Product Life Cycle and Other Theories of International Business

International Trade Theories

The theories
‡ Mercantilism ‡ The mercantilist doctrine advocated government intervention to achieve a surplus in the balance of trade. ‡ Absolute Advantage ‡ Based on Adam Smith¶s ³The Wealth of Nation´ ‡ A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.

‡ Factor endowment means the extent to which a country is endowed with such resources as land.. labor and capital.) ‡ Comparative Advantage ‡ According to David Ricardo¶s theory of comparative advantage it makes sense for a country to specialize in the production of those goods that it produces most efficiently and to buy the gods that it produces less efficiently from other countries. ‡ Heckscher-Ohlin Theory ‡ The theory of factor endowment.The theories (contd. .

Product Life Cycle Theory ‡ Raymod Vernon¶s Theory ‡ A product develops in a developed nation and the demand of product is high in the nation but over time the pressure for cost reduction grows. but it does necessiate some exports from the country of development . ‡ The limited initial demand in other advanced countries does not make it worthwhile for firms in those countries to start producing the new product.

‡ It becomes worthwhile for foreign producers to begin producing for their home markets. demand for the new product grows in other advanced countries..) ‡ Over time. the product becomes more standardized and price remains the only competitive weapon. ‡ This results in the developing countries to acquire a production advantage over advanced countries.Product Life Cycle Theory (contd. . ‡ As the market in these foreign market start to mature.

‡ Profits are nonexistent in this stage because of the heavy expenses of product..PLC (contd. ‡ The strategy is to create wide spread awareness. . It has following distinct stages ‡ Introduction ‡ This is a period of slow sales growth as the product is introduced in the market.) ‡ Product life cycle is the course that a product¶s sales and profits take over its lifetime.

‡ Strategy might be cost based. ‡ Growth ‡ Reaping off the benefit of promotion during the introduction stage.) ‡ Costs are incurred in building distribution and increasing awareness through heavy promotion. differentiation or niche market focus. ‡ This is a period of rapid market acceptance and increasing profit..PLC (contd. .

. ‡ Maturity ‡ A period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. ‡ Profits level off or decline because of increased marketing outlays to defend the product against competition. .) ‡ Unit manufacturing costs begin to fall as fixed costs are spread over more production units and workers move down the learning curve.PLC (contd.

. ‡ Strategies are to maximize profit by eliminating as many product costs as possible as sales slow. ‡ The firm may continue to market the product hoping that competitors will discontinue their products.) ‡ Decline ‡ A period when sales fall off and profits drop.PLC (contd. or else to eliminate the product altogether. .

‡ Fuel efficient redesign as Mustang II in 1974 ‡ Fourth generation Mustang in 1994 .Case Ford Mustang ‡ Introduction: 1964 ‡ Performance increased with the addition of the 428 CobraJet in 1968 ‡ Mach I styling in 1969 ‡ High performance Boss 351 addition in 1971.

product marketing. ‡ End of life of the product should be handled with care as the product reaches its obsolescence. process engineering.Elements in PLC ‡ Design engineering. . and production recurs at each stage of PLC.

E. . concept with the market. if they have conceptualized a new product or service.Design Engineering ‡ Design engineering can occur at any stage (multiple times in each stage).g. and potential revenues are analyzed in this stage. elaborate during the introduction stage but ³might´ be less extensive at later stages. ‡ Technology. ‡ Idea validation occurs first. competition. manufacturing capabilities. ‡ The process is extensive. they check their ideas. they check if the concept has viability in the market.

.Design Engineering (contd. ‡ In case of prototyping involves development of a product representing the subtype of the main product and is further enhanced. This is the stage the look and feel of the product and service is developed. ‡ Prototyping is one of the popular method as constant changes can be done will lesser cost. performance and styling in a feasibility analysis. . ‡ Specification and design are the third.) ‡ The second stage is the conceptual design where the initial investigations are made into product pricing.

in desired amounts.) ‡ Under pilot project concept the product or service is launched in a test environment and on the basis of the response. at the producing firm¶s lowest possible cost. modifications is done. .. ‡ The chief concern is obtaining the desired level of manufacturing capacity as soon as possible while meeting quality specifications. ‡ The final stage is commercialization. ‡ The purpose of any new product introduction is to place a quality product in the market.Design Engineering (contd.

. and/or improvements in the attractiveness of the product through styling. ‡ Changes made to the product typically result in markedly higher quality. new features that increase the product¶s utility value. Caterpiller¶s highdrive crawler tractors.g. ‡ Specification and design are the third. windows operating system. This is the stage the look and feel of the product and service is developed.) ‡ Constant changes in the product often leads to the creation of an entirely new product. E. .Design Engineering (contd.

‡ It defines the functions.Process Engineering ‡ The focus of the process engineering is on the production system (product). tooling. system. delivery and development (service). and flow used in manufacturing or service operations. . layout. equipment. ‡ Bill of materials is a list of separate parts that make up a product/service and gives an idea of the parts that make up the product and the process that shall be followed.

) ‡ Laufer¶s three basic types of process structures: ‡ Intermittent operations found in custom firms or job shops in which end item or service specifications are provided by the customer. .Process Engineering (contd. ‡ Continuous operations with highly standardized product with limited variety and high output.. The production run is longer. ‡ Batch operations found in more standardized products to be produced in higher quantities.

‡ Automation requirement ‡ Maintenance decision .) ‡ Just in time approach..Process Engineering (contd.

. quantity specifications must be met during the production stage.Production ‡ Production as obvious is when the product or service is developed for delivery. ‡ As sales increase production process speeds up. ‡ The quality. ‡ It requires standard processes. overhead per-unit costs decrease and direct costs increase. required resources and trained manpower.

leaps through growth..) ‡ Manufacturing activity is moderate during initial stage. peaks at time when demand is highest and falls during decline.Production (contd. .

production.Relationships ‡ This is where the linkages between the different stages is studied and analysed. with each stage separate from the next. . marketing and end of life. ‡ The first step is design engineering. This is known as the over-the-wall method of product design and development. followed by process engineering.

fewer advertising cost incurs.Product Marketing ‡ Marketing elements (the 4 Ps)  Product  Price  Place  Promotion ‡ High advertising budgets ‡ The focus can be on ³Entire market´ or the ³niche´ ‡ Once the product becomes established. .

) ‡ Sales promotion to stimulate awareness and stock clearance. sales promotion offers reason to buy now.. ‡ ³Sales promotion consists of short-term incentives to encourage purchase or sales of a product or service.´ » (Kotler and Armstrong. Whereas advertising offers reasons to buy a product or service.Product Marketing (contd. 1991) .

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