Vernon’s product life-cycle theory of the FDI

Question

Discuss the Vernon’s product life-cycle theory of the FDI. Specify the strength and weakness of theory?

Answer 1

As per, theory of the product life-cycle, firms take on FDI at the particular stage in life-cycle of the products which they primarily introduced. When new product is introduced, firm chooses to keep the production at home, close to the customers. However, when product gets mature and develop the foreign demands, firm can be induced to start the production in foreign countries, particularly in low-cost countries, to serve local markets and also to export the product back to home country. Theory of product life-cycle may explain the historical development of FDI quite well. In current years, though, international system of production has become too complex to be described neatly through the life-cycle theory. Such as, new products are generally introduced at the same time in many countries and production facilities may be situated in several countries simultaneously.