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IBA 8010 Seminar in International Business
Final Examination
By F. M. Tai & Hui-Yi Kuo (Grace)
(The following questions should be answered based on the articles we have covered over the
course of the quarter. I am looking for answers that integrate the articles and schools of
thought in a comprehensive and thoughtful manner. Each question is given an equal weight.
Your exam should not exceed 15 double-spaced pages. Good luck!)

I) Foreign direct investment (FDI) is one of the key issues in International

Business (IB) research. Detail and discuss at least three theories of FDI in
IB. Relate these theories to your own research interests and practical
A.) Foreign direct investment of transnational corporations has been rapidly developed since
1960s. Economic scholars/researchers raised a lot of theories and empirical analysis on
foreign direct investment FDI. In Session 3, five FDI Theories in International Business
research were shown on Dr. Kellys Power Point. They are:
1. Eclectic Paradigm; 2. Market Imperfections/Internalization; 3. Location
Specific advantages; 4. Strategic behavior; 5. Vernons life cycle model
With the global economic integration, the FDI theories were summed up and summarized.
Three theories of the above (FDI in IB)Eclectic Paradigm, Market Imperfections/
Internalization, and Vernons life cycle model will be discussed in detail in the next
FDI Reviewing. Since the early 1960s, economic scholars of transnational corporations on
foreign direct investment started the in-depth research and created many different
perspectives and international direct investment theories. From the direction of the
development of theory, the school principal can be summarized into three main categories:

a. Structural Market Imperfection

The Specific Advantage Theory, a very dominant theory, was raised by Hymer (1960) and
subsequently explicated by Kindelberger, so it is called The Hymer- Kindleberger Theory.
The theory proposes that the structure of imperfect competitive market makes the
prerequisites for multinational corporations to foreign direct investment. This imperfect
competitive advantage results in a monopoly market for MNEs (such as knowledge assets,
economies of scale, etc.). And this advantage will access higher profits than the local
businesses of the host country to cover higher production cost and organization cost than
local enterprises when implementing overseas business commitments.
Vernon (1966) created the well-known product life cycle theory and analyzed/made this
dominant advantage into dynamic. He proposes that products in the market will experience
innovative, matured, and standardized three stages. Later he amended by adding the
"stagnation" stage. Products, in different stages of the life cycle, need to be matched with the
production of different origins. During products innovation stage, enterprise takes domestic
production choice and then exports the products. When products entering the mature stage,
enterprises should transfer production overseas to reduce costs, maintain the market share of
the products. When entering the standardization phase, enterprises have a monopoly
advantages vanish and the production needs to be shifted to developing countries with low
labor costs; the invention country begins importing the products.
b. Natural Market Imperfection
The most representative is the Theory of Internalization of Market. The most famous are
P. J. Buckley, M. Carson, and A. M. Rugman. This theory holds that the failure of the market
transaction caused the rational allocation of its resources through the internal when alienating
products in order to ensure the enterprises to obtain the largest economic benefits.
The determining factor for the internalization of market is transaction costs. If the advantages
from the process of internalization can be offset or more than the costs mentioned the above,

the company will decide foreign direct investment; otherwise choose exports.
c. The Eclectic Theory of International Production
The theory was proposed by the British economist J. H. Dunning in 1976 and is also often
called OIL theory (Organization or Ownership-Internalization-Location). The core content of
this theory is that the foreign direct investment for enterprises to be engaged in is decided on
the ownership advantages, internal advantages, and location advantages of three joint
decisions. Denning believes that if an enterprise only has ownership advantages, then, the
enterprise should choose licensing arrangements means of technology transfer. If an
enterprise has ownership advantages and internalization advantages, it should select domestic
production and exports. And only when the enterprise has the ownership, the internal, and
location advantages of the three at the same time, the enterprise will choose foreign direct
Detailed on Eclectic Paradigm of OLI Ownership-Location-Internalization advantages:
Organization (Ownership) advantages can be understood as the capabilities for
businesses to meet their current or potential customers demand. Ownership, firm specific
advantage, includes Patent and Trade Market, Technology, Name recognition, Core
competency of a firm i.e., an ability meeting with the current/potential customers demand (If
having the ownership advantages, the enterprise should choose licensing arrangements way to
proceed the technology transfer over other forms of entry. The licensing Specific Advantages
such as knowledge-based software, patent items or intellectual properties).
Internalization advantages. Internalization is about decision to make an activity internal
to the firm, theres got to be an advantage of internalized. Internalization comes about from
market imperfections. We take the service enterprises as example. In order to overcome the
incompletes and uncertainties from external market and to prevent foreign competitors
copying, the enterprises will use of its intangible assets resulting from the internalization of
specific advantages for being used in transaction cost benefit. Having learned from Barkley

