《国际政治经济学》文献资料（Political Economy of Foreign Investment）International Investment and International Trade in the Product Cycle.pdf

INTERNATIONAL INVESTMENT AND INTERNATIONAL TRADE IN THE PRODUCT CYCLE RAYMOND VERNON Location of new products,191.-The maturing product,196.-The standardized product,202. Anyone who has sought to understand the shifts in internation- al trade and international investment over the past twenty years has chafed from time to time under an acute sense of the inadequacy of the available analytical tools.While the comparative cost con- cept and other basic concepts have rarely failed to provide some help,they have usually carried the analyst only a very little way toward adequate understanding.For the most part,it has been necessary to formulate new concepts in order to explore issues such as the strengths and limitations of import substitution in the de- velopment process,the implications of common market arrange- ments for trade and investment,the underlying reasons for the Leontief paradox,and other critical issues of the day. As theorists have groped for some more efficient tools,there has been a flowering in international trade and capital theory.But the very proliferation of theory has increased the urgency of the search for unifying concepts.It is doubtful that we shall find many prop- ositions that can match the simplicity,power,and universality of application of the theory of comparative advantage and the inter- national equilibrating mechanism;but unless the search for better tools goes on,the usefulness of economic theory for the solution of problems in international trade and capital movements will probably decline. The present paper deals with one promising line of generaliza- tion and synthesis which seems to me to have been somewhat neg- lected by the main stream of trade theory.It puts less emphasis upon comparative cost doctrine and more upon the timing of in- novation,the effects of scale economies,and the roles of ignorance and uncertainty in influencing trade patterns.It is an approach The preparation of this article was financed in part by a grant from the Ford Foundation to the Harvard Business School to support a study of the implications of United States foreign direct investment.This paper is a by- product of the hypothesis-building stage of the study

INTERNATIONAL INVESTMENT AND INTERNATIONAL TRADE IN THE PRODUCT CYCLE * Location of new products, 191.-The maturing product, 196.-The standardized product, 202. Anyone who has sought to understand the shifts in international trade and international investment over the past twenty years has chafed from time to time under an acute sense of the inadequacy of the available analytical tools. While the comparative cost concept and other basic concepts have rarely failed to provide some help, they have usually carried the analyst only a very little way toward adequate understanding. For the most part, it has been necessary to formulate new concepts in order to explore issues such as the strengths and limitations of import substitution in the development process, the implications of common market arrangements for trade and investment, the underlying reasons for the Leontief paradox, and other critical issues of the day. As theorists have groped for some more efficient tools, there has been a flowering in international trade and capital theory. But the very proliferation of theory has increased the urgency of the search for unifying concepts. It is doubtful that we shall find many propositions that can match the simplicity, power, and universality of application of the theory of comparative advantage and the international equilibrating mechanism; but unless the search for better tools goes on, the usefulness of economic theory for the solution of problems in international trade and capital movements will probably decline. The present paper deals with one promising line of generalization and synthesis which seems to me to have been somewhat neglected by the main stream of trade theory. It puts less emphasis upon comparative cost doctrine and more upon the timing of innovation, the effects of scale economies, and the roles of ignorance and uncertainty in influencing trade patterns. It is an approach * The preparation of this article was financed in part by a grant from the Ford Foundation to the Harvard Business School to support a study of the implications of United States foreign direct investment. This paper is a by- product of the hypothesis-building stage of the study

