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.
A possible Phase Four. In this stage, products being designed to meet individual needs but assembled from components sourced worldwide. A firm will need to understand and respond to individual clients' needs by delivering top quality products and services at the least cost.
To success in such Phase Four, firms must become simultaneously more highly differentiated and more integrated. Structurally firms will have passed to global heterarchies that weave together complex networks of joint venture, wholly- owned subsidiaries, and organizational and project defined alliances.
To maintain responsiveness, successful firm will develop global corporate cultures that recognize cultural allowing them to integrate culture specific strategic choice within a global vision.
The theory of the international product cycle has two fundamental tenets. First, technology is a critical factor in product creation and development, and the existence of propriety technology gives some firms advantages over others. Second, market size and structure are critical factors in determining trade patterns.
This theory explicitly incorporates the multinational enterprise as an actor that undertakes international trade (and also foreign direct investment).