Table of Contents

CONTENTS Page

1.0 Question 1 3

New Features of the Innovative Product

Reasons for the Chosen Innovative Product:
Ease of use
Reduce Cost
Save Time
A Graphic Illustration of Raymond Vernon’s IPLC Theory
The IPLC consists of Three Stages
New Product
Maturing Product
Standardized Product

2.0 Question 2 12

New Product Stage

Maturing Product Stage
Standardized Product Stage
Advantages of Raymond Vernon’s IPLC Theory

3.0 Question 3 14

What are Trade Barriers?

Tariff Barriers
Non-Tariff Barriers
Quotas
Embargo
Voluntary Export Restraint (VER)
Subsidies to Local Goods
Local Content Requirement
Technical Barriers
Procurement Policies
International Price Fixing
Exchange Controls
Direct and Indirect Restrictions on Foreign Investments
Customs Valuation
What effects on International Trade?
Why do Countries Have Trade Barriers?

REFERENCES

APPENDIXES

‘Innovative Product’ – Xerox All-In One 4150 Photocopier Picture

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1.0 Question 1

According to the AudioEnglish.net Dictionary, ‘Innovative’ means being or producing

something like nothing done or experienced or created before. Xerox all-in one 4150

photocopier is being chosen as an innovative product. The new features and benefits

that acquired by this product that fits the innovative descriptions are as follows:

New Features of Xerox all-in-one 4150 photocopier:

 Functions – Print, copy, email, fax, network scan

 Copy/print speed – up to 43 paper per minute

 Recommended monthly print volume- up to 20,000 pages

 Maximum duty – up to 200,000 pages/month

 Print resolution – 600 x 600 dpi, 1200 interpolated

 Memory standard/maximum – 256 MB/384MB

 Internal Hard disk – 40GB

 Processor – 400 MHz

 Language support – PCL 5e, PCL 6, Adobe PostScript 3 emulation

 Network connectivity – 10/100 BaseT Ethernet (WIFI via 3rd party)

 Print features – Automatic two-sided, Watermark, Secure print, Delayed print,

Sample set, cover selection, paper selection by attribute, toner saver, N-Up,

Mirror Image, Negative image, Image rotation, Saved settings, Booklet creation,

Fit to new paper size, Collation

 Scan destinations - Network Scanning, SMARTsend™, Xerox Alliance Partner

Solutions and scan to email

 Scan speed - up to 43 ppm

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  Scan features - PDF, JPEG, TIFF, Multi-page TIFF, Xerox Scan to PC Desktop™

Personal Edition, Colour Scanning

 Security features - Secure Email via SSL; Network Authentication (SMB, secure

LDAP and Kerberos)

 Fax features - Mailbox, Polling, Security Fax, Colour fax transmission

 Device Management – Accounting - Standard: Internal Auditron tracks copy and

fax, Xerox Standard Accounting Optional: Network Accounting Kit and Xerox

Alliance Partner Solutions

 Printer management - CentreWare Internet Services, CentreWare Web, NDPS

and HP Openview

 Power consumption - Average: 748 wattsPower Saver Mode: 32.5 watts

ENERGY STAR® Compliant

Reasons for the chosen ‘innovative products’

Ease of use

 Touch-screen control panel is easy to learn and navigate and provides access

to most operations with only one touch

 Easy to install on your network with only a few clicks

 Access device and job status as well as accounting information from your

desktop via the Xerox CentreWare® IS embedded Web server

 Space-saving design allows for an easy fit into your crowded office space

 Fax directly from your desktop with LAN Fax feature and save time and paper

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  Unrivaled service and support from Xerox will take care of you every step of

the way

 Secure Print and Secure Fax protects your confidential documents by requiring

a password entry at the device before printing

 Manage the print queue from the control panel, including moving jobs up or

down the list

 Optical character recognition (OCR) and image editing software convert

scanned images into editable text documents

 Edge erase can be used to 'clean up' the edges of an original (e.g., if it is frayed

or has hole punch or staple marks)