INVESTMENT AND TRADE 191 with respectable sponsorship,deriving bits and pieces of its inspira- tion from the writings of such persons as Williams,Kindleberger, MacDougall,Hoffmeyer,and Burenstam-Linder.1 Emphases of this sort seem first to have appeared when econ- omists were searching for an explanation of what looked like a persistent,structural shortage of dollars in the world.When the shortage proved ephemeral in the late 1950's,many of the ideas which the shortage had stimulated were tossed overboard as prima facie wrong.?Nevertheless,one cannot be exposed to the main cur- rents of international trade for very long without feeling that any theory which neglected the roles of innovation,scale,ignorance and uncertainty would be incomplete. LOCATION OF NEW PRODUCTS We begin with the assumption that the enterprises in any one of the advanced countries of the world are not distinguishably dif- ferent from those in any other advanced country,in terms of their access to scientific knowledge and their capacity to comprehend scientific principles.3 All of them,we may safely assume,can secure access to the knowledge that exists in the physical,chemical and biological sciences.These sciences at times may be difficult,but they are rarely occult. It is a mistake to assume,however,that equal access to scien- tific principles in all the advanced countries means equal probabil- ity of the application of these principles in the generation of new products.There is ordinarily a large gap between the knowledge of a scientific principle and the embodiment of the principle in 1.J.H.Williams,"The Theory of International Trade Reconsidered," reprinted as Chap.2 in his Postwar Monetary Plans and Other Essays (Oxford: Basil Blackwell,1947);C.P.Kindleberger,The Dollar Shortage (New York: Wiley,1950);Erik Hoffmeyer,Dollar Shortage (Amsterdam:North-Holland, 1958);Sir Donald MacDougall,The World Dollar Problem (London:Mac- millan,1957);Staffan Burenstam-Linder,An Essay on Trade and Transforma- tion (Uppsala:Almqvist Wicksells,1961). 2.The best summary of the state of trade theory that has come to my attention in recent years is J.Bhagwati,"The Pure Theory of International Trade,"Economic Journal,LXXIV (Mar.1964),1-84.Bhagwati refers ob- liquely to some of the theories which concern us here;but they receive much less attention than I think they deserve. 3.Some of the account that follows will be found in greatly truncated form in my "The Trade Expansion Act in Perspective,"in Emerging Concepts in Marketing,Proceedings of the American Marketing Association,December 1962,pp.384-89.The elaboration here owes a good deal to the perceptive work of Se'ev Hirsch, summarized in his unpublished doctoral thesis,"Loca- tion of Industry and International Competitiveness,"Harvard Business School, 1965

INVESTMENT AND TRADE 191 with respectable sponsorship, deriving bits and pieces of its inspiration from the writings of such persons as Williams, Kindleberger, MacDougall, Hoffmeyer, and Burenstam-Linder.l Emphases of this sort seem first to have appeared when economists were searching for an explanation of what looked like a persistent, structural shortage of dollars in the world. When the shortage proved ephemeral in the late 19501s, many of the ideas which the shortage had stimulated were tossed overboard as prima facie wrong.2 Nevertheless, one cannot be exposed to the main currents of international trade for very long without feeling that any theory which neglected the roles of innovation, scale, ignorance and uncertainty would be incomplete. We begin with the assumption that the enterprises in any one of the advanced countries of the world are not distinguishably different from those in any other advanced country, in terms of their access to scientific knowledge and their capacity to comprehend scientific principle^.^ All of them, we may safely assume, can secure access to the knowledge that exists in the physical, chemical and biological sciences. These sciences at times may be difficult, but they are rarely occult. It is a mistake to assume, however, that equal access to scientific principles in all the advanced countries means equal probability of the application of these principles in the generation of new products. There is ordinarily a large gap between the knowledge of a scientific principle and the embodiment of the principle in 1. J. H. Williams, "The Theory of International Trade Reconsidered," reprinted as Chap. 2 in his Postwar Monetary Plans and Other Essays (Oxford: Basil Blackwell, 1947) ; C. P. Kindleberger, The Dollar Shortage (New York: Wiley, 1950) ; Erik Hoffmeyer, Dollar Shortage (Amsterdam: North-Holland, 1958); Sir Donald MacDougall, The World Dollar Problem (London: Macmillan, 1957) ; Staffan Burenstam-Linder, An Essay on Trade and Transformation (Uppsala: Almqvist & Wicksells, 1961). 2. The best summary of the state of trade theory that has come to my attention in recent years is J. Bhagwati, "The Pure Theory of International Trade," Economic Journal, LXXIV (Mar. 19641, 1-84. Bhagwati refers obliquely to some of the theories which concern us here; but they receive much less attention than I think they deserve. 3. Some of the account that follows will be found in greatly truncated form in my "The Trade Expansion Act in Perspective," in Emerging Concepts in Marketing, Proceedings of the American Marketing Association, December 1962, pp. 384-89. The elaboration here owes a good deal to the perceptive work of Se'ev Hirsch, summarized in his unpublished doctoral thesis, "Location of Industry and International Competitiveness," Harvard Business School, 1965

