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product life cycle

  A concept used to understand the changing locational needs of an industry based on a characteristic process of maturation of its principal good over time, often referred to simply as \'product cycle\'. The idea is conventionally attributed to Vernon (1966), although its antecedents are actually considerably older (Kuznets, 1930; Burns, 1934). Vernon\'s classic study of the economy of the New York metropolitan region (Vernon, 1963), and especially his appraisal of that region\'s ability to retain manufacturing functions that had already begun to disperse to new locations, provided the original empirical foundation for his product cycle theory. However, by the time his 1966 article was written, Vernon\'s research interests had shifted to the multinational corporation and the international economy (cf. globalization). His motivation was to show that investment decisions taken by manufacturers on an international scale were driven by considerations far more complex than simple comparative cost analysis with its focus on geographical differences in factor and transportation costs. Instead, he posited that products tend to undergo a series of transitions through three distinct stages of their life cycle, and that firms choose different production locations to suit these characteristics as they change over time.

\'New products\' are, by their nature, somewhat unstable since their design is still being modified and perfected, as are the accompanying processes required to produce them. There is also likely to be considerable iterative interaction between the producing firm and the market as successive modifications are introduced, test-marketed, and appraised. Consequently at this early stage, producers require ready access to customers but also to a diverse and deep pool of suppliers, since inputs are likely to be modified as the product\'s design changes. As Vernon notes (1966, p. 195), \'the need for swift and effective communication on the part of the producer with consumers, suppliers, and even competitors is especially high at this stage\'. Such requirements are most likely to be met in major industrialized countries, especially in major metropolitan economies.

At the second stage, the \'maturing product\' undergoes a process of increasing standardization and expansion of production scale as demand for the product grows. Hence, the need for flexibility that was so evident earlier is now greatly reduced, as uncertainties about the product\'s design and marketability diminish. At this stage, minimizing production costs becomes the foremost concern for manufacturers, who will select locations outside the most heavily industrialized countries in search of lower labour costs.

By the time a product has reached the third stage of \'standardized product\', Vernon contends (p. 202), \'at an advanced stage in the standardisation of some products, the less-developed countries may offer competitive advantages as a production location\'. This is especially likely for products that are labour-intensive, have a high price elasticity of demand, and are only weakly dependent on external economies for their production.

Although Vernon\'s ideas were important in shaping research on international business (see, for example, Wells, 1972), product cycle theory enjoyed its most intensive application at the sub-national scale. An early exponent of Vernon\'s ideas at the interregional scale was Wilbur Thompson, whose classic paper (Thompson, 1968) recast the Vernon hypothesis in the form of a \'filtering-down\' theory of urban economic change. According to this approach, new products would originate in the largest metropolitan regions at the top of the urban hierarchy because of the concentration of highly educated scientific and technical workers, as well as universities and other research institutions found there. The earliest commercial production of such innovations would occur in the same regions for the reasons outlined by Vernon. With increasing standardization of the product and the production process, the tie to such highly skilled labour would weaken and cost considerations would drive manufacturers to seek out locations in intermediate-sized urban centres where semi- and unskilled workers would be available in plentiful supply and at substantially lower wage rates. As products reached the point of advanced maturity, their production would shift to the smallest urban centres at the bottom of the urban hierarchy (or even to rural locations). Although this shifting investment would bring employment opportunities to relatively depressed areas with high unemployment rates, Thompson\'s assessment of the long-term prospects for such regions was clear and unequivocal (p. 56): \'their industrial catches come to them only to die\'.

At the time when Vernon and Thompson first began work on the product cycle concept, the long-term dominance of established industrial regions such as the Manufacturing Belt of the US Midwest and Northeast was unchallenged. For Thompson, the decline of such regions was unthinkable because of their proven ability over the long run to continue to generate new products. For this reason, the loss of certain manufacturing functions to more peripheral regions through the filtering-down process, while inevitable, was little cause for concern. A scant decade later, however, the assumptions supporting Thompson\'s analysis came into question as a major shift in economic activity between the regions of the United States became evident. It is therefore hardly surprising that scholars such as Rees (1979) and Thomas (1980) used the work of Vernon and Thompson as a conceptual framework with which to explain the decline of the Manufacturing Belt (which was then coming to be known as the \'Frostbelt\' or even the \'Rustbelt\') and the rise of the \'Sunbelt\' states of the US South and West (cf. sunbelt/snowbelt). For them, the decline of the Frostbelt could be explained by the accelerated rate of decentralization of production activities, as intensified foreign competition from offshore, newly industrializing countries heightened the importance of cost reduction for US-based manufacturers. Moreover, in contrast to Thompson\'s views, Rees and Stafford (1986) advanced the proposition that previously \'peripheral\' areas such as the US Southeast could eventually achieve a critical mass once a sufficient volume of capital had been invested in production facilities in the region. At this point, they argued, the \'incubator\' functions (generating new products and firms) traditionally associated exclusively with the largest metropolitan regions in the Northeast and Midwest could take root in these once-peripheral locations. Such arguments, which implied an even more fundamental challenge to the economic supremacy of the largest urban regions, were supported by the empirical work of Pred (1977), which demonstrated that many of the largest industrial firms in the United States were shifting some of their highest-order activities (especially research and development) away from their original headquarter locations to urban centres considerably further down the hierarchy.

More recently the product life cycle concept has been criticized for its excessive determinism and essentialism, especially the argument implicit in the theory that all products naturally follow a similar trajectory over time (Storper, 1985; Taylor, 1986). Critics have pointed out that even standardized and mature products can be rejuvenated through innovation in later stages of a product\'s \'life cycle\'. A case in point is the automobile, which, while hardly a new product, has been continuously modified and improved over time. It has also been argued that many products never achieve the status of cheap, standardized, mass-produced goods — especially those which, under a regime of flexible accumulation, exhibit a high degree of variability, customization, and qualitative differentiation. (See also profit life cycle.) (MSG)

References Burns, A.F. 1934: Production trends in the United States. New York: Bureau of Economic Research. Kuznets, S. 1930: Secular movements in production and prices. Boston: Houghton Mifflin. Pred, A.R. 1977: City-systems in advanced economies. New York: Halsted Press. Rees, J. 1979: Technological change and regional shifts in American manufacturing. Professional Geographer 31: 45-54. Rees, J. and Stafford, H.A. 1986: Theories of regional growth and industrial location: their relevance for understanding high technology complexes. In J. Rees, ed., Technology, regions and policy. Totowa, NJ: Rowman and Littlefield, 23-50. Storper, M. 1985: Oligopoly and the product cycle: essentialism in economic geography. Economic Geography 61: 260-82. Taylor, M.J. 1986: The product cycle model: a critique. Environment and Planning A 18: 751-61. Thomas, M.D. 1980: Explanatory frameworks for growth and change in multiregional firms. Economic Geography 56: 1-17. Thompson, W.R. 1968: Internal and external factors in urban economies. In H.S. Perloff and L. Wingo, eds, Issues in urban economics. Baltimore: Johns Hopkins University Press and Resources for the Future, 43-62. Vernon, R. 1963: Metropolis 1985: an interpretation of the findings of the New York metropolitan region study. Garden City, NJ: Doubleday. Vernon, R. 1966: International investment and international trade in the product cycle. Quarterly Journal of Economics 80: 190-207. Wells, L.T., ed., 1972: The product life cycle and international trade. Boston: Harvard Business School Press.

Suggested Reading Malecki, E.J. 1991: Technology and economic development: the dynamics of local, regional, and national change. Harlow: Longman.



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