and the views of people such as Carson, Denning had his view that the enterprises having the
ownership advantages of intangible assets, through the expansion of their own organizations
and business/management activities and the use of internalizing these advantages, will obtain
more than non-equity transfer potential or real profits. However, the enterprises with the
ownership and internal of the competitive advantages do not necessarily have to choose
foreign direct investment. They can also choose to expand domestic scale, and then exports to
be fully rewarded. So ownership and internal advantages to the foreign direct investment is
not a sufficient condition but a necessary condition.
Location advantages. It is external advantages to the firm. It is not owned by enterprises
but by the host country; therefore, enterprises can not control discretionally, but adjust and
take this advantage. It is mainly characteristic in three aspects: the immovable factor and
endowment of the host country, such as natural resources, convenient geographical location, a
large of population; the host country's political system, policies and regulations with flexible,
concessive, and other favorable conditions (i.e., free tariff barriers), as well as the formation
of good infrastructure and gathered economy. Location factors directly affect foreign direct
investment of MNEs on the decision on the location and the international production system
layout, a fully foreign direct investment rather than necessity. When meeting with the
following three advantages, MNEs will have global oligopolies: 1. must have some strategic
advantage which allows it to compete effectively with domestic firms; 2. must select
countries for investment which have attractive sourcing and/or marketing environments; 3.
must have managerial ability to coordinate operations located in foreign countries at a cost
that is less than the benefit received from operating in these locations.
In short, Denning's theory explains the causes of foreign direct investment for developed
countries, the same to say, Dennings theory is on why we go to foreign to invest businesses,
but he did not conduct the research on the management of MNEs. While, Uppsala Theory is

the research on how we form foreign business. Consequently we know, even though firms
pursue international entries, they need to have a clear advantage and Uppsala provides Stage
model - The Uppsala Internationalization Process Model.

Relating these theories to our own research interests and practical applications:
Both writers of this Final Exam come from Taiwan and one is interested in the research

by using the Eclectic Paradigm of Dunning. Taiwan is a developed country full of a lot of
Multinational Enterprises (MNEs). Due to the economic globalization and the pressure of
developing industry or services, Taiwan Government will be forced to come forward to
support the domestic enterprises in foreign direct investment. Therefore, even though the
small-medium level firms in Taiwan currently have no the three specific advantages as Dunning
proposes to FDI, it is getting trend for those small-medium firms to have expressed the strongly
desire to FDI. Otherwise, the theory of Wells, L.T. (1977) also could be used as the reasons
for Taiwan small-medium firms to go globalization or involve with international business
instead of the Dunnings. Wells proposed the theory to compromise Denning theory when
lacking of the absolute competitive advantage. The comparative advantages for such
multinational companies are from low-cost. Consequently, the time for Taiwan MNEs or
small-medium level firms to FDI is coming. Eclectic Paradigm of OLI Advantages will be
usually applied when involving international businesses. The researches concerned will be
more and more often.
The other writer of the Final Exam will be interested to go for mainland China for doing
business/service there in the future; the follows are her practical applications attention:
The Applicability of Service Using the Theory of FDI
Traditionally, since the transfer of knowledge can replace the transfer of products,
Vernon thinks that the theory of manufacturing multinationals also can be used to explain the
service of multinationals. Denning (1989) extended the international production eclectic
theory developed in manufacturing to the services sector and pointed out the theory is

applicable to the basic framework of the multinationals in the services sector.