 Booklet printing automatically arranges your document so you can easily fold

and staple it into a booklet

 Watermarks provide the ability to print text, such as "Draft" or "Confidential," in

the background of every page of a document

Reduce Cost

 upgrade as your business grows

 Reduce operating costs and service calls by owning one device instead of four

 Save on paper costs with standard two-sided copying, printing, and even faxing

 Get low cost of ownership like a copier with the benefits of a full-featured

network printer

 Cut costly downtime with SMart Kit™ technology that alerts you well before

consumables need replacing

 Control costs and access to copy, print, fax and scan functions with Internal

Auditron and Xerox Standard Accounting

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  Create more office space by scanning documents from file cabinets into

manageable PDF files

 ENERGY STAR® compliant, which means you save on energy costs

 Fax when rates are lower with Toll Save fax feature that allows you to send at a

later time

 JBIG compression for faxes provides 20-80% efficiency in compression making

the transmissions much faster

 N-up feature prints multiple pages on a single sheet, saving paper

Save Time

 Fast speeds of up to 43 ppm and first-page-out time of as fast as 5 seconds

keeps productivity high

 Staple and collate with the finisher for more efficiency and convenience

 Do multiple functions simultaneously and with great ease and reliability with

this true multifunction system - not a device with functions pieced together

 Copy both sides of an ID card or small document onto one side of a sheet of

paper with ID Card Copy feature - saving time and paper

 Scan documents in colour directly to an email address or to network folders

with network scanning option

> What are the benefits of scanning?

 Route faxes to your email automatically for easy distribution, archiving, or

access while you're out of the office

 High paper capacity of up to 2,100 sheets can support long print runs and busy

workgroups

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  High-speed fax of as fast as 3 seconds per page reduces call duration - faxes

can also be sent in colour

 AutoFit automatically scales a page to best fit the size of the media in the

designated input tray

 Covers allow you to feed the front and back pages of the document from a

different media tray

A graphic illustration of Raymond Vernon’s International Product Life Cycle

Theory

In 1966, Raymond Vernon published a model that described internationalization patterns

of organizations. He looked at how U.S. companies developed into multinational

corporations (MNCs) at a time when these firms dominated global trade, and per capita

income in the U.S. was the highest of all the developed countries.

Raymond Vernon was part of the team that overlooked the Marshall plan, the US

investment plan to rejuvenate Western European economies after the Second World

War. He played a central role in the post-world war development of the IMF and GATT

organizations. He became a professor at Harvard Business School from 1959 to 1981

and continued his career at the John F. Kennedy School of Government.

The intent of his International Product Life Cycle model (IPLC) was to advance trade

theory beyond David Ricardo’s static framework of comparative advantages. In 1817,

Ricardo came up with a simple economic experiment to explain the benefits to any

country that was engaged in international trade even if it could produce all products at

the lowest cost and would seem to have no need to trade with foreign partners. He

showed that it was advantageous for a country with an absolute advantage in all product

categories to trade and allows its work force to specialize in those categories with the

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highest added value. Vernon focused on the dynamics of comparative advantage and

drew inspiration from the product life cycle to explain how trade patterns change over

time.

His IPLC described an internationalization process where a local manufacturer in an

advanced country (Vernon regarded the United States of America as the principle

source of inventions) begins selling a new, technologically advanced product to high-

come consumers in its home market. Production capabilities build locally to stay in close

contact with its clientele and to minimize risk and uncertainty. As demand from

consumers in other markets rises, production increasingly shifts abroad enabling the firm

to maximize economies of scale and to bypass trade barriers. As the product matures

and becomes more of a commodity, the number of competitors increases. In the end,

the innovator from the advanced nation becomes challenged in its own home market

making the advanced nation a net importer of the product. This product is produced

either by competitors in lesser developed countries or, if the innovator has developed

into a multinational manufacturer, by its foreign based production facilities.

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 The IPLC

international Product Life Cycle consists of three stages:

1. NEW PRODUCT

The IPLC begins when a company in a developed country wants to exploit a

technological breakthrough by launching a new, innovative product on its home market.

