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International Business Environment - Essay Example

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 The essay describes the International Product Life Cycle (IPLC) theory in order to extend the international trade theory beyond the static models of comparative advantage, which was developed by David Ricardo explaining that it is beneficial for a country to trade in goods…
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International Business Environment
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Download file to see previous pages  The first stage of IPLC depicts the growth phase of an innovative product when a firm makes a technological breakthrough. Such markets are more common in the developed countries as the purchasing power of the individuals is higher therein and they are more inclined towards experimenting with new products. The initial stage of a product is characterized by wide promotion and high prices, leading to high profits. Competition is noted to be low. Hereafter, the product is exported to various industrial countries, implying the stage end and a downward descent of the experience curve of the product.
The exports made to other advanced countries marks beginning of the second stage of IPLC. The product design and process becomes more stable with greater investment in the production plants, which drives down the labor and transportation costs. The production process is shifted offshore in order to cater to the local markets. Reduction in the profit margins is noticed; nevertheless, the attractiveness of the business does not decline as the market demand persists.
This phase may witness a dwindling in a product’s sales volume in the original market and many products get phased out. In this phase, the original manufacturer no longer has the exclusive rights and is forced to sell off the remaining products at a discounted price.
The model helps start-up organizations aiming for international expansion to gain a better understanding of changes occurring in the pattern of trade, besides planning out the production process.   ...Download file to see next pagesRead More
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