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