192 QUARTERLY JOURNAL OF ECONOMICS a marketable product.An entrepreneur usually has to intervene to accept the risks involved in testing whether the gap can be bridged. If all entrepreneurs,wherever located,could be presumed to be equally conscious of and equally responsive to all entrepreneurial opportunities,wherever they arose,the classical view of the dom- inant role of price in resource allocation might be highly relevant. There is good reason to believe,however,that the entrepreneur's consciousness of and responsiveness to opportunity are a function of ease of communication;and further,that ease of communication is a function of geographical proximity.Accordingly,we abandon the powerful simplifying notion that knowledge is a universal free good,and introduce it as an independent variable in the decision to trade or to invest. The fact that the search for knowledge is an inseparable part of the decision-making process and that relative ease of access to knowledge can profoundly affect the outcome are now reasonably well established through empirical research.5 One implication of that fact is that producers in any market are more likely to be aware of the possibility of introducing new products in that market than producers located elsewhere would be. The United States market offers certain unique kinds of op- portunities to those who are in a position to be aware of them. First,the United States market consists of consumers with an average income which is higher (except for a few anomalies like Kuwait)than that in any other national market-twice as high as that of Western Europe,for instance.Wherever there was a chance to offer a new product responsive to wants at high levels of income,this chance would presumably first be apparent to someone in a position to observe the United States market. Second,the United States market is characterized by high unit labor costs and relatively unrationed capital compared with prac- tically all other markets.This is a fact which conditions the demand for both consumer goods and industrial products.In the case of consumer goods,for instance,the high cost of laundresses contributes to the origins of the drip-dry shirt and the home washing machine. In the case of industrial goods,high labor cost leads to the early 4.Note C.P.Kindleberger's reference to the "horizon"of the decision- maker,and the view that he can only be rational within that horizon;see his Foreign Trade and The National Economy (New Haven:Yale University Press,1962),p.15 passim. 5.See,for instance,Richard M.Cyert and James G.March,A Behavioral Theory of the Firm (Englewood Cliffs,N.J.:Prentice-Hall,1963),esp.Chap. 6;and Yair Aharoni,The Foreign Investment Decision Process,to be pub- lished by the Division of Research of the Harvard Business School,1966

192 QUARTERLY JOURNAL OF ECONOMICS a marketable product. An entrepreneur usually has to intervene to accept the risks involved in testing whether the gap can be bridged. If all entrepreneurs, wherever located, could be presumed to be equally conscious of and equally responsive to all entrepreneurial opportunities, wherever they arose, the classical view of the dominant role of price in resource allocation might be highly relevant. There is good reason to believe, however, that the entrepreneur's consciousness of and responsiveness to opportunity are a function of ease of communication; and further, that ease of communication is a function of geographical pr~ximity.~ Accordingly, we abandon the powerful simplifying notion that knowledge is a universal free good, and introduce it as an independent variable in the decision to trade or to invest. The fact that the search for knowledge is an inseparable part of the decision-making process and that relative ease of access to knowledge can profoundly affect the outcome are now reasonably well established through empirical re~earch.~ One implication of that fact is that producers in any market are more likely to be aware of the possibility of introducing new products in that market than producers located elsewhere would be. The United States market offers certain unique kinds of opportunities to those who are in a position to be aware of them. First, the United States market consists of consumers with an average income which is higher (except for a few anomalies like Kuwait) than that in any other national market -twice as high as that of Western Europe, for instance. Wherever there was a chance to offer a new product responsive to wants at high levels of income, this chance would presumably first be apparent to someone in a position to observe the United States market. Second, the United States market is characterized by high unit labor costs and relatively unrationed capital compared with practically all other markets. This is a fact which conditions the demand for both consumer goods and industrial products. In the case of consumer goods, for instance, the high cost of laundresses contributes to the origins of the drip-dry shirt and the home washing machine. In the case of industrial goods, high labor cost leads to the early 4. Note C. P. Kindleberger's reference to tlie "horizon" of the decisionmaker, and the view that he can only be rational within that horizon; see liis Foreign Trade and The National Economy (New Haven: Yale University Press, 19621, p. 15 passim. 5. See, for instance, Richard M. Cyert and James G. March, A Behavioral Theory of the Firm (Englewood Cliffs, N.J.: Prentice-Hall, 19631, esp. Chap. 6; and Yair Aharoni, The Foreign Investment Deczsion Process, to be published by the Division of Research of the Harvard Business School, 1966

