The product cycle theory examines the different stages of product cycle development. There are three stages in the cycle: new products, maturing products, and standardized products. Different countries can benefit in different ways in each stage of the cycle, as each stage has its own, unique set of characteristics. In the first stage, a country must already have in place a necessary R&D infrastructure which leads to the invention of new products. Other countries possessing the same level of consumption as the inventing country also have the ability to demand and produce the new product. These countries begin to produce and trade the new product in the second stage. In the final stage, the product is traded and consumed throughout the world market. If the product is based on relatively simple technology, then LDCs will manufacture the product during this stage. Also during this stage, the product is increasingly produced by LDCs until they account for the major percentage of its production. New products thus pass through a product development process that consists of a transformation of a new product’s production and trade between the inventing country, other advanced countries, and LDCS.
This study presents a case study of the workings of the product cycle theory in Taiwan. Some major conclusions are summarized below:
(1) After classifying sixteen industries in Taiwan and subjecting them to regression analysis, the study finds that capital-intensive exporting industries don’t have comparative advantage, nor do technology-intensive ones. The phenomenon of comparative disadvantage among capital-intensive industries is, however, decreasing, but that is not the case for technology-intensive ones.
(2) Nine products from the sixteen industries were chosen for closer examination. The results showed that these products were all standardized products with production beginning from 1960-1970. This result may have been biased by the study’s focus on Taiwan, or perhaps it may have been influenced by data constraints.
(3) Four of the products studied (i.e., plywood, footwear, including rubber footwear, toys and dolls, and cotton yarn) proved to be consistent with the characteristics of the third stage of the production cycle.
(4) There are five other products consistent with the expectations of the third stage as well, except for the phenomenon of Japan. Both Japan and the LDCs have expanded their production and trade of these items (i.e., television receivers, bicycles, watches, telecommunication apparatus, and radio broadcast receivers). Japan has remained strong in the production and trade of these items, and it should continue along these lines in the short-term future, because it bagan production earlier than the LDCs (in the second stage) and because of its higher rate of growth.
(5) Among the LDCs, three countries – Taiwan, South Korea, and Hong Kong, may be cited for their strong performances. Taiwan has performed especially well in the production and trade of television receivers, bicycles, and other such goods; South Korea, in cotton yarn, plywood, and footwear, including rubber footwear; and Hong Kong, in radio broadcast receivers, toys and dolls, and telecommunication apparatus.
