The product Cycle Theorem

This is an economic model which was developed by Raymond Vernon as a way of responding the
to the failures of Hecksher-Ohlin model in explaining the patterns of international Trade. The product
Lifecycle theory says that during the early stages of a product’s life-cycle all the parts and labor
associated with creating the products comes from the area it was invented. And therefore, as the product
becomes adopted and used in other parts of the world markets, its production will gradually move away
from its point of origin.

Introduction Early Late Maturity Decline

& Growth Maturity
Developing The Developing
Stage
The Mnf’ Country country market
The company competitor remains viable
Manufacturing (MNC) moves exports product target markets for
company (in production to to MNC home manufacturing
developed developing country and company and the
Product Sales

country) country and competes with Manufacturing

Manufactures begins MNC imports company home
products and importing to country market is
exports to home country diminishing.
developing
countries

Time

Introduction Stage

In this stage, a new product is introduced to meet the national needs and this product is fist
exported to countries with similar needs, preferences and incomes. For instance, IBP computers which
were introduced in the US and spread quickly throughout the world
Growth Stage

In this stage, increase in the sale of this new product attracts competitors. There is increased
demand of the product in advanced countries triggering more exports. There is further innovation in
production of this product to reduce costs thus leading to a shift of manufacturing to foreign countries.

Maturity Stage

In this stage there is worldwide production of the product which is done in large scale that
translates to low costs. This leads to a shift of manufacturing to the developing countries hence making
technology to become standard.

Decline stage

In the last stage, market for the product concentrates in less developed countries as customers in
advanced countries shift their demand to further new products that are now produced in these developing
countries. The original innovator will now become an importer.

Introduction Growth Maturity Decline

Product Sales

Domestic
Sales

US
Production

Time