UGF Lecture 4

Management > Global Firm > Vernon > 1. Product development > 2. Mature product

Stage 2 - Mature product stage

At this stage the production process has stabilised, or matured, and a large home country market is established. Customers in foreign high-income markets start to demand the good. This initial ad hoc growth of foreign demand becomes great enough to encourage the firm to export.

Later the firm starts production in the markets to which it was exporting. There are two reasons for this decision:

1. Cost factors, such as it being cheaper to start local production. It would benefit lower input costs and/or avoid transport or tariff costs associated with trade.
2. To defend its position in the market against local rivals, which can happen once the product is mature. Local have advantages of being local, including being able to better respond to local consumer needs. The initiation of local production then becomes a dynamic and forward-looking competitive strategy, aiming to stunt the growth of potential industry rivals.

By the end of this stage the firm has become an MNE, with marketing and production in, at least, other high-income economies.

3. Standardised product stage

Changes