In which stage of the product cycle model, the imitating country starts producing the product for domestic consumption?

The correct answer is the stage - III.

Key Points

• The product cycle model
  • The product cycle model explains that a product is initially produced and exported by the innovating country and, the innovating country finally ends up as an importing country of the same product or a differentiated variety of that product.
• Stages of product cycle model
  • Stage I: In this stage, high-income and labour-saving products are introduced by manufacturers in advanced economies like the U.S.A.
  • Initially, the products are introduced in the domestic market of the producing or innovating country, then, gradually, are exported to countries having similar tastes and income levels.
  • Stage II: In stage II, the foreign markets also start producing similar products or their close substitutes.
  • As a result, the shares of producers of the innovating country start declining but they still produce and supply large quantities of the product to the world market.
  • Stage III: In this stage, the foreign manufacturers (imitating country) enjoy a greater competitive advantage over the innovating manufacturers.
  • In this stage, the imitating country starts enjoying the advantages of reduced labour costs and economies of scale in domestic production.
  • Stage IV: In this stage, the imitating country or the foreign producers enter the markets of the originally innovating country and the innovating country becomes the importer of the product.
  • As a result, advanced economies have to produce new varieties of products that are consumed by relatively well-off groups of consumers both at home and abroad.

Thus, in stage III of the product cycle model, the imitating country starts producing the product for domestic consumption.

Additional Information

• The product cycle model was originally developed by Raymond Vernon and S. Hirsch.