Vernon's Product Life Cycle Theory

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Globalization refers to the process of increased integration and interaction between various countries. Moreover, it helps in linking cities, regions and people so closely than ever before. In addition to it, aggressive competition amongst various industries has induced the host organization in the developed countries to expand their operations to other countries and manufacture goods at low price to compete with others. As a result, most of the manufacturing units are exploiting markets like China and India which constitutes of high demand for products and low cost for factors of production. Dunning’s OLI paradigm and Vernon’s Product Life Cycle can help us to understand this in a well organized and systematic manner. In Dunning’s OLI paradigm, “OLI” stands for ownership, location and internalization which are the main sources of advantage that consist of a firm’s verdict to become a multinational. Furthermore, it pays attention to the factors that enables the multinational companies to diversify their operations in emerging markets. Three factors have been explained below:- • Ownership Advantage: This explains the question of why not all the firms go abroad. The advantage here refers to the entrepreneur skills, trademark, production techniques and returns to scale. For…show more content…
Secondly, Dunning’s model aims at gaining competitive advantage through foreign direct investment in developing countries, whereas product life cycle theory aims at achieving maximum efficiency through reduced overall cost etc. Another difference includes that product life cycle theory provides the chance to expand the market for the product in developing countries while Dunning’s model does not provide the possibility for the

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