International Product Life Cycle Theory

International Trade and Comparative Advantage

• Higher living standards for consumers due to lower costs, and greater prosperity in poor countries.
• Comparative advantage refers to a country's superior features that provide unique benefits in global competition, derived from natural endowments or deliberate national policies.

Examples of Comparative Advantage

• France has a climate and soil superior for producing wine.
• Saudi Arabia has a natural abundance of oil for producing petroleum products.
• Japan has acquired a superior base of knowledge and experience for producing cars.
• India has acquired a superior base of IT workers for producing computer software.

Competitive Advantage

• Refers to the distinctive assets, competencies, and capabilities developed or acquired by a firm, leading to superior performance.

International Product Life Cycle Theory

• Each product goes through three stages of evolution: introduction, maturity, and standardization.
• Introduction stage: inventor country has a monopoly in manufacturing and exports.
• Maturity stage: production becomes standardized, other countries start producing and exporting the product.
• Standardization stage: manufacturing ceases in the original innovator country, which becomes a net importer of the product.

New Trade Theory

• Economies of scale are important in some industries for superior international performance, even in the absence of comparative advantages.
• Example: The commercial aircraft industry has high fixed costs, requiring high-volume sales to achieve profitability.

Innovation and National Economic Success

• Innovation is a key source of competitive advantage, through developing new products, manufacturing methods, marketing strategies, and company operations.
• Many innovative firms in a nation lead to national competitive advantage.

Productivity and National Economic Success

• Productivity is a key source of competitive advantage for firms, referring to the value of output produced by a unit of labor or capital.
• Aggregate productivity is a key determinant of a nation's standard of living.

Learn about the stages of evolution - introduction, maturity, and standardization - in the international product life cycle theory. Understand how manufacturing processes and export patterns change throughout these stages.