Product life cycle theory of Foreign Direct Investment?

Answer 1

Vernon's IPLC The theory Vernon's International Product lifecycle (1966) is based on the experience of the US market. Vernon himself observed and found that a large proportion of the world's new products came from the US for most of the 20th century. The US at the time was the initiator of the new technologically driven products of the time. The US overtime had become a major importer of many of the goods that it had once developed, produced and exported. Vernon's international product life cycle is used to attempt to explain why this happened. * At the early stages of production the products will not be standardised. The nature of the goods has implications. These are price elasticity, the communication throughout the industry and also the location of the product itself. * As the product starts to mature, the conditions also start to change. A certain degree of standardisation takes place and the demand of the products will start to appear elsewhere. As the demand starts to increase, the overseas markets then start producing for themselves generally at a cheaper labour and overall cost. The US firms may also decide to set up production facilities in these advanced economies and consequently the US exports are then limited. * As the markets in the US and these other developed countries mature the product will then become standardised. The developments of the life cycle are once again changing. Now that there is more demand and cheaper labour costs from overseas countries, the pricing becomes the main competitive tool and cost becomes more of an issue than previously. The producers internationally based in advanced countries then have the opportunity to export back to the US. This can lead to the underdeveloped countries offering competitive advantage for the location of production and finally they will become exporters. The evidence suggests that the more standardised the product becomes the more likely the location of production will change. At the same time there is also evidence that unstandardised products will maintain there location in more phosphorus locations. The discussion of the transfer of technology has changed greatly. At the Doha Ministerial it was agreed that the WTO would set up a working group to examine the relationship between Trade and Transfer of Technology and to report findings to the Fifth Session of the Ministerial Conference. Technology transfer has been an issue in some parts of the WTO (such as TRIPS), and before that in the GATT and in a great many other international negotiations (especially environmental negotiations) for many years. The key issue was essentially the difference of approach to technology transfer taken by developed and developing countries. Some see technology transfer as taking place implicitly through routine trade relations, and especially through foreign direct investment (FDI) - countries should therefore create the conditions in which FDI can take place (stable regulatory environment, intellectual property protection etc) and technology will follow trade. Others would prefer a more explicit approach with companies being pushed into transferring technology (rather than pulled to a suitable location for FDI) on confessional terms. How we bridge this gap is the key to a positive outcome."http://wiki.answers.com/Q/Product_life_cycle_theory_of_Foreign_Direct_Investment&action=edit%C2%A7ion=new#_ftn1 Overall Vernon's theory implies that overtime the main exporter may change from exporter to importer .This leads to the low cost producers becoming exporters. These kind of changes in barriers such as sharing technology can affect the normal process of the product lifecycle as some technological countries may now be forced to share technology with the LDC's to promote healthy competition between them. Other weaknesses of this theory can be that Vernon's view is ethnocentric. It can also be said that many new products are now produced in advanced economies such as Japan as evidence shows. Globalisation means that there is more dispersed and simultaneous production of comparative advantage. The final weakness of this theory is that this study was carried out in the 60s. The worlds trading Importing and Exporting has changed immensely over the years.
---- http://wiki.answers.com/Q/Product_life_cycle_theory_of_Foreign_Direct_Investment&action=edit%C2%A7ion=new#_ftnref1 Anon Developing Countries & the WTO, available at: <http://www.berr.gov.uk/europeandtrade/developing-countries/index.html> [Accessed 21st January 2008]

