The document summarizes Raymond Vernon's international trade product cycle model from 1966. The model outlines that a new product goes through three phases: 1) It is initially produced and sold solely in the home market at a high price with local competition. 2) Offshore production and exporting to other countries occurs to reduce costs as competition increases. 3) The product becomes standardized and ubiquitous with competition, and is eventually imported back to the home country at a low price. The model helped explain how industries migrated across borders over time, though it is difficult to determine the phase and does not consider the consumer side of the product life cycle.
2. Introduction It was introduced by Raymond Vernon in 1966. According to him new product follows three principal phases Technology is a critical factor in product creation and development.
3. Phase one New product is produced and sold solely in the home market. Product is generally high priced. Export to other countries may occur at the end of this stage Competition comes from few local and domestic players
4. Phase two Offshore production facilities are adopted to substitute exports Attention shifts to wards refining the means of production Competition increases Export orders will begin to come from countries with lower incomes.
5. Phase three Standardization of the product Market is completely saturated with competitors Price falls to a bare minimum above costs. Product is imported by the home country.
6. Pros. The model helps organisations that are beginning their international expansion According to Vernon, most managers are myopic The IPLC model was widely adopted as the explanation of the ways industries migrated across borders over time
7. Cons. It is difficult to determine the phase of a product in product life cycles He used the product side of the product life cycle, not the consumer side Selling ‘older’ products to a lesser developed market does not work if transportation costs for imports is low
