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FIN unit 5 IP - Essay Example
Finance & Accounting
Pages 4 (1004 words)
Running head: FOREIGN DOMESTIC INVESTMENT 8th November 2013 Vernon’s product life-cycle theory of FDI was developed by Raymond Vernon. According to the theory, a firm starts by exporting its products after which it emulates foreign direct investment…
By establishing production facilities in other countries especially where the cost of production is low, the firm starts to import its products back to home. Vernon’s product life-cycle theory was initially developed in US due to the fact that the most of new products were initiated in the US market. As more regions became developed, the theory was emulated by other countries such as China and Japan among other countries. One of the notable strengths of the Vernon’s product life-cycle theory is that it clearly explains the historical development of foreign domestic investment (Moffett et al, 2009). Nevertheless, based on the complexity in the production process globally, Vernon’s product life-cycle theory cannot neatly hold. For instance, as many countries initiate production systems, new products are being introduced at the same time in addition to establishment of production facilities in many countries simultaneously. Based on stiff competition that is been experienced in the current business atmosphere, many countries are focused at supporting their local companies by offering incentives such as tax subsidies and training of their work force. ...