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Locational Implications of the Product Cycle

(http://faculty.washington.edu/krumme/systems/pcycle.html)


The life-cycle analogy is a convenience which fits many situations but to which few expect strict adherence. [E.J.Malecki, 1997, p.65]
The Concept of the Product Cycle

HUMAN CAPITAL & INVESTMENT CHARACTERISTICS,
IMPLICATIONS FOR LOCATIONAL
ENVIRONMENTS 		C Y C L E ... P H A S E S


EARLY

"Research & Development", "Innovation", "Market Development"


GROWTH

From "Rapid Growth" to "Competitive Turbulence"


MATURITY

Saturation, Life Extension, Possible Decline & Death (Replacement)

Technology Short production runs.
Rapidly changing production technologies and "ways of doing things".
Dependence on external (incl.agglomeration-) economies favoring incubator-type locations.		 Gradual introduction of mass production methods.
Frequent variation in production techniques.		 Long runs & stable technology.
Few innovations of importance, with the possible exception of
  • life-extension-
  • quality improvement-
  • production-cost-reduction-
    technologies.
    • Capital intensity Relatively low capital (-goods) intensity [but differing widely between industries]
    But high human capital intensity [see below]).     		High (due to high rate of obsolescence). Importance of venture capital and venture-capital locations High (due to large investments in specialized equipment) and Infrastructure & overhead capital equipment (tends to favor large multinational firms "with deep pockets" at low-wage locations).
    Industry structure Entry dependent on know-how.
    Numerous firms providing specialized services.    		 Initially: more and more firms.
    But then also failures and mergers (buy-outs & shake-out of the weak, i.e. those unable to make the transition from skilled- labor- intensive to capital- intensive production).
    Vertical integration.    		 Less and less firms.
    New entries become difficult due to need for financial resources.
    Critical Human Inputs (required at production locations) Scientific & engineering.
    Entrepreneurship.     		Management.
    Skilled workers.    		 Unskilled and semi-skilled labor
    (at low, "competitive" wage levels, often leading to moves to less-developed regions in Western countries or to 3rd world countries).
    Demand Structure Sellers' market.
    Market proximity.
    Monopolistic pricing.
    Large profits often hidden by rapid depreciation of development costs and reinvestment
    Performance and price of substitutes determined buyers' expectations.    		 Early entry of many aggressive emulators (attracted by large profits).
    Individual producers face growing price elasticity.
    Intra-industry competition leads to price reductions.
    Competitors begin to encroach on (or "squeeze") one other's market areas.
    Product information spreading.    		 Buyers' market.
    Relatively stable market shares.
    Product information easily accessible on the Internet or elsewhere.

    Sources:
    • Peter Dicken, Global Shift (Three editions, last: 1998). See index.
    • Seev Hirsch, Location of Industry and International Competitiveness. Oxford: Clarendon Press, 1967, p.23.
    • Roger Hayter, The Dynamics of Industrial Location. Chichester: John Wiley, 1997.
    • Krumme & Hayter (1975)
    • Malecki, E.J., Technology and Economic Development, 2nd. edition, 1997, pp.63-71 ("The Product Cycle and Economic development")
    • Chester R. Wasson, Dynamic Competitive Strategy & Product Cycles. Challenge Books (St. Charles, Ill), 1974.

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    2001 [econgeog@u.washington.edu]