Raymond Vernon, a US economist, in 1966, developed this model. The logic here is straight forward - there are four stages in a product's life cycle:

 1. introduction,

 2. growth,

 3. maturity, and

 4. decline,

and the location of production depends on the stage of the cycle.

Stage 1: Introduction

New products are introduced to meet local (i.e., national) needs, and new products are first exported to similar countries, i.e., countries with similar needs, preferences, and incomes. If we also presume similar evolutionary patterns for all countries, then products are introduced in the most advanced nations (e.g., the IBM PCs were produced in the US and spread quickly throughout the industrialised countries).

Stage 2: Growth

A copy product is produced elsewhere and introduced in the home country (and elsewhere) to capture growth in the home market. This moves production to other countries, usually on the basis of cost of production (eg., the clones of the early IBM PCs were not produced in the US).

Stage 3: Maturity

The industry contracts and concentrates - the lowest cost producer wins here. (e.g., the many clones of the PC are made almost entirely in lowest cost locations).

Stage 4: Decline

Poor countries constitute the only markets for the product. Therefore almost all declining products are produced in LEDCs. (e.g., PCs are a very poor example here, mainly because there is weak demand for computers in LEDCs. A better example is textiles).