FDI in Services Industry
On the basis of "internalization" theory, Barkley (1976) and Carson (1985) found that
service enterprises have the internal advantage of the middle market. Denning (1980)
expanded the theory to the service sector and pointed out that foreign direct investment in the
service industry should also at the same time have ownership advantages, internal
advantages, and location advantages. Only having the three, the enterprises can obtain
beneficial foreign direct investment. If only having ownership and internal advantages
without location advantage, the enterprise lacks of investment places, then the advantage will
only be used in the country, that is, domestic production and exports. If only having
ownership advantages, the only way for the enterprise is to transfer the concession for
FDI in Banking Industry. It is the kind of Internalization Advantage, the ability of the
firm/enterprise to manage non-domestic activities. E.g., cost advantage from vertical and
horizontal integration, due to transaction cost caused by market failure, etc. Rugman (1981)
made an analysis on the basis of banking service for exploring the applicability of the internal
theory. Yannopoulos (1983), Wells (1983) and other researchers also supported that the theory
could be applicable to the development of cross-border banking. In 1993 Sauvant did a
research and analysis on the service industry multinationals and fully confirmed Denning
theory with the interpretation of reality.
Multinational enterprises in developing countries (China) in general do not have what
Denning said of the three major advantages, especially for some small and medium
enterprises, they do not have the absolute transnational competitive management advantages,
either. But in fact, FDI in service industry from the developing countries in recent years has
been on the rise trends, this may need to use other new theories to explain. Anyway, the
above will be researchers or we need to apply.

2) Develop a framework based on Kuhn, Reynolds and session II readings

to explain: What is a theory? What is a theory not? Evaluate some of the
foundation theories of IB in light of your framework.
What is a theory?
Reynolds asserts that a theory is a set of well-supported
empirical generalizations or laws A theory can also be defined as an
interrelated set of definitions, axioms, or propositions Theories are also
thought to include abstract formulations that are vague, prescriptive, or
untested hypotheses or ideas.
The theory is constituted by framework (construct) and ideas.
The framework may be used as an agenda guiding us to recognize the lifecycle of theories.
They include the idea, concepts, statements, forms of theories and testing theories.
A researcher begins to describe his new theory which is based on the
new idea. At times this new idea is from the new finding from phenomena,
solving the antecedent limitation or more than just a different way of
describing the same data; Reynolds asserts that it may include a unique
world review or perspective that even the originator may not be
completely aware of.
The new theory was by developing the idea into concepts ,
statements, and the interrelationships between the statements (or
theories), it will be a conceptualization- an orientation toward or
perspective on the phenomenon and this forms the basis for his written or
formal theory. In other words, after a new idea occurs to the researcher,
he attempts to describe this idea to others using explicit concepts and
Kuhn announces A new idea represents the new conception
of phenomena. It suggests a new research strategy or methodological
procedure for gathering empirical evidence to support the paradigm. It
tends to suggest new problems for solution .Application of the new
paradigm frequently explains phenomena the previous paradigms were
unable to explain.
Since the written theory is only a reflection of the new orientation
or idea, the impact of the new orientation and new idea on the written
theory is crucial, Although it may require considerable effort for a

researcher to refine and describe his new idea in a language shared by

other researcher. They try to demonstrate what an orientation or
conceptualization entails. The development of clear definitions for
concepts is important to improve research and theory building .
Concepts are not only building blocks of science as a science, but are also
meaning laden classifications. They do not only refer to a variable , also
can focus on very delimited aspects of a specific organizational
The forms of statements used to express researchers knowledge . Reynolds asserts that
statements can be classified into two groups: Existence statements include a concept,
identified by a term, is applied to an object or phenomenon, and they can be right or wrong.
Relational statements describe the relationship between two concepts (this includes causal,
association, and deterministic or probabilistic relationships).Theoretical Statements are
characterized by five different labels
Laws or absolute truths, Axioms a basic set of statements, each independent of the
others ,Propositions these are statements derived from axioms
Hypotheses these refer to a statement selected for comparison against data collected in a
concrete situation ,empirical generalizations a summarization of patterns in empirical
Reynolds also announces there are three difference conceptions of how sets of
statements should be organized to constitute a theory: Set of Laws This approach accepts
statements that can be considered laws as part of scientific knowledge furthermore, all
laws are directly supported by empirical research .The Axiomatic Form This includes an
interrelated set of definitions and statements with several important features, and the Causal
Process Form This is an interrelated set of definitions and statements that include a set of
causal statements, with either deterministic or probabilistic relations, that describe one or
more causal processes or causal mechanisms that identify the effect of one or more
independent variables on one or more dependent variables.
These three forms of theory was a strong enough relationship to group the axiomatic
and causal forms , so to create the axiomatic-causal process
The axiomatic-causal process is preferred over the set of laws model due to several
reasons, It provides a sense of understanding. It makes it easier to describe new paradigms. It
may allow for more efficient research and suggest a more concise and interrelated
organization of scientific knowledge.
Abstract Statements are abstract and can be difficult to support with concrete research.
To resolve this ,researchers must conduct empirical research so that the settings can affect the
confidence a researchers has in the usefulness of an abstract statement for the purposes of
explanation and prediction. Statistical decision procedures are often used to prove whether or