Such a market is more likely to start in a developed nation because more high-income

consumers are able to buy and are willing to experiment with new, expensive products

(low price elastic). Furthermore, easier access to capital markets exists to fund new

product development. Production is also more likely to start locally in order to minimize

risk and uncertainty: “a location in which communication between the markets and the

executives directly concerned with the new product is swift and easy, and in which a

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wide variety of potential types of input that might be needed by the production units are

easily come by”.

Export to other industrial countries may occur at the end of this stage that allows the

innovator to increase revenue and to increase the downward descent of the product’s

experience curve. Other advanced nations have consumers with similar desires and

incomes making exporting the easiest first step in an internationalization effort.

Competition comes from a few local or domestic players that produce their own unique

product variations.

2. MATURING PRODUCT

Exports to markets in advanced countries further increase through time This makes it

economically possible and sometimes politically necessary to start local production. The

product’s design and production process becomes increasingly stable. Foreign direct

investments (FDI) in production plants drive down unit cost because labour cost and

transportation cost decrease. Offshore production facilities are meant to serve local

markets that substitute exports from the organization’s home market. Production still

requires high-skilled, high paid employees. Competition from local firms jump start in

these non-domestic advanced markets. Export orders will begin to come from countries

with lower incomes.

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3. STANDARDISED PRODUCT

During this phase, the principal markets become saturated. The innovator's original

comparative advantage based on functional benefits has eroded. The firm begins to

focus on the reduction of process cost rather than the addition of new product features.

As a result, the product and its production process become increasingly standardized.

This enables further economies of scale and increases the mobility of manufacturing

operations. Labour can start to be replaced by capital. “If economies of scale are being

fully exploited, the principal difference between any two locations is likely to be labour

costs”. To counter price competition and trade barriers or simply to meet local demand,

production facilities will relocate to countries with lower incomes. As previously in

advanced nations, local competitors will get access to first hand information and can

start to copy and sell the product.

The demand of the original product in the domestic country dwindles from the arrival of

new technologies, and other established markets will have become increasingly price-

sensitive. Whatever market is left becomes shared between competitors who are

predominately foreign. A MNC will internally maximize “offshore” production to low-wage

countries since it can move capital and technology around, but not labour. As a result,

the domestic market will have to import relatively capital intensive products from low

income countries. The machines that operate these plants often remain in the country

where the technology was first invented.

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2.0 Question 2

The production and consumption as well as exports and imports of the chosen

“innovative” product – photocopier through each stage of the International Product Life

Cycle Theory can be illustrated as follows:

1. New Product Stage – This innovative product is first developed by Xerox in the

United States. In this stage, the firm innovate the innovative product – Xerox all in one

4150 photocopier in response to a felt need in the domestic market. As the fortunes of

the product are not known, it is produced in a limited quantity and sold mainly in the

domestic market. At this stage, Xerox will export its innovative product - photocopier

from its home country to Japan and to the advanced countries of Western Europe.

Exports are take place in a limited way in this new product stage.

2. Maturing Product Stage – As the product picks up in consumer acceptance and

popularity, demand for it rises both in domestic as well as in foreign markets. Foreign

Direct Investment (FDI) in production plant drives down unit cost because labor cost and

transportation cost decrease. Thus, the innovating firms (Xerox) will set up

manufacturing facilities abroad to expand production capacity, and to meet growing

demand from domestic and foreign consumers. At this stage, Xerox will also try to enter

into joint-venture to set up production in Japan (Fuji-Xerox), and Great Britain (rank

Xerox) for that innovative product. Domestic and foreign competitions begin as the

product emerges a clear winner in the market. Near the end of the maturity stage, when

Xerox patents on the photocopier process once expired, other competitors will begin to

enter the market. For example Canon in Japan, and Olivetti in Italy. The attempts are

made to produce the product in the developing countries.

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3. Standardized Product Stage – This is the last stage in the product life cycle.

