International Product Life Cycle

23/11/2021 0 By indiafreenotes

International product life cycle discusses the consumption pattern of the product in many countries. This concept explains that the products pass through several stages of the product life cycle. The, product is innovated in country, usually a developed country, to satisfy the needs of the consumers. The innovator country wants to exploit the technological breakthrough and start marketing the products in foreign country.

Gradually foreign country also starts production and becomes efficient in producing those commodities. As a result, the innovator country starts losing its export market and finds the import of that product advantageous. In this way, the innovator country becomes the importer of the products. Terpstra and Sarathy have identified four phases in. the international product life cycle.

Export strength is evident by innovator country: Products are normally innovated in the developed countries because they possess the resources to do so. The firms have the technological know-how and sufficient capital to invest on the research and development activities. The need of adaptation and modification also forces the production activities to be located near the market to respond quickly to the changes. The customers are affluent in the developed countries who may prefer to buy the new products. Thus, the manufactures are attracted to produce the goods in the developed country. The goods are marketed in the home country. After meeting the demand of the home country, the manufacturers start exploring foreign markets and exporting goods to them. This phase exhibits the introduction and growth stage of the product life cycle.

Foreign production starts: The importing firms in the middle-income country realise the demand potential of the product in the home market. The manufacturers also become familiar in producing the goods. The growing demand of the products attracts the attention of many firms. They are tempted to start production in their country and gradually start exporting to the low-income countries. The large production in the middle-income country reduces the export from the innovating country. This shows the maturity stage of product life cycle where the production activities’ start shifting from innovating country to other countries.

Foreign production becomes competitive in export market: The firms in low-income country also realise the demand potential in the domestic market. They start producing the products in their home country by exploiting cheap labour. They gain expertise in manufacturing the commodity. They become more efficient in producing the goods due to low cost of production. Gradually they start exporting the goods to other countries. The export from this country replaces the export base of innovating country, whose export has been already declining. This exhibits the, declining stage of product life cycle for the innovator country. In this stage, the product gets widely disseminated and other countries start imitating the product. This is the third phase of product life cycle where the products start becoming standardized.

Import Competition begins: The producers in the low-income importing country gain sufficient experience in producing and marketing the products. They attain the economies of scale and gradually become more efficient than the innovator country. At this stage, the innovator country finds the import from this country advantageous. Hence, the innovator country finally becomes the importer of that product. In this fourth stage of product life cycle the product becomes completely standardized.

In simple words, the theory of IPLC brings out that advanced (initiating) countries play the innovative role in new product development. Later for reasons of comparative advantage or factor endowments and costs, such a product moves over to other developed countries or middle. Income countries and ultimately gets produced and exported by less developed countries. Not surprisingly, therefore, that countries such as Taiwan, Hong Kong, Korea, Singapore and India have emerged as major exporters of growing range. of products to USA and Western Europe during the last decade and a half. The general pattern of a typical IPLC has been shown.

Innovative Country Stage Other Developed Countries or Middle-income Countries Less Developed Countries
Production Early Imports Late Imports
Exports Production Production
Imports Exports (Large volume

Declining to small volume)

Exports (Small volume

rising to large volume)

The IPLC theory ‘presents the following implications for international product planner:

  • The marketers whose products face declining sale in one foreign market may find another foreign market with encouraging demand for his product.
  • Innovative products improve the staying power of the international firm.
  • Innovative products carry significant export potential.