not a statement is true or false statistics are frequently misused by researchers who try to
apply them directly to abstract statements to prove whether the statement is true or false.
Also It is important to note that the best research design which is the strategy for
developing a scientific body of knowledge. They are developing an explicit theory in an
axiomatic or process description form, selecting a statement generated by the theory for
comparison with the results of empirical research, designing a research project to test the
chose statements correspondence with empirical research.If the statement derived from the
theory does not correspond with the research results, make appropriate changes in the theory
or the research design and continue with the research. If the statement from the theory
corresponds with the results of the research, select further statements for testing, or attempt to
determine the limitations of the theory.

What is a theory not ?

1) Data Are Not Theory
Empirical evidence like data plays an important role in confirming,
revising, or discrediting existing theory and in guiding the
development of new theory.
The amount of data and the kind of evidence can support and
motivate a theory. The theory itself may seem obvious to readers.
2) Variables Are Not Theory
With a logical attempt to cover the outcome, comparative variables
usually represent the predictors or controls in stastical models.
3) Hypotheses are Not Theory
Hypotheses serve as crucial bridges between theory and data,
making explicit how the variables and relationships that follow from
a logical argument will be operational zed.
They are concise statements about what is expected to occur, not
why empirical relationships exist.
4) Diagrams Are Not Theory
Diagrams can be a useful aid in building theory. It can provide
structure to those who are not good writers. For those researchers
who are talented writers having a concrete model may prevent
confusing the meanings.
5) References Are Not Theory
References can explicate which concepts and casual arguments are
adopted from cited sources and how they are linked to the theory
being developed or tested. Authors need to acknowledge the stream

of logic on which they are drawing and to which they are


The framework of theory and use as a tool to IB

theory evaluation
We can design the framework on the vertical analysis and on the
horizontal axis as systems of thinking about the phenomenon. Over the
history of international business, different phases of research have
priIleged one level or another in order to give clarity to the analysis.
The horizontal axis of framework can design the past, the present
and the
future of the theory tendency as the theory design agenda. This
research note challenges international business researchers to think of
their future work in terms of the pats achievements of their discipline.
There are three major topics have been successfully tackled by
researchers in the international business field. They are the explanation
of foreign direct investment, the multinational firm and the
globalization of business. It ends by considering future research
Past major topics in international business research are
explaining flows of FDI, explanation of existence . strategy and
organization of MNEs ,and internationalization to globalization. The
topic is Us FDI in Europe Managerial Issues of Investing Abroad ,
theory of MNE , strategies of MNE, organization of MNE,Foreign
market servicing strategies ,Smaller firms in IB ,international
economic integration, Joint ventures, alliances competitiveness
Meaning(s) of globalization .
The rise of the global economy has been an important element in
international business agenda since the 1980s. This threefold division
ignores an important element in international business theorizing and
empirical studies- the role of culture and in particular the impact of
differing national cultures. The interplay of national cultures and
organizational cultures.
Current Research Agenda in international business focuses on
mergers and acquisitions, Knowledge management, geography and
location , globalization, fragmentation. The above analysis has

suggested that international business research has succeeded

because it has focused on , in sequence, a number of big questions
which arise from empirical developments in the world economy.
The agenda is stalled because no such big question has currently
been identified. This calls into question the separate existence of the
subject area. It raises the old problem of the relationship between
international business and other functional areas of management and
social science .Without a vole interaction between theoretical
development and empirical reality, international business could
become a merely an area of application for applied concepts from
other disciplines.

The horizontal of theory is like Kuhn paradigms.

1. A new idea represents a radically new conceptualization of
2. It suggests a new research strategy or methodological
procedure fpr gathering empirical evidence to support the
3. It tends to suggest new problems for solution
4. Application of the new paradigm frequently explains
phenomena tha previous paradigms were unable to explain.