Here, market for the product stabilizes. The product becomes a commodity, the market

become price sensitive. As a consequence, exports from the United States will decline,

and users in United States began to buy the photocopiers from lower cost foreign

sources particularly from Japan. The manufacturers are also motivated to search for low

cost producing countries in order to bring down the cost of the production. So they will

begin to switch production to developing countries such as Singapore and Thailand. As

a result, United States United States and several other advance countries such as Japan

and Great Britain will have to switch from being exporters to importers of photocopiers.

This evolution in the international trade in photocopier is consistent with the prediction of

the Raymond Vernon Product Life Cycle Theory.

Advantages of Raymond Vernon’s International Product Life Cycle Theory:

Vernon’s life cycle approach possesses versatility as it can be applied to a variety of

products such as synthetic fibres, electronic goods, radio, television, computers and

other Information technology products.

The second advantage of this theory is its flexibility in explaining not only why trade

takes place and also why Foreign Direct Investment replaces trade.

Third, product life cycle has many takers. For example, the international product life

cycle model suggested that many products go through a life cycle during which high-

income, mass consumption countries are initially exporters, then lose their exports

markets and finally become importers for the product.

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3.0 Question 3

International trade increases the number of goods that domestic consumers can choose

from, decreases the cost of those goods through increased competition, and allows

domestic industries to ship their products abroad. While all of these seem beneficial, free

trade isn't widely accepted as completely beneficial to all parties. Despite all the obvious

benefits of international trade, governments have a tendency to put up trade barriers to

protect the domestic industry. In the aspect of performing international business, trade

barriers imposed by the government of foreign countries will affect the trading of the

innovative at the international level.

What are Trade Barriers?

A trade barrier is generally anything that makes trade difficult or even impossible.

Examples of trade barriers range from government-instituted tariffs to cultural

preferences. Trade barriers can be divided into 2 main types: tariff and non-tariff.

Tariff Barriers

Tariff is a tax levied on goods traded internationally. When imposed on goods being

brought into the country, it is referred to as an import duty. Import duty is levied to

increase the effective cost of imported goods to increase the demand for domestically

produced goods. Another type of tariff, less frequently imposed, is the export duty,

which is levied on goods being taken out of the country, to discourage their export.

This may be done if the country is facing a shortage of that particular commodity or

if the government wants to promote the export of that good in some other form, for

example, a processed form rather than in raw material form. It may also be done to

discourage exporting of natural resources. When imposed on goods passing through the

country, the tariff is called transit duty.

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Tariff can be imposed on three different bases. A specific duty is a flat duty based

on the number of units regardless of the value of the goods. For example, there

may be a duty of Rs.5,000 per photocopier imported into India. In this case, a person

importing, say, 20 photocopiers would have to pay a duty of (5,000 x 20 =)

Rs.1,00,000. An ad valorem duty is expressed as a percentage of the value of the

good. So a person importing a walkman worth Rs.2,000 carrying an import duty of

10% would have to pay Rs.200 towards duty charges. A compound duty is a

combination of a specific and an ad valorem duty. For example, a book worth

Rs.500 carrying a specific duty of Rs.25 and an ad valorem duty of 2% would in

effect be carrying a compound duty of Rs.35. Over the last few decades, tariffs

have been losing their importance as barriers to trade, their place being taken by

non-tariff barriers.

Non-tariff Barriers

Non-tariff barriers (NTBs) include all the rules, regulations and bureaucratic

delays that help in keeping foreign goods out of the domestic markets. The

following are the different types of NTBs:

Quotas

A quota is a limit on the number of units that can be imported or the market share

that can be held by foreign producers. For example, the US has imposed a quota on

textiles imported from India and other countries. Deliberate slow processing of

import permits under a quota system also acts as a further barrier to trade.

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Embargo

When imports from a particular country are totally banned, it is called an embargo.

It is mostly put in place due to political reasons. For example, the United Nations

imposed an embargo on trade with Iraq as a part of economic sanctions in 1990.

