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The Product Profit Cycle or the Filtering Down Hypothesis
• Explains Industrial Decentralization
• Based upon corporate organizational theory
• A product passes through three stages:– Early
– Growth
– Mature
Early Stage
• Low Capital Intensity• Limited production• Rapidly changing
production technology• Scientific and Human
inputs are high
Growth Stage
• Mass Production• Technologies
developed• Capital-intense• Great need for
management skills
Mature Stage
• Long Run Production few changes
• Human input minimal• Capital-intense and
increasing keeps products in the hands of a few firms
Filtering Down
• Corporations respond to different input requirements by changing locations to minimize costs and increase competitiveness
Early Stage• Need highly skilled human
inputs• Likely to be in an urban area• Specialized labor and
support services• Close to company HQ• Intense management and
decision making during product development
Growth Stage
• Often moved out into the suburbs but still close to hq
• Less skilled and semi-skilled labor
• Capital intensity increases
• Factory space cheaper outside of city
Mature Stage
• High capital intensity• Looking for cheapest
land and inputs• Unskilled labor• Usually rural places• Later foreign
countries.
Implications• Rural places often recruit footloose
businesses• Give expensive incentives• Then they leave when they get a better deal• The cycle has been greatly compacted• Products that do not rapidly become
obsolete continue to filter down to cheaper labor nations
• Now many manufacturing jobs go directly overseas
• outsourcing