In stage two the product is exported to foreign countries. Initially, a firm exports from the home country; gradually, production shifts to those countries with the largest domestic markets, with firms erecting foreign plants and assembly lines to supply local demand.
The firm's activity no longer centers on developing the product, but on refining the means of production. With other firms continuing to enter the markets as producers, competition increases and drives down both price and proportion of price to cost.
Standardization of the production process makes further reduction in production cost impossible. The market, while large, is completely saturated with competitors, thus price often falls to a bare minimum above costs.
Firms can gain a competitive advantage only by managing factor cost, that is, by shifting production to those countries in which the elements of production are least expensive. The home country market now is supplied primarily by production imported from offshore plants.
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