International Business Delivered in: Islamia University Bahawalpur Presented By: Tasawar Javed

International product life cycle Theory “a theory of the stages of production of a product – with new “know-how” – it is first produced by the parent firm, then by – its foreign subsidiaries and finally – anywhere costs are the lowest; Benefits: – it helps to explain why a product that begins as a nation’s export often ends up an import”

International product life cycle Theory Product Stages – Three stages are considered in IPLC New Product Maturing products Standardized products

International product life cycle Theory A New Product – A new product is one that is innovative or unique in some way – Initially, consumption is in the home country, price is inelastic, profits are high, and the company seeks to sell to those willing to pay a premium price – As production increases and outruns local consumption, exporting begins New productMaturitystandardized sales

International product life cycle Theory Maturity stage – As the product enters the mature phase of its life cycle; an increasing percentage of sales are achieved through exporting – Your competitor in advanced country develop substitute product so that they can replace the initial good with on of their own – The introduction of these substitutes and the softening of demand for the original product will eventually result in the firm that developed the product now switching its strategy from production to market protection. – So attention will also be focused on tapping markets in less developed countries.

International product life cycle Theory As the product enters the standardized product stage, the technology becomes widely diffused and available. Production tends to be shifted to low-cost locations, including less developed countries and offshore locations. In many cases the product will end up being viewed as a generic and price will be the sole determinant of demand Example: – PCs in 1980 then in 1990; then better technology in 1997 and 2000 then Laptop; after 2005 latest new technology in laptops so computers desktops are replaced by new laptops with full communication centre.

Barriers to Trade Reasons to barriers to trade – Protect local jobs – Encourage local production to replace imports – Protect infant industry – Reduce reliance on foreign suppliers – Encourage local and foreign direct investment – Reduce balance of payment problems – Promote export activity

Barriers to Trade Commonly based barriers – Price based barriers (cars custom duty in pak) – Quantity limits (textile limit to US from pak) – International price fixing (OPEC; group of firms they fix price) – Non-tariff barriers (rules, slow the process of impot) – Financial limits (exchange controls; restrict the flow of currency) – Foreign investment controls (limits of FDI or the transfer on funds) – Tariffs (a tax)

Non Tariffs barriers to Trade Quotas Buy national restrictions (national govt to give preference to domestic producers) sugar, wheat etc Customs valuation (payments of duties) Technical barriers (health, welfare, safety, quality) Pak fish and PIA was banned in EU Legislations, subsidies (GATT and WTO allowed to protect local producer against unfair competition) Agricultural products Export restraints (exporting natural resources)

Thank You!!!! Q&A