International Product Life Cycle - Essay Example

International Product Life Cycle International Product Life Cycle describes international trade and production process. According to this concept products have to go through a trade cycle where a country is initially an exporter, then loses its export markets, and then becomes an importer of the product. There are four phases in the production and trade cycle. In the first place, only a single firm has got the innovative product. Hence, if a firm wants the product, it has to buy it from this firm only and import from the country in which the firm is based. Thus, the country in which the firm is based is an exporter in the first phase. (Research) Product innovation and development in this stage are focused on needs of the home market. The firm with the innovative product serves the home market first and then exports the product to foreign markets. This point can be clearly supported with the following statement. Many of the products found in the world's markets were originally created in the United States before being introduced and refined in other countries. In most instances, regardless of whether a product is intended for later export or not, an innovation is initially designed with an eye to capture the U.S. market, the largest consumer nation. In the second phase, production starts in foreign countries either through licensing or re-engineering of the product. Importing countries in the initial stages, generally, wealthy countries import innovative products gain product familiarity. As the product familiarity increases, demand in the foreign markets expands. This attracts more players, and results in manufacturing in foreign countries. (Hill W.L) This production in the foreign countries slowly replaces exports of the innovative firm. In the third phase, firms manufacturing in foreign countries gain production experience and move down the cost curve. Sometimes they manage to produce the goods at lower cost than is possible for the innovative firms. Then these firms export their products to third-country markets. (Sundaram) There they replace innovator's exports through their cost advantage. The U.S. automobile industry is a good example of this phenomenon. There are about thirty different companies selling cars in the United States, with several on the rise. Of these, only three are U.S. firms, with the rest being from Western Europe, Japan, South Korea, Taiwan, Mexico, Brazil and Malaysia. In the fourth phase, these foreign firms have adequate product experience and economies of scale to export their products to the innovator's home country. Black-and-white television sets, for example, are no longer manufactured in the United States because many Asian firms can produce them much less expensively than any U.S. firm. Consumers' price sensitivity exacerbates this problem for the initiating country. Some of the key characteristics and features of a product are its quality, styling and performance. These characteristics are affected by consumer needs, conditions of product use, and ability to buy. The factors that affect product attributes change from country to country. For example, in the US, bicycling is a recreational activity. So buyers want their cycles to be lightweight and have speed that is essential for rapid touring. However, in Nigeria, bicycle is often a measure of transportation and customers prefer cycles that are heavy and durable. In Nigeria, speed and lightness are not the criteria for purchase decision-making. Looking at these four phases, one can deduce that in the first phase the product was new. In the second phase, the product was maturing. In the third and fourth phases, the product gets standardized. In phase four, the product becomes a commodity. In this phase, the product is manufactured in less-developed countries and exported to developed countries. Understanding this cycle helps international marketing managers to understand the patterns of international trade and production and helps them in preparing a logistics plan. Several products have conformed to the characteristics described by the IPLC. The production of semiconductors started in the United States before diffusing to the United Kingdom, France, Germany, and Japan. Production facilities are now set up in Hong Kong and Taiwan, as well as in other Asian countries. Similarly, at one time the United States used to be an exporter of typewriters, adding machines, and cash registers. But with the passage of time, these simple machines (e.g., manual typewriters) are now being imported, while U.S. firms export only the sophisticated, electronic versions of such machines. Other products that have gone through a complete international life cycle are synthetic fibers, petrochemicals, leather goods, rubber products, and paper. The electronics sector, a positive contributor to the trade balance of the United States for a long time, turned negative for the first time ever in 1984 with a massive $6.8 billion deficit. A deficit also occurred at the same time for communications equipment, following the trend set by semiconductors in 1982. The IPLC is probably more applicable for products related through an emerging technology. These newly emerging products are likely to provide functional utility rather than aesthetic values. Furthermore, these products likely satisfy basic needs that are universally common in most parts of the world. Washers, for example, are much more likely to fit this theory than are dryers. References: 1. Hill W.L, Chjarles. International Business Competing in the GLobal Market Place. New York: McGraw Hill, 2007. 2. Research, ICFAI Center for Management. International Business & International Marketing. Hyderabad: ICFAI Center for Management Research, 2005. 3. Sundaram, Anant K. International Product Strategies. Delhi: Prentice-Hall of India Pvt Limited, 1995. Read More