Innovate and increase exports. More competition, more capital-intensive. Price becomes important. Introducting country may become chief importer. Theory of Countries' Similarities Turn to countries perceived to be most similar to the home country.
Most trade occurs because of different product emphasis or similarity in demand of product.
Having developed a new product in response to the observed needs and market conditions in the home country, a producer will then turn to countries that are perceived to be most similar to those at home. Consumers in industrial countries have high propensity to buy high quality and luxury commodities where as low income countries buy mainly necessities. Three Theories of DI 1. Product Life Cycle 2. Internationalization of production 3.