3) Describe and evaluate the contribution of at least three root disciplines

(organizational theory, economics, political science, sociology, psychology
and even literary studies) on the development of a paradigm in IB.
Comment on the stage of development of the IB paradigm.
International Business, a more apt phrase might be "trans-national"business, is in
constant transformation at ever accelerating rates of change. It is impacted by everything, i.e.,
politics, finance, technology, manufacturing, transportation, economics, and in turn impacts
everything. Channels of business keep broadening, relationships become more complex,

competition is waged ever more fiercely. In the arena of international business, competitive
advantage is a short-lived thing and understanding the contribution from disciplines is crucial
because in a brutally competitive economic universe with scant margin for error, the power of
knowledge assumes exponential value to prosper the international business.
Market Imperfection (Hymer). Economic conditions include market size, growth
prospect, rate of return, urbanization, etc. Overall, some studies find that FDI has a
significantly positive impact on growth and more beneficial for the export-led growth
economies of some countries. The major determinants of FDI are market size, labor force
growth, infrastructure index and trade openness. The most significant and influential factors
are market size and labor force growth (
The Contribution of Root Discipline from Organizational Theory
Organizations and environment (O&E). Researchers stated either organizational
outcomes or environmental outcomes are significantly different approaches to O&E research.
The first aims to contribute to organization theory and performance; the other aims to
improve environmental performance (Bansal and Jijun, 2006).
Organizational Theory in Education. The quality of education and training implies that
technical training should be enhanced in comparison with general education. If the
governments have measures to direct a large numbers of pupils to technical training schools,
in other words, as at early stage of industrialization, governments had placed a priority on
development of skill-intensive sectors of labor-intensive industries, they were improving in
quality of the whole educational and training system, which is a prerequisite as well as
contribution on the development of a paradigm (like organization advantages) in IB.
In order to build strategy for attracting FDI on the comparative advantages, specifically
for the regions having natural resources, policy usually is aimed at calling resource-seeking
FDI, which foreign investors are provided most favored condition in doing their business

there. Labor-intensive type is the FDI another choice and the regional authority themselves
offer investment opportunities rather than waiting foreign investors submitting their
proposals. For long-term strategy, common measures, such as public investment on
infrastructure and education and training should be used to help contribute in IB.
Law on domestic and foreign investment should be merged into one to create the image
that host country does not treat domestic investment and foreign investment unequally.
Regulation should be more transparent and more investor-friendly by widespread
dissemination of information about the investment environment in the country. In investment
promotion workshop, the personal contacts should also be utilized. In addition, skilled human
capital is crucial for capturing and impacting the positive effects from FDI (countries with
skilled labors can more easily adjust and develop the gain from FDI). And which will
facilitate the contribution to the development of IB.
The Contribution of Root Discipline from Political Science
Political Science. In placing a priority of development for export-oriented FDI, although
protection is sometimes desired from foreign investors at pre-operational stage, openness
seems to be a significant positive determinant of FDI. Therefore, to really promote FDI into
any country, countries should be more open. In general, the tariff rate for foreign invested
firms imports should gradually reduce according to international agreements, which would
also be a contribution for political science on the development of a paradigm in IB.
Keeping stable political and economic stability, improving overall legal framework for
promotion of FDI by creating favorable investment environment, i.e., the foreign investors
enjoy same treatment on possible areas where the host enterprises are not allowed to keep
leading position, or the dual price system for infrastructure service should be abolished. If all
of these are taken, they would contribute to the development of IB paradigm, too. Also, trade
treaties, both on the world-wide level of the WTO and in a convoluted spider web of
individual bilateral and multilateral agreements, are redefining the political landscape and aid

the development of paradigms in IB.

The Contribution of Root Discipline from Economics
Economics. Economics helps economic growth and others. Economic growth in any
country depends upon the sustained growth of productive capacity, supported by savings and
investment. Low levels of savings and investment, particularly in developing countries and
least developed countries, results in a low level of capital stock and economic growth. In the
relatively short lifespan of humankind, business/trade has been a primary driving force of
history. Shister (2003) stated that we are currently in a phase of dramatic, unparalleled
economic transformation. The world has changed in the mere several years since formation of
the WTO. Phenomena that barely registered on the screen a decade ago--globalization,
international business supply chains running at just-in-time speed, high value-added off-shore
production--now constitute the conventions of business.
Economic impacts of FDI such as promotion of trade, employment generation and
technology spillover. FDI has increasingly become an integral part of the national economy
and by means of Economics it might contribute positively to economic growth by
encouraging domestic investment, creating employment opportunities, transferring
technology, and boosting export. And which will surge of FDI to ensure high economic
growth or sustain the development of the country in return.
Transaction cost economics (TCE) is most associated with the work of Oliver
Williamson, though he was building on earlier work, particularly by the Nobel prize winner
Coase. One reason why the theory is so important is that it represents one of the first and
most influential attempts to develop an economic theory that takes seriously the structure of
firms. Previously, economic theories tended to treat the firm as a sort ofblack box, the
internal workings of which were not considered to be important.
A market requires full information to be available to all parties and perfect
competition, among other factors. Departures from this perfection (sometimes called market
failures)can result in firms incurring costs when they attempt to buy or sell goods or
services. For example, lack of information about alternative suppliers might lead to paying
too high a price for a good. Lack of information about a customers creditworthiness might