INVESTMENT AND TRADE 193 development and use of the conveyor belt,the fork-lift truck and the automatic control system.It seems to follow that wherever there was a chance successfully to sell a new product responsive to the need to conserve labor,this chance would be apparent first to those in a position to observe the United States market. Assume,then,that entrepreneurs in the United States are first aware of opportunities to satisfy new wants associated with high income levels or high unit labor costs.Assume further that the evidence of an unfilled need and the hope of some kind of monopoly windfall for the early starter both are sufficiently strong to justify the initial investment that is usually involved in converting an ab- stract idea into a marketable product.Here we have a reason for expecting a consistently higher rate of expenditure on product development to be undertaken by United States producers than by producers in other countries,at least in lines which promise to sub- stitute capital for labor or which promise to satisfy high-income wants.Therefore,if United States firms spend more than their foreign counterparts on new product development (often mislead- ingly labeled "research"),this may be due not to some obscure sociological drive for innovation but to more effective communication between the potential market and the potential supplier of the mar- ket.This sort of explanation is consistent with the pioneer appear- ance in the United States (conflicting claims of the Soviet Union notwithstanding)of the sewing machine,the typewriter,the tractor, etc. At this point in the exposition,it is important once more to emphasize that the discussion so far relates only to innovation in certain kinds of products,namely to those associated with high income and those which substitute capital for labor.Our hypothesis says nothing about industrial innovation in general;this is a larger subject than we have tackled here.There are very few countries that have failed to introduce at least a few products;and there are some,such as Germany and Japan,which have been responsible for a considerable number of such introductions.Germany's outstand- ing successes in the development and use of plastics may have been due,for instance,to a traditional concern with her lack of a raw materials base,and a recognition that a market might exist in Germany for synthetic substitutes. 6.See two excellent studies:C.Freeman,"The Plastics Industry:A Comparative Study of Research and Innovation,"in National Institute Eco- momic Review,No.26 (Nov.1963),p.22 et seg.;G.C.Hufbauer,Sunthetic Materials and the Theory of International Trade (London:Gerald Duckworth, 1965).A number of links in the Hufbauer arguments are remarkably similar to

INVESTMENT AND TRADE 193 development and use of the conveyor belt, the fork-lift truck and the automatic control system. It seems to follow that wherever there was a chance successfully to sell a new product responsive to the need to conserve labor, this chance would be apparent first to those in a position to observe the United States market. Assume, then, that entrepreneurs in the United States are first aware of opportunities to satisfy new wants associated with high income levels or high unit labor costs. Assume further that the evidence of an unfilled need and the hope of some kind of monopoly windfall for the early starter both are sufficiently strong to justify the initial investment that is usually involved in converting an abstract idea into a marketable product. Here we have a reason for expecting a consistently higher rate of expenditure on product development to be undertaken by United States producers than by producers in other countries, at least in lines which promise to substitute capital for labor or which promise to satisfy high-income wants. Therefore, if United States firms spend more than their foreign counterparts on new product development (often misleadingly labeled "research"), this may be due not to some obscure sociological drive for innovation but to more effective communication between the potential market and the potential supplier of the market. This sort of explanation is consistent with the pioneer appearance in the United States (conflicting claims of the Soviet Union notwithstanding) of the sewing machine, the typewriter, the tractor, etc. At this point in the exposition, it is important once more to emphasize that the discussion so far relates only to innovation in certain kinds of products, namely to those associated with high income and those which substitute capital for labor. Our hypothesis says nothing about industrial innovation in general; this is a larger subject than we have tackled here. There are very few countries that have failed to introduce at least a few products; and there are some, such as Germany and Japan, which have been responsible for a considerable number of such introductions. Germany's outstanding successes in the development and use of plastics may have been due, for instance, to a traditional concern with her lack of a raw materials base, and a recognition that a market might exist in Germany for synthetic substitute^.^ 6. See two excellent studies: C. Freeman, "The Plastics Industry: A Comparative Study of Research and Innovation," in National Institute Economic Review, No. 26 (Nov. 1963), p. 22 et seq.; G. C. Hufbauer, Synthetic Materials and the Theory of International Trade (London: Gerald Duckworth, 1965). A number of links in the Hufbauer arguments are remarkably similar to