The product life cycle: Stage 1: Introduction
Stage 1: Introduction
Innovation, Production, and Sales in Same Country
New products are usually developed because there is a need and a market for them. Since there is generally more ready observation of nearby market conditions, the development is more apt to be in response to domestic than to foreign needs. In other words, a U.S. firm is most apt to develop a new product because of observed needs in the U.S. market, a French firm because of perceived needs in the French market, and so on. To illustrate how this works, producers in both the United States and France observed the need for longer-term food preservation as more women worked outside the home and had less time for food shopping. The prevalence of large kitchens and cheap electricity in the United States encouraged U.S. innovators to develop frozen food which could be stored in large freezer compartments. U.S. producers thus became leaders in the frozen-foodindustry. In France, however, large freezer compartments " were impractical, so French producers led in the development of forms of ^food packaging (such as boxed milk) that would eliminate the need for refrigeration. Once a research and development group has created a newjjrod-uct, that product could theoretkajh/be manufactured anywhere in thejvorlcL. evenjhough its sales are intended primarily for the market where consumer needs were first observed. In practiauJiQwever, the early production generally occurs in a domestic location because the company wishes to use its excess capacity and because it is useful for the company to locate near the intended consumers in order to obtain rapid market feedback and to save transport costs.
Location of Innovation
Since the early manufacturing and sales of new products occur primarily in countries that make product innovations, it is useful to know where new products are developed. Indications are that during the last few decades nearly all of the world's technology has emanated from the developed countries and that during most of that period the United States has been the leading innovator.
A number of reasons account for the dominant position of industrial , countries, especially the United States. The primary ones are high incomes, which permit risking expenditures on research that may or may not yield gainful results, competition, demanding consumers, and the availability of scientists and engineers. In the United States scientific achievements are regarded with a particular awe, dramatized by such adjectives as "wonder," "miracle," and "magic" when referring to new products, and a sizable contingent of consumers generally believe that "new" is better than "old."
Once a company develops a competitive advantage through innovation, ^ Jtjsjncreasingly necessary to continue making improvements in order to stavy _competitive. The improvements may come in the product itself or in the _Jjngt,hod of manufacturing or distributing the product.
Although the United States has had a leading position in the origin of product innovations, there is evidence that the U.S. share of new products _ has been declining and that Japair^may-now be the world's leading innova^ Jor^JThere is also evidence from a recent study of ten major trading nations that innovation is the main source of their competitive strengths. But since innovations can be imitated, there is a need to continually develop new innovations in order to stay in the forefront. For the purpose of explaining the PLC theory, however, we shall continue to use the United States as an example.
Exports and Labor
Although most sales are for the domestic market during the introduction stage of a product cycle, a small part of the production may be sold to customers in foreign markets who have heard about the new product and actively seek jt. These foreign customers are-jrtost likely to be found in countries with similar market segments. In the case of the U.S., these would be other industrial countries because similarities in income levels create similar market segments.
At this stage the production process is apt to be more labor intensive than it will be in later stages. Because the product is not yet standardized, it js_ necessary to produce it by a process that permits rapid changes in product ^characteristics as dictated by feedback from the market. This implies high la^ brjr input as opposed to automated production, which is more capital inten-
sive^A second factor influencing the early labor intensity is that process technology (the capital machinery necessary to produce a product on a large scale) usually develops later than product technology. It is only when sales begin to expand very rapidly (Stage 2) that there is an incentive to build machinery capable of producing the product on a large scale. At the intro-ductory stage, sales growth may be too uncertain to warrant the high devel-"ToprrienT cc^s~cTTRe newjjrpcess machines.
The fact that the United States excels in the development of new products that are generally made in labor-intensive ways helps us to understand the Leontief paradox, which showed that the United States generally exports labor-intensive products. Since U.S. labor rates are known to be among the highest in the world, how can the United States compete? According to one view, this ability stems from the monopoly position of original producers, which allows them to pass on costs to consumers who are unwilling to wait for possible price reductions later on. There is much evidence of this behavior based on eventual price decreases of products such as calculators and video-cassette recorders. Another explanation is that although U.S. labor is paid a high hourly wage, its education and skill levels make it adept and efficient when production is not yet standardized. When production becomes highly automated, the U.S. labor force becomes less competitive because unskilled labor may be quickly trained to perform highly repetitive tasks efficiently.
Interestingly, the Ujutedjkates enjoys its best manufacturing export advantage in those industries in which production workers are most highly paid, such as aerospace. Tjie least competitive .advantage is; in the industries with lower wage rates., such as clothing.
