Global Business Theory 2022

Running head: Global Business 0
Global
Busine
ss
August 3
2019

Global Business 1
Factor Proportions Theory
The theory explains about the supply of varying proportions of different factors of production in
a two-country, two-factor, and two-community. Many countries with the large population and
large resources of labor are able to produce goods at low production cost. The country with the
large supply of capital has the ability to deploy the capital intensive mode of production. This
theory will impact on the country effectively when the country with the abundant capital prefers
to provide the good incentive to labor. The country which is labor abundant they prefer for the
capital based upon the goods (Markusen, 2019). The theory of factor proportion is completely
based upon two concepts when they are interconnected with each other and they are Labor and
capital. This theory is mainly focused for the countries which are exporting the products which
they can effectively produce.
One of the major limitation of the factor proportion theory is that it does not work properly in the
countries which relies on the technology for their production processes. The theory is more
capital oriented than being labor oriented. For example Netherland and Germany are the top
import-export partner, it conducts the export of 506 million $ in 2017 while the product which
were imported to country they were of approximately 450 million U.S dollars. By the help of this
model both of these countries are achieving the benefits globally by putting their exporting
resource together. This model help both of the countries in developing emerging market,
marginal productivity get declines it also effect on income of labor due to demand the cost of
labor get increased (Guo, 2019).
Theory of International Product Life cycle
The theory of product life cycle was developed by Raymond Vernon when the theory of Factor
proportion was start getting failed when the countries starts tending towards technology. This
theory is applied to the labor-saving and capital using products. Basically this theory explains
about the maturity and declination of the products due to impact of internationalization (de
Lange, Lutters, Kennon, and Schutte, 2019). This theory is categorized in three stages which are
described below:
Introduction of New Product: With the introduction of new product every cycle begins, when
any country which is developed from all aspects innovate a new product its market will be
always small and sales will remain low. To overcome from the low sales the organization will