.org/columns/gottfried-haberler-a-centenary-appreciation/ Salvatore, D. (1990). Schaum’s outline of theory and problems of international economics. New York, NY: McGraw-Hill. Salvatore, D. (2010). International Economics. (10th ed.). Hoboken, NJ: Wiley. Shukla, I. C. (2011, January 10). Opportunity cost examples. [Weblog]. Retrieved from http://www.buzzle.com/articles/opportunity-cost-examples.html Henderson, D. R. Opportunity cost. In The concise encyclopedia of economics. (2nd ed.). Retrieved from http://www.econlib.org/library/Enc/OpportunityCost.html
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