GSM Lecture 2

Management > Global Strategic Management > Comparative advantage > Hymer > Vernon > Product cycle

Vernon - The product cycle

Vernon (1966, 1979) developed a product cycle, which he argues follows a specific pattern of product development, beginning at home and then spreading abroad in a particular and predictable fashion. The product cycle has implications for the pattern of international trade.

The product cycle predicts that the production will be first conducted in the firm's home country. This is beneficial, due to being close to R&D facilities and the market. When the product and production processes become more standardised, the processes can be shifted overseas to a low-cost country.

And beyond...

International investment is led by technology leaders as they aim to increase their share of world markets. Those leaders are now ahead in the globalisation of technology, developing international intra-firm networks to seek better locations in which to conduct certain business activities (LAs). This suggests the need to separate assembly-led production from technologically sophisticated type activity.

This arguably explains why capital-rich countries export labour-intensive goods, as it is cheaper to have manufacturing plants in low-wage countries.