result in a bad debt. These are transaction costs. These costs usually are used as the
evaluation tool when the companies decide to take FDI.
Williamsons contribution rests in specifying the variables that determine whether
market or hierarchy will have the lower transaction costs in various circumstances. Before
discussing these variables, though, we also need to mention the assumptions that Williamson
makes that underpin the theory. It is important not to confuse these assumptions with the
variables. The assumptions are bounded rationality and opportunism.
Bounded rationality refers to the fact that people have limited memories and limited cognitive
processing power. We cant assimilate all the information at our disposal, we cant accurately
work out the consequences of the information we do have.
Managers face the same problems. No matter how knowledgeable they might be, they cannot
consider all the possible alternative courses of action. Williamson doesnt assume that all
people will act opportunistically all of the time. He merely assumes that some people will act
opportunistically some of the time, and that you cant tell in advance who is an opportunist
and who is not.
The variables about transaction costs are frequency, uncertainty and asset specificity.
The real explanatory power of the theory, though, comes from the three dimensions or
variables that are used to characterize any transaction. Transactions can be frequent or rare;
have high or low uncertainty; or involve specific or non-specific assets. These three variables
will, according to the theory, determine whether transaction costs will be lowest in a market
or in a hierarchy. It is easiest to consider these variables with respect to decisions about
whether to integrate vertically.
Although TCE is very useful, it is not without its critics. It is important to recognise
some possible weaknesses in the theory.
1. It is often very difficult to measure transaction costs even if they can be defined.However
the theory assumes that it is possible to neatly separate production and transaction costs, but
in practice this is often not the case.
2. Although TCE assumes that their are limits on the extent to which decision-makers can be
rational(that is, it assumes bounded rationality), it still makes little allowance for the other
factors that we know affect decision-making. For example, the profit maximising, cost
minimising object is not considered to be problematic. In reality, we know that this is not the
case. There are often conflicts of interest among managers, the interests of managers and
shareholders may not be perfectly aligned, and so on. Consequently, power plays an
important role in decision-making.
The Price in International Business Development. Lancioni (1989) suggested in order to be
favor in the international business, price is important and the price setting should be done on
two levels in international marketingthe external market level includes factors, such as

customer price sensitivity, competitive price levels, and government regulation; and the
internal level considers cost reduction goals, ROI objectives, sales volume requirements, and
production volume quotas, from which the both environments therefore have to be taken into
account when prices are being set in international marketing.
Other new impact IB Development: In Mayfield &. et. al. (1998), location- the role of
place as a key factor, has a significant impact on the effectiveness of international business
negotiations. Additionally, the Internet offers a powerful and a variety of practical methods in
the global marketing and also has a direct impact on international business (Natesan & Smith,
The emerging process of managing internationally calls for different perspectives,
different information, different skills, and a much greater tolerance for ambiguity and
uncertainty. We need to be aware of the competitive imperatives that underlie international
business development in order to make strategic change happen (Schaeffer, 1989). The above
can be of great assistance for business people seeking success or root in international
Comment on the stage of development of the IB paradigm
Again we take the well-known example of product life cycle theory created by Vernon
(1966) for commenting on the stage of development of the IB paradigm. In his view the
products in the market will experience innovative, matured, and standardized three stages.
Later he amended by adding the "stagnation" stage. Products, in different stages of the life
cycle, need to be met with the production of different origins. During products innovation
stage, enterprise should take domestic production choice and then export the products. When
products entering the mature stage, enterprises should transfer production overseas to reduce
costs, maintain the market share of the products. When entering the standardization phase,
enterprises have a monopoly advantages vanish and the production needs to be shifted to
developing countries with low labor costs; the invention country begins importing the

products. The Vernon product lifecycle model is an older model from after World War II, the
model has been criticized for being at the ethnocentric because it was a model that applied to
American companies to expand to developing countries, and we now live in a world that we
have exported products to the developing countries and invested in the developed countries,
i.e., we could see the situation where Chinese firms are investing in the US. However, the
Vernon lifecycle model is useful and did contribute to the development of IB.