Raymond Vernon developed the economic theory on the international product lifecycle. It reacted to the failure of the Heckscher-Ohlin model to give an explanation on the international trade pattern. The theory suggests that all the labor and parts associated with a given product, early in its life- cycle, is obtained from the area of its invention (Schueffel & Baldegger, 2008). After the adoption of the product and its use in the market worldwide, production shifts gradually away from the origin. A point may reach when a product becomes one of the items among the original country imports. The model mostly applies to the capital using and labor-saving products that cater for the high-income groups.
Internationalization process model entails all the activities that a firm undertakes as it relates to the foreign markets. The model can take many forms such as the formation of partnerships with foreign companies, direct investments in a foreign country, having foreign subcontractors and even participating in national networks. The model shows that firms gain experience at their initiation from the domestic market before expanding and venturing the foreign markets. Operations of these firms begin in the geographically and culturally close countries before moving to the more distant and culturally different countries (Schueffel & Baldegger, 2008). Also, the model illustrates that firms start their operations in foreign countries by making use of the traditional exports before adopting the more demanding and intensive modes of operation.
The two models above explain the reasons as to why many companies expand in the countries abroad. Big numbers of small and large companies obtain more than half of their sales from abroad. The firms go abroad to come up with economies of scale in marketing, and production. Some production processes involve large outputs. As such, international expansion spreads the product to a large number of customers. Due to domestic competition, the resulting pressure stimulates the internationalization process. Countries that fail to meet the domestic competitions enter the market of developing countries. As such, the companies expand abroad.
References
Schueffel, P. E., & Baldegger, R. (2008). The process model of internationalization and the international new venture framework: a representative study among Swiss SMEs. Fribourg: Growth Publisher.