Voluntary Export Restraint (VER)

A country facing a persistent, huge trade deficit against another country may

pressurize it to adhere to a self-imposed limit on the exports. This act of limiting

exports is referred to as voluntary export restraint. After facing consistent trade

deficits over a number of years with Japan, the US persuaded it to impose such

limits on itself.

Subsidies to Local Goods

Governments may directly or indirectly subsidize local production in an effort to

make it more competitive in the domestic and foreign markets. For example, tax

benefits may be extended to a firm producing in a certain part of the country to

reduce regional imbalances, or duty drawbacks may be allowed for exported

goods, or, as an extreme case, local firms may be given direct subsidies to enable

them to sell their goods at a lower price than foreign firms.

Local Content Requirement

A foreign company may find it more cost effective or otherwise attractive to

assemble its goods in the market in which it expects to sell its product, rather than

exporting the assembled product itself. In such a case, the company may be forced

to produce a minimum percentage of the value added locally. This benefits the

15
importing country in two ways ¾ it reduces its imports and increases the

employment opportunities in the local market.

Technical Barriers

Countries generally specify some quality standards to be met by imported goods

for various health, welfare and safety reasons. This facility can be misused for

blocking the import of certain goods from specific countries by setting up of such

standards, which deliberately exclude these products. The process is further

complicated by the requirement that testing and certification of the products

regarding their meeting the set standards be done only in the importing country.

These testing procedures being expensive, time consuming and cumbersome to the

exporters, act as a trade barrier. Under the new system of international trade,

trading partners are required to consult each other before fixing such standards. It

also requires that the domestic and imported goods be treated equally as far as

testing and certification procedures are concerned and that there should be no

disparity between the quality standards required to be fulfilled by these two. The

importing country is now expected to accept testing done in the exporting country.

Procurement Policies

Governments quite often follow the policy of procuring their requirements

(including that of government-owned companies) only from local producers, or at

least extend some price advantage to them. This closes a big prospective market to

the foreign producers.

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International Price Fixing

Some commodities are produced by a limited number of producers scattered

around the world. In such cases, these producers may come together to form a

cartel and limit the production or price of the commodity so as to protect their

profits. OPEC (Organization of Petroleum Exporting Countries) is an example of

such cartel formation. This artificial limitation on the production and price of the

commodity makes international trade less efficient than it could have been.

Exchange Controls

Controlling the amount of foreign exchange available to residents for purchasing

foreign goods domestically or while travelling abroad is another way of restricting

imports.

Direct and Indirect Restrictions on Foreign Investments

A country may directly restrict foreign investment to some specific sectors or up to

a certain percentage of equity. Indirect restrictions may come in the form of limits

on profits that can be repatriated or prohibition of payment of royalty to a foreign

parent company. These restrictions discourage foreign producers from setting up

domestic operations. Foreign companies are generally interested in setting up local

operations when they foresee increased sales or reduced costs as a consequence.

Thus, restrictions against foreign investments add impediments to international

trade by giving rise to inefficiencies.

Customs Valuation

There is a widely held view that the invoice values of goods traded internationally

do not reflect their real cost. This gave rise to a very subjective system of valuation

17
of imports and exports for levy of duty. If the value attributed to a particular

product would turn out to be substantially higher than its real cost, it could result

in affecting its competitiveness by increasing the total cost to the importer due to

the excess duty. This would again act as a barrier to international trade. This

problem has now been considerably reduced due to an agreement between various

countries regarding the valuation of goods involved in a cross-border trade.

What effects?

Trade barriers have a negative effect on international trade because they interfere with

the normal supply and demand and make international trade more complicated. They

also negatively impact importers and ultimately consumers since they interfere with

competitive sourcing, which can result in higher prices.

The global trend in recent years has been to eliminate as many trade barriers as

possible. Organizations like the World Trade Organization (WTO) have been established

with the purpose of limiting barriers and reconciling trade disputes among member

nations. Free Trade Agreements (FTAs) among countries, such as the North American

Free Trade Agreement (NAFTA), ASEAN in Asia, and the European Union customs

union have reduced the number of barriers involved in regional trade.

