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T.J. Joseph
Phase III: The product becomes more or less standardized and the innovating firm may find it profitable to license other domestic and foreign firms to manufacture the products. Thus the imitating country starts producing the product for domestic consumption
Phase IV: The imitating country begins to undersell the innovating country in third markets, and production of the product in the innovating country declines Phase V: The imitating country starts underselling the innovating country in the latter's markets as well, and production of the product in the innovating country declines rapidly or collapses Production moves to low cost production locations
New Product
Maturing Product
Standardized Product
Source: Raymond Vernon, International Investment and International Trade in the Product Cycle, Quarterly Journal of Economics (May 1966), pp.190-207
Why does a nation achieve success internationally in a particular industry? Why are firms based in a particular nation able to create and sustain competitive advantage against its global competitors in a particular field?
Overview
Introduced by Michael Porter, a famous Harvard business professor in 1990 Conducted a comprehensive study of 100 industries in 10 nations to learn what leads to success Believes the standard classical theories on comparative advantage provides only a partial explanation They do not say why these countries are more productive compared to others A nation attains competitive advantage if its firms are competitive And, firms become competitive through innovations Innovation either technical improvements to the product or to the production process
1. Factor Conditions
Key factors of production (or specialized or advanced factors like skilled labour, capital and infrastructure) are created, not inherited They are difficult to duplicate, and create competitive advantage
Non-key factors (basic factors) like unskilled labour can be obtained by any firm and do not generate sustained competitive advantage Lack of resources actually helps countries to become competitive (Eg: Switzerland, Japan, Sweden)
2. Demand Conditions
Sophisticated domestic market is an important element in producing competitiveness
Makes firms to sell superior products as the market demands high quality
Closeness to such consumers enables the firm to learn the needs & desires of consumers [same argument as in the first stage of Product Cycle Theory]
Disadvantages:
Potential poaching of your employees by rival companies Increase in competition, decreasing profit margin Ex: Detroit and Silicon Valley in U.S.
Structure
Management styles
But, there is no single managerial, ownership or operational strategy universally appropriate
Rivalry
Intense competition spurs innovation Example: Japanese automobile and electronics industries
Including factor conditions as a cost component, demand conditions as a motivator of firm actions, and competitiveness all combine to include the elements of classical, factor proportions, product cycle, and imperfect competition theories in a pragmatic approach to the challenges that the global markets of the 21st century present to the firms of today Cyinkota, et al. (2003)
References
International investment and international trade in the product cycle, Raymond Vernon, Quarterly Journal of Economics, 1966, (pp.190-207) The Competitive Advantage of Nations, Michael E. Porter, Harvard Business Review, March-April, 1990. Porters Competitive Advantage of Nations: An Assessment, Robert M. Grant, Strategic Management Journal, Vol.12, pp.535-548 (1991) International Business, Charles W L Hill and Arun Kumar Jain, Tata McGraw-Hill: New Delhi. International Business, Michael R. Czinkota, Ilkka A. Ronkainen, Michael H. Moffett, (pp. 129-133)
References
1. Chapters 5, International Business by Charles W. Hill and Arun K. Jain, Tata McGraw Hill publication. 2. Chapter 2, International Business by Oded Shenkar and Yadong Luo, Wiley publication.