Innovation, Production, and Sales in Same Country
New products are usually developed because there is a need and a market for them. Since there is generally more ready observation of nearby market conditions, the development is more apt to be in response to domestic than to foreign needs. In other words, a U.S. firm is most apt to develop a new product because of observed needs in the U.S. market, a French firm because of perceived needs in the French market, and so on. To illustrate how this works, producers in both the United States and France observed the need for longer-term food preservation as more women worked outside the home and had less time for food shopping. The prevalence of large kitchens and cheap electricity in the United States encouraged U.S. innovators to develop frozen food which could be stored in large freezer compartments. U.S. producers thus became leaders in the frozen-foodindustry. In France, however, large freezer compartments " were impractical, so French producers led in the development of forms of ^food packaging (such as boxed milk) that would eliminate the need for refrigeration. Once a research and development group has created a newjjrod-uct, that product could theoretkajh/be manufactured anywhere in thejvorlcL. evenjhough its sales are intended primarily for the market where consumer needs were first observed. In practiauJiQwever, the early production generally occurs in a domestic location because the company wishes to use its excess capacity and because it is useful for the company to locate near the intended consumers in order to obtain rapid market feedback and to save transport costs.
Location of Innovation
Since the early manufacturing and sales of new products occur primarily in countries that make product innovations, it is useful to know where new products are developed. Indications are that during the last few decades nearly all of the world's technology has emanated from the developed countries and that during most of that period the United States has been the leading innovator.
A number of reasons account for the dominant position of industrial , countries, especially the United States. The primary ones are high incomes, which permit risking expenditures on research that may or may not yield gainful results, competition, demanding consumers, and the availability of scientists and engineers. In the United States scientific achievements are regarded with a particular awe, dramatized by such adjectives as "wonder," "miracle," and "magic" when referring to new products, and a sizable contingent of consumers generally believe that "new" is better than "old."
Once a company develops a competitive advantage through innovation, ^ Jtjsjncreasingly necessary to continue making improvements in order to stavy _competitive. The improvements may come in the product itself or in the _Jjngt,hod of manufacturing or distributing the product.
Although the United States has had a leading position in the origin of product innovations, there is evidence that the U.S. share of new products _ has been declining and that Japair^may-now be the world's leading innova^ Jor^JThere is also evidence from a recent study of ten major trading nations that innovation is the main source of their competitive strengths. But since innovations can be imitated, there is a need to continually develop new innovations in order to stay in the forefront. For the purpose of explaining the PLC theory, however, we shall continue to use the United States as an example.
Exports and Labor
Although most sales are for the domestic market during the introduction stage of a product cycle, a small part of the production may be sold to customers in foreign markets who have heard about the new product and actively seek jt. These foreign customers are-jrtost likely to be found in countries with similar market segments. In the case of the U.S., these would be other industrial countries because similarities in income levels create similar market segments.
At this stage the production process is apt to be more labor intensive than it will be in later stages. Because the product is not yet standardized, it js_ necessary to produce it by a process that permits rapid changes in product ^characteristics as dictated by feedback from the market. This implies high la^ brjr input as opposed to automated production, which is more capital inten-
sive^A second factor influencing the early labor intensity is that process technology (the capital machinery necessary to produce a product on a large scale) usually develops later than product technology. It is only when sales begin to expand very rapidly (Stage 2) that there is an incentive to build machinery capable of producing the product on a large scale. At the intro-ductory stage, sales growth may be too uncertain to warrant the high devel-"ToprrienT cc^s~cTTRe newjjrpcess machines.
The fact that the United States excels in the development of new products that are generally made in labor-intensive ways helps us to understand the Leontief paradox, which showed that the United States generally exports labor-intensive products. Since U.S. labor rates are known to be among the highest in the world, how can the United States compete? According to one view, this ability stems from the monopoly position of original producers, which allows them to pass on costs to consumers who are unwilling to wait for possible price reductions later on. There is much evidence of this behavior based on eventual price decreases of products such as calculators and video-cassette recorders. Another explanation is that although U.S. labor is paid a high hourly wage, its education and skill levels make it adept and efficient when production is not yet standardized. When production becomes highly automated, the U.S. labor force becomes less competitive because unskilled labor may be quickly trained to perform highly repetitive tasks efficiently.
Interestingly, the Ujutedjkates enjoys its best manufacturing export advantage in those industries in which production workers are most highly paid, such as aerospace. Tjie least competitive .advantage is; in the industries with lower wage rates., such as clothing.
Comments
Post a Comment