Recent U.S. policy has been to establish trade agreements in all hemispheres by

negotiating bilateral agreements with trading partners such as Jordan, Singapore, Chile,

Australia, Dominican Republic, Bahrain, Israel, Morocco, Oman, Peru, CAFTA, and

CARICOM nations in the Caribbean.

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Why do countries Have Trade Barriers?

Trade barriers are as ancient as trade itself, and there are many reasons countries

impost trade barriers. Trade barriers initially arose in the form of tariffs levied to generate

revenue. For many countries, tariffs are a major source of income and are critical to the

national economy. Tariffs, quotas and non-tariff barriers such as excessive regulations

are now commonly used to protect domestic industry from foreign competition. Finally,

countries often use barriers as tools of foreign policy. Very high or low tariffs can be

used to reward or punish other nations in support of foreign policy initiatives. This is the

premise of most free trade agreements and embargoes, boycotts and sanctions. For all

of these reasons, trade barriers are sensitive and controversial issues.

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REFERENCES:

Abdul Jumaat Mahar, et al. (2008). BBNG 3103 International business.(4th ed.).Selangor
Darul Ehsan:Univision Press Sdn. Bhd.

http://ardictionary.com/Innovative/4634 (2009, Nov. 4)

http://books.google.com.my/books?
id=bgLXTW2oq2cC&pg=PA79&lpg=PA79&dq=product+life+cycle+theory+raymond+ver
non&source=bl&ots=7tl_IEkyo-&sig=iUauVOLuP6stuu-
FP6co5bS7jKU&hl=en&ei=S8rvSpLTI5eCkQX6ybmeBw&sa=X&oi=book_result&ct=resul
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http://db.lib.uidaho.edu/ereserve/courses/b/business/380_01/life.pdf (2009, Nov. 4)

http://en.wikipedia.org/wiki/Photocopier (2009, Nov. 4)

http://en.wikipedia.org/wiki/Product_life-cycle_theory (2009, Nov. 4)

http://ezinearticles.com/?International-Trade-and-Its-Barriers&id=359863 – International
Trade and its barriers (2009, Nov. 4)

http://highered.mcgraw-
hill.com/sites/dl/free/0072873957/40170/Product_Cycle_and_International_Product_Life
_Cycle_Economic_and_Marketing_Perspectives.doc (2009, Nov. 4)

http://inventors.about.com/od/xyzstartinventions/a/xerox.htm (2009, Nov. 4)

http://www.audioenglish.net/dictionary/innovative.htm (2009, Nov. 4)

http://www.exportvirginia.org/fast_facts/Current/FF_Issues_Foreign_Trade_Barriers.pdfF
oreign Trade Barriers (2009, Nov. 4)

http://www.google.com.my/search?
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8&rlz=1T4SKPB_enMY214MY219&q=xerox+photocopiers (2009, Nov. 4)

http://www.google.com.my/search?
sourceid=navclient&aq=4&oq=types+of+trade+&ie=UTF-
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8&rlz=1T4SKPB_enMY214MY219&q=product+life+cycle+theory+raymond+vernon -
product life cycle theory raymond Vernon(2009, Nov. 4)

http://www.office.xerox.com/multifunction-printer/multifunction-over-30ppm/workcentre-

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4150/spec-engb.html(2009, Nov. 4)

http://www.provenmodels.com/583/international-product-life-cycle/raymond-
vernon(2009, Nov. 4)

http://www.rulemic.com/lifecycle.html(2009, Nov. 4)

http://www.scribd.com/doc/21343854/Different-Types-of-Trade-Barriers(2009, Nov. 4)

What are the different types of trade barriers? What are the arguments for trade
barriers?What are the consequences of trade barriers?
http://answers.yahoo.com/question/index?qid=20070512192522AAEbc5F(2009, Nov. 4)

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Appendix

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Xerox All-In One 4150 Photocopier

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