IPLC

In 1966, Raymond Vernon published a model that described internationalisation patterns of

organisations. 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, by far, 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 organisations. 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 allow its work force to
specialise in those categories with the 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 internationalisation process wherein 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 maximise 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.

The IPLC international trade 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 elasticy). 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 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 internationalisation 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 making 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
organisation’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.

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 standardised. 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.

pros:

The model helps organisations that are beginning their international expansion or are carrying
products that initially require experimentation to understand how the competitive playground
changes over time and how their internal workings need to be refitted. The model can be used for
product planning purposes in international marketing.
New product development in a country does not occur by chance. A country must have a ready
market, an able industrial capability and enough capital or labour to make a new product
flourish. No two countries exist with identical local market conditions. Countries with high per
capita incomes foster newly invented products. Countries with lower per capita incomes will
focus on adapting existing products to create lower priced versions.

The IPLC model was widely adopted as the explanation of the ways industries migrated across
borders over time, e.g. the textile industry. Furthermore, Vernon was able to explain the logic of
an advanced, high income country such as the USA that exports slightly more labour-intensive
goods than those that are subject to competition from abroad.

According to Vernon, most managers are “myopic”. Production is only moved outside the home
market when a “triggering event” occurs that threatens export such as a new local competitor or
new trade tariffs. Managers act when the threat has become greater than the risk in or uncertainty
from reallocating operations abroad.

The model’s validity was proved by empirical evidence from the teletransmission equipment
industry in the post-war years. The model is best applied to consumer-oriented physical products
based on a new technology at a time when functionality supersedes cost considerations and
satisfies a universal need.

cons:

Vernon’s main assumption was that the diffusion process of a new technology occurs slowly
enough to generate temporary differences between countries in their access and use of new
technologies. By the late 1970’s, he recognised that this assumption was no longer valid. Income
differences between advanced nations had dropped significantly, competitors were able to
imitate product at much higher speeds than previously envisioned and MNCs had built up an
existing global network of production facilities that enabled them to launch products in multiple
markets simultaneously. Investments in an existing portfolio of production facilities made it
harder to relocate plants.

The model assumed integrated firms that begin producing in one nation, followed by exporting
and then building facilities abroad. The business landscape had become much more interrelated
since the 1950’s and early 1960’s, less US-centric and created more complex organisational
structures and supplier relations. The trade-off between export or foreign direct investments was
too simplistic: more entry modes exist.

The model assumed that technology can be captured in capital equipment and standard operating
procedures. This assumption underpinned the discussion on labour-intensity, standardization and
unit cost.

The model stated that the stages are separate and sequential in order. Vernon’s Harvard
Multinational Enterprise Project that took place from 1963 through 1986, was a massive study of
global marketing activities at US, European, Japanese and emerging-nation corporations. The
study found that companies design strategies around their product technologies. High-technology
producers behave differently from firms with less advanced goods. Companies that invested
more R&D to improve their products and to refresh their technologies were able to ‘push’ these
products back to the new product phase.

The relative simplicity of the model makes it difficult to use as a predictive model that can help
anticipate changes. In general, it is difficult to determine the phase of a product in product life
cycles. Furthermore, an individual phase reflects the outcome of numerous factors that facilitate
or hamper a product’s rate of sales making it difficult to see what is happening ’underwater’.

The relation between the organisation and the country level was not well structured. Vernon
emphasized the country level. Furthermore, he used the product side of the product life cycle, not
the consumer side, thereby stressing the supply side. Selling ‘older’ products to a lesser
developed market does not work if transportation costs for imports is low and information is
accessible globally through the Internet and satellite TV.

Foreign markets are not just composed of average income consumers, but contain multiple
segments. The research did not consider the emergence of global consumer segments.
Social networking as business tool

I feel that social networking is becoming an important business tool for strategic marketing plan.
Social media sites can definitely assist businesses obtaining better search engine ranking as they
convey the message of the advertisers to the public for mass appeal.

This aspect benefit the site’s over all business strategy. Few of the popular social networking
sites which can help commercial interests are Facebook, Digg, Technoratti, My Space, Youtube
and many such. Most of these sites are user generated adding news items, stories, actual
incidents and products that may be of interest to the greater community.

Facebook, however, is more geared toward people wanting to maintain contact with their
acquaintances rather than for commercial or publicity intentions.

These days one finds Facebook becoming a popular tool for business purposes. Similarly,
Twitter is increasingly popular with its micro blogging concept. All of these sites generate sales
and promote services by attracting more traffic to the web site.

Marketing strategies have considerably assumed different dimensions during the past few years.
Nowadays, customers and prospects have over all control of themes, hence, they are searching
for profitable prospects on-line. So if you or your product is not advertised on the Internet, you
are left out of the game.

Contemplate the various lead generating activities such as search marketing engine, e-mail and
social networking. The targeted groups are the potential buyers as long as the advertisers
maintain a social relationship with them through the networking sites. Thus, social networking
with friends and families issists in enhancing a sense of security as well as the social worthiness
of the user.
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The Role Of Social Networking Sites Towards Creating

Efficient Marketing Strategies

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Explore the World Wide Web and its powerful trait. Make it a home for your product. Entice
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Post website links to your social page. It will allow your consumers to view your company
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