Page 45 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes from being exporters of photocopiers to being importers. This evolution in the pattern of
international trade in photocopiers is consistent with the predictions of the product life cycle
theory. The theory clearly explains the migration of mature industries out of the United States to
low-cost assembly locations.
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Caution Technological changes can affect the degree of comparative advantage for a
country and its production of a certain product.

2.6.3 limitations of Product life cycle theory

This theory has been criticized because of the following weaknesses:
1. Applicable on technology-based products: The technology-based products normally
experience the changes in production process as they grow and mature. Other products
such as resource-based (minerals) or services which employ capital in the form of human
capital are not easily characterized by the stages of maturity.
2. Most new products are not developed and introduced in the United States: Although
it may be true that from 1945 to 1975, most new products were introduced in US, there
have always been important exceptions. In recent years, it has been noted that many new
products are now introduced in Japan, US and the advanced European nations (laptops,
computers, compact disks and electronic cameras).

It is thus evident from above that Vernon theory may be useful for explaining the pattern of
international trade during the brief period of American global dominance; its relevance, however,
in the modern world is limited.

Notes Most new products are not developed and introduced in the United States.

Did u know? Product life cycle theory clearly shows that mature industries always relocate
to low-cost assembly locations.

self assessment

State whether the following statements are true or false:
11. As ................. expands, its process becomes increasingly standardized.
12. ................. initially proposed the product life cycle theory in the mid-1960s.
13. To explain the determinants of the demand structure, ................. argues that average per
capita income is the most important one.
14. The ................. products normally experience the changes in production process as they
grow and mature.

15. Staffan B. Linder divided international trade into two different categories: .................
products and ................. goods.

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