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UGF Lecture 4
Management
> Global Firm >
Vernon > 1. Product development
Stage 1 - Product development (innovation) stage
At this stage the firm develops the product which will eventually
enable it to become an MNE. The firm is creating its OA, which will
occur in the home country and thus reflect domestic consumer needs.
There are three assumptions implied:
- The firm is not yet an MNE
- It is a one product business
- Innovation is market, rather than science driven. This means
that product development follows consumer needs, rather than merely
applying the newest technology
The domestic firm can respond well to its local customers, but has no
reliable way of identifying potential new market ideas in foreign
countries.
PCM explains why initial production of the new good takes place in
the home country, rather than at a lower-cost site overseas. There are
three reasons:
- The innovation process needs close and continual communication
between functions.
- The innovation process needs a period to respond to feedback
from customers about a product. Changes in the product may mean
changes in the production process, meaning that ideal plant location
cannot be determined until the process and its input needs have
stabilised.
- There is no need to pursue a low cost strategy at this stage, as
the price elasticity of demand is usually low for new goods.
2. Mature product stage
3. Standardised product stage
Changes
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