Vernon's IPLC The theory Vernon's International Product lifecycle (1966) is based on the experience of the US market. Vernon himself observed and found that a large proportion of the world's new products came from the US for most of the 20th century. The US at the time was the initiator of the new technologically driven products of the time. The US overtime had become a major importer of many of the goods that it had once developed, produced and exported. Vernon's international product life cycle is used to attempt to explain why this happened. * At the early stages of production the products will not be standardised. The nature of the goods has implications. These are price elasticity, the communication throughout the industry and also the location of the product itself. * As the product starts to mature, the conditions also start to change. A certain degree of standardisation takes place and the demand of the products will start to appear elsewhere. As the demand starts to increase, the overseas markets then start producing for themselves generally at a cheaper labour and overall cost. The US firms may also decide to set up production facilities in these advanced economies and consequently the US exports are then limited. * As the markets in the US and these other developed countries mature the product will then become standardised. The developments of the life cycle are once again changing. Now that there is more demand and cheaper labour costs from overseas countries, the pricing becomes the main competitive tool and cost becomes more of an issue than previously. The producers internationally based in advanced countries then have the opportunity to export back to the US. This can lead to the underdeveloped countries offering competitive advantage for the location of production and finally they will become exporters. The evidence suggests that the more standardised the product becomes the more likely the location of production will change. At the same time there is also evidence that unstandardised products will maintain there location in more phosphorus locations. The discussion of the transfer of technology has changed greatly. At the Doha Ministerial it was agreed that the WTO would set up a working group to examine the relationship between Trade and Transfer of Technology and to report findings to the Fifth Session of the Ministerial Conference. Technology transfer has been an issue in some parts of the WTO (such as TRIPS), and before that in the GATT and in a great many other international negotiations (especially environmental negotiations) for many years. The key issue was essentially the difference of approach to technology transfer taken by developed and developing countries. Some see technology transfer as taking place implicitly through routine trade relations, and especially through foreign direct investment (FDI) - countries should therefore create the conditions in which FDI can take place (stable regulatory environment, intellectual property protection etc) and technology will follow trade. Others would prefer a more explicit approach with companies being pushed into transferring technology (rather than pulled to a suitable location for FDI) on confessional terms. How we bridge this gap is the key to a positive outcome."http://wiki.answers.com/Q/Product_life_cycle_theory_of_Foreign_Direct_Investment&action=edit%C2%A7ion=new#_ftn1 Overall Vernon's theory implies that overtime the main exporter may change from exporter to importer .This leads to the low cost producers becoming exporters. These kind of changes in barriers such as sharing technology can affect the normal process of the product lifecycle as some technological countries may now be forced to share technology with the LDC's to promote healthy competition between them. Other weaknesses of this theory can be that Vernon's view is ethnocentric. It can also be said that many new products are now produced in advanced economies such as Japan as evidence shows. Globalisation means that there is more dispersed and simultaneous production of comparative advantage. The final weakness of this theory is that this study was carried out in the 60s. The worlds trading importing and exporting has changed immensely over the years.
---- http://wiki.answers.com/Q/Product_life_cycle_theory_of_Foreign_Direct_Investment&action=edit%C2%A7ion=new#_ftnref1 Anon Developing Countries & the WTO, available at: <http://www.berr.gov.uk/europeandtrade/developing-countries/index.html> [Accessed 21st January 2008]

Vernon's IPLC The theory Vernon's International Product lifecycle (1966) is based on the experience of the US market. Vernon himself observed and found that a large proportion of the world's new products came from the US for most of the 20th century. The US at the time was the initiator of the new technologically driven products of the time. The US overtime had become a major importer of many of the goods that it had once developed, produced and exported. Vernon's international product life cycle is used to attempt to explain why this happened. * At the early stages of production the products will not be standardised. The nature of the goods has implications. These are price elasticity, the communication throughout the industry and also the location of the product itself. * As the product starts to mature, the conditions also start to change. A certain degree of standardisation takes place and the demand of the products will start to appear elsewhere. As the demand starts to increase, the overseas markets then start producing for themselves generally at a cheaper labour and overall cost. The US firms may also decide to set up production facilities in these advanced economies and consequently the US exports are then limited. * As the markets in the US and these other developed countries mature the product will then become standardised. The developments of the life cycle are once again changing. Now that there is more demand and cheaper labour costs from overseas countries, the pricing becomes the main competitive tool and cost becomes more of an issue than previously. The producers internationally based in advanced countries then have the opportunity to export back to the US. This can lead to the underdeveloped countries offering competitive advantage for the location of production and finally they will become exporters. The evidence suggests that the more standardised the product becomes the more likely the location of production will change. At the same time there is also evidence that unstandardised products will maintain there location in more phosphorus locations. The discussion of the transfer of technology has changed greatly. At the Doha Ministerial it was agreed that the WTO would set up a working group to examine the relationship between Trade and Transfer of Technology and to report findings to the Fifth Session of the Ministerial Conference. Technology transfer has been an issue in some parts of the WTO (such as TRIPS), and before that in the GATT and in a great many other international negotiations (especially environmental negotiations) for many years. The key issue was essentially the difference of approach to technology transfer taken by developed and developing countries. Some see technology transfer as taking place implicitly through routine trade relations, and especially through foreign direct investment (FDI) - countries should therefore create the conditions in which FDI can take place (stable regulatory environment, intellectual property protection etc) and technology will follow trade. Others would prefer a more explicit approach with companies being pushed into transferring technology (rather than pulled to a suitable location for FDI) on confessional terms. How we bridge this gap is the key to a positive outcome."http://wiki.answers.com/Q/Product_life_cycle_theory_of_Foreign_Direct_Investment&action=edit%C2%A7ion=new#_ftn1 Overall Vernon's theory implies that overtime the main exporter may change from exporter to importer .This leads to the low cost producers becoming exporters. These kind of changes in barriers such as sharing technology can affect the normal process of the product lifecycle as some technological countries may now be forced to share technology with the LDC's to promote healthy competition between them. Other weaknesses of this theory can be that Vernon's view is ethnocentric. It can also be said that many new products are now produced in advanced economies such as Japan as evidence shows. Globalisation means that there is more dispersed and simultaneous production of comparative advantage. The final weakness of this theory is that this study was carried out in the 60s. The worlds trading importing and exporting has changed immensely over the years.
---- http://wiki.answers.com/Q/Product_life_cycle_theory_of_Foreign_Direct_Investment&action=edit%C2%A7ion=new#_ftnref1 Anon Developing Countries & the WTO, available at: <http://www.berr.gov.uk/europeandtrade/developing-countries/index.html> [Accessed 21st January 2008]