Empires Rise and Fall: The Case of USA
https://www.rozen-bakher.com/timeline-risks2/07/09/2022/1442
Published Date: 07 September 2022
Rozen-Bakher, Z., Empires Rise and Fall: The Case of USA, Risks Timeline by Dr. Ziva Rozen-Bakher, 07 September 2022, https://www.rozen-bakher.com/timeline-risks2/07/09/2022/1442
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Dr. Ziva Rozen-Bakher
Researcher in International Relations and Foreign Policy with a Focus on International Security alongside Military, Political and Economic Risks for Foreign Direct Investment (FDI) and International Trade
7 September 2022 at 14:42. History taught us that empires rise and fall. It is like an inevitable cycle, namely when one empire controls, then at some stage, the empire starts to make mistakes, which signals the start of the fall, while the rivals start to learn how to overcome the empire and how to become a new empire.
My analysis is that the USA, sooner than later, will understand that things are happening in our small village without the USA's approval, yet paradoxically, if the USA clashes with its rivals at this point, then the fall will be accelerated. Perhaps Vernon's Product Life Cycle can give us tips on how to extend the ‘Maturity Stage’, yet based on this theory, the ‘Decline Stage’ is inevitable. Hence, the USA should be much wiser than it was in the 1980s to preserve its role as a superpower because now the USA needs to compete with dual superpowers – Russia and China.
For Vernon's Product Life Cycle, please see below or Section 3.2 in Rozen-Bakher, Z. (2021). Are Multinational Enterprises’ (MNEs) Theories explained the reality of Foreign Direct Investment (FDI) and International Trade in the 21st Century?. Unpublished Research Paper, PD2. https://www.rozen-bakher.com/unpublished-research-papers/pd2
Rozen-Bakher, Z. (2021). Are Multinational Enterprises’ (MNEs) Theories explained the reality of Foreign Direct Investment (FDI) and International Trade in the 21st Century?. Unpublished Research Paper, PD2. https://www.rozen-bakher.com/unpublished-research-papers/pd2
3.2 Product Life Cycle Theory
Raymond Vernon's article "International Investment and International Trade in the Product Cycle", presents a macroeconomic approach to explain the activity of MNEs (Vernon, 1966). This approach is based on the microeconomic theory of the Product Life Cycle (Vernon, 1966). In the product life cycle theory, Vernon attempted to answer the question: Where products should be produced to maximise profit? (Vernon, 1966). According to Vernon's theory, the answer lies in the location of production that depends on the product life cycle.
In view of the above, Vernon argued that products have a limited lifespan, and each product has a life cycle that consists of four main stages: introduction, growth, maturity and decline (Anderson & Zeithaml, 1984; Day, 1981; Rink & Swan, 1979; Vernon, 1966). Hence, the relocation of production to host countries is conducted according to the product life cycle (Day, 1981; Dunning & Lundan, 2008; Vernon, 1966), as discussed below.
· Introduction Stage. In the introduction stage, the product is gradually presented to the market. During this stage, the product enters the market after the R&D completion process, and thereby, the demand for the product increases slowly. This stage is characterised by low competition, so the sale is based on product uniqueness, rather than on price. Thus, the revenue is low, but the profit margin is high. In addition, at this stage, the production is carried out in small quantities by highly skilled workers because the product has not yet completed its standardisation procedure. Therefore, production costs are still high. In light of that, from the international production standpoint, products are produced in developed home countries at this stage, while mainly are exported to developing host countries.
· Growth Stage. During the growth stage, products are rapidly getting into the market and occurs a substantial increase in demand. During this stage, prices begin to decline due to increased competition, and as a result, the profit margin starts to fall. The quantity of the production increases and the production becomes standard, but the production costs are still high. Hence, from the international production perspective, during the growth stage, the product is produced mainly in developed countries, but the increase in demand for the product leads to relocation of production to developing countries in order to reduce the production costs. Besides, in this stage, the product enters new markets in host countries.
· Maturity Stage. During the maturity stage, the demand is stable. However, in developed countries, there is a decline in demand, while in developing countries, the demand increases. During this stage, the competition is intense, and sales are based mainly on prices, so the profitability decreases. Given that, international production is carried out mainly in countries where manufacturing costs are low. Besides, the production is performed in large quantities (mass-production) by semi-skilled labour, and high standardisation of production is created.
· Decline Stage. During the Decline stage, there is a significant decline in demand, and profits are very low. The number of competitors is small, but the sale is based solely on price, and the production is based on unskilled labour. Thus, the demand remains mostly in developing countries. Considering that, international production is carried out mainly in developing countries where manufacturing costs are very low. Nevertheless, developing countries begin to export their production to other developing countries.
Vernon's theory was written in the 1960s before the Internet era and the rapid technological changes that dramatically shortened the life cycle of technological products. That's led to a changing in the implementation of the product life cycle theory (Klepper, 1996), especially in relation to international production, and in particular, with regard to technological products with a shorter life cycle. In other words, each product has a different life cycle, which affects the period of each stage, and as a result, it also affects the place of production (Bilir, 2014). Hence, in cases of products with a very short life cycle, the period of each stage is also shortened, and thereby it influences international production. For example, smartphones are characterised by a short life cycle, so the period of each stage of its product life cycle is short too. Accordingly, it also influences the location of international production dramatically at each stage of the life cycle. It can be argued that a product with a short life cycle (e.g. Smartphone) is usually produced in the first place in developing countries, rather than in developed countries. That's done to achieve immediately lower production costs. More importantly, a combination of a product with a short life cycle along with an extensive production volume during the introduction stage like the case of the Smartphone reflects a situation in which the product quickly reaches the maturity stage. Notably, Vernon's theory was written under the assumption that a typical product life cycle is at least five years. Based on this assumption, even the calculation of depreciation in leasing transactions for purchasing products is also based usually on five years, particularly in the second half of the 20th century. However, the technological progress in the 21st century has led to a dramatic shortening of the product life cycle, even to the point of a few months, especially regarding innovative technological products, such as software and web applications. That's affected the location of the international production dramatically, especially in cases that a product needs mass production immediately from the introduction stage. Hence, Vernon's theory is still valid for products with a 'normal' product life cycle of at least five years. However, if a product has a short life cycle alongside the need for mass production when the product is released, then the introduction stage and growth stage are merging and shortening. However, after these stages, the product quickly proceeds to the maturity stage, and it's remained in this stage for most of its life cycle until it moves to the decline stage for a fast end.
