Fin 630 Unit 5 Indivudual Project

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Finance & Accounting
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Finance and Accounting Shanka Dauley 3/12/2013 Question 1 The Vernon’s product life-cycle theory suggests that products normally pass through a cycle with distinct phases. A product is pioneered in a developed country, which holds a monopoly as the only country able to produce and supply the product.


A good example of this theory is the relationship between China telecommunication manufacturing sector and foreign direct investment (Yan, 2011). Huawei Technology followed the product lifecycle in provision of networking and telecommunication services and equipment. Foreign direct investments mostly occur in the maturity and declining stages of the life cycle. The theory helps firms to settle on whether to manufacture locally or go abroad to make their products depending on the product lifecycle stage. The entry timing decision of a firm to a host country is dependent on the product’s age as well as the relative cost of production in different host countries. One of the strength of this theory is that it provides powerful tool for providing marketing and guidance approaches that are appropriate at various stages. It is an important tool for providing an insight into a common pattern of industry sales. Nevertheless, the theory fails to elucidate whether foreign direct investments are better than licensing or exporting to a third party to expand abroad. Its applicability has also been weakened by the increasingly complicated international system of production. ...
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