Product Life Cycle Theory (HINDI)

Description: Certain issues remain unaddressed by the H-O theory such as, what happens to the international trade structure if the good's factor intensity changes? Product Life Cycle Hypothesis addresses this question. According to the theory a good goes through various stages in its life cycle. Each stage has different circumstance for the business about this product. These stages are as under:
Stage I: Introductory stage in which the good gets invented and its commercial production begins. In the development of the product significant amount of expenditure is incurred on the research and development activities and then on its marketing as the good is new and people are unaware of it and its qualities. Production cost is inevitably high as the scale of production cannot be huge in the beginning as it has yet to capture consumers' attention. In this stage output is roughly equal to the domestic demand. then comes stage II
Stage II: Product attains maturity In this stage. Market for it expands and so the profit. Therefore output increases to surpass domestic consumption. The availability of surplus opens the scope for export. Output reaches the peak before beginning to decline. Its production by other firms in other countries also begins as the technology by this time becomes known to others. The competition results in shrinkage of the foreign market share of the original company that invented the product.
Stage III: In this stage product gets standardized. Its domestic output declines below the level of domestic consumption making its import a better option than to produce it. The goo is now labour intensive as against R&D (capital) intensive. this shift of factor intensity results in shifting the production from R&D abundant country to the the labour abundant countries. Cycle thus gets completed.
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