Verification and Limitations of PLC Theory
Verification and Limitations of PLC Theory
In recent years there have been a number of attempts to verify the PLC theory. Studies have found behavior to be consistent with the predictions of the PLC model for certain consumer durables, synthetic materials, and electronics.16 _
The PLC model seems to hold for many industries, but there are many other types of products for which this behavior would not be expected.17 The first such type includes those products that, because of very rapid innovations, __haye extremely short life cycles, which makes it impossible to achieve cost reductions by moving production from one country to another. For example, product obsolescence occurs so rapidly for many electronic products that .jhere is little international diffusion of production. The second type is the luxury product for which cost is of little concern to the consumer. The third type of product is one for which international transportation costs are so high that there is little opportunity for export sales, regardless of the stage within the product life cycle. The fourth type of product is one in which a firm can use a differentiation strategy, such as advertising, in order to maintain consumer demand without competing on the basis of price.
Regardless of the type of prodttcITthere has been an increased tendency
on the part of MNEs to introduce new products at home and abroad almost
simultaneously as they move from multidomestic to global strategies. In other
words, instead of merely observing needs within their domestic markets,
companies develop products and services to serve observable market seg-
ments that transcend national borders. In so doing, they eliminate the leads and lags that are assumed to exist as a product is diffused from one country to another. Furthermore, companies are increasingly producing abroad simply to take advantage of production economies rather than in response to growing foreign markets. Singer, for example, produces certain sewing machine models in Brazil to sell in export markets, not to supply sewing machines to Brazil.
In recent years there have been a number of attempts to verify the PLC theory. Studies have found behavior to be consistent with the predictions of the PLC model for certain consumer durables, synthetic materials, and electronics.16 _
The PLC model seems to hold for many industries, but there are many other types of products for which this behavior would not be expected.17 The first such type includes those products that, because of very rapid innovations, __haye extremely short life cycles, which makes it impossible to achieve cost reductions by moving production from one country to another. For example, product obsolescence occurs so rapidly for many electronic products that .jhere is little international diffusion of production. The second type is the luxury product for which cost is of little concern to the consumer. The third type of product is one for which international transportation costs are so high that there is little opportunity for export sales, regardless of the stage within the product life cycle. The fourth type of product is one in which a firm can use a differentiation strategy, such as advertising, in order to maintain consumer demand without competing on the basis of price.
Regardless of the type of prodttcITthere has been an increased tendency
on the part of MNEs to introduce new products at home and abroad almost
simultaneously as they move from multidomestic to global strategies. In other
words, instead of merely observing needs within their domestic markets,
companies develop products and services to serve observable market seg-
ments that transcend national borders. In so doing, they eliminate the leads and lags that are assumed to exist as a product is diffused from one country to another. Furthermore, companies are increasingly producing abroad simply to take advantage of production economies rather than in response to growing foreign markets. Singer, for example, produces certain sewing machine models in Brazil to sell in export markets, not to supply sewing machines to Brazil.
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