INTERNATIONAL BUSINESS ENVIRONMENT

International Business Environment



Introduction1

Aims and Objectives:1

International Product Life Cycle Theory1

Overview of the Theory1

Strengths and Limitations of the Theory4

Limitation of the PLC theory5

Krugman's First Mover Advantage Theory5

Overview of the Theory5

Strengths and Limitations of the Theory6

Porter's Diamond model6

Overview of the Theory6

Strengths and Limitations of the Theory8

Recommendations9

Conclusion9

International Business Environment

Question#1

Introduction

Globalisation and integration of trade has resulted into he increased pressure on the companies as well as countries to be world class. This increase pressure has resulted in the introduction of various theories in the past. Importance of free trade, entry and exist barriers, economies of scales, government influence has always remained the key factors for companies going global. So, the patterns and trends to work in the international market are well defined by Michael Porter (in Porter's Diamond model), Krugmen's First mover advantage and international product life cycle. This essay attempts to critically analyse the strengths and limitation of these theories along with necessary recommendation for today's manager regarding the implication of these theories.

Aims and Objectives:

The aims and objectives of this essay are to:

To critically analyse the strengths and limitation of International Product Life Cycle theory

To critically analyse the strengths and limitation of Krugman's First Mover Advantage Theory

To critically analyse the strengths and limitation of Porter's Diamond model

International Product Life Cycle Theory

Overview of the Theory

This theory has various advantages when it comes to promote international trade and competition among nations of the world. In advance countries, Australians firms might set up production facilities due to the limiting exports from Australia and growing demand in rest of the developed countries. The new product which is promoted under this theory when reach at the maturity stage result in the standardized product, and price will be the main competitive advantage. This is why most of the countries go into the countries where the labour cost and other factor of productions are available easily and cheaper than the home country. However, developing countries sometimes could benefit from intense cost pressure in the developed countries. The theory was introduced by Raymond Vernnon in 1960 (Antras, 2005), which focused on the development of new/innovative product originating from particular country. Later on their consequences in terms of exports, imports, cost of product, overseas production licensing and market entry is integrated in the three stage of product life cycle of the product. The basic motive behind this theory was to provide the synopsis of international trade i.e. motivation was imparted through this theory among various nations regarding international trade.

The figure clearly depicts the life cycle of the product in international environment. Sometimes, international product life cycle is considered in three stages and sometimes in four. Yet, it can simply be defined in three stages which are discussed below. In the figure, one can clearly see that initially the product is exported due to the demand and foreign production; it is basically the initial stage. With the passage of time and various other factors such as foreign competition and maturity of the product the country starts ...