International Business Management

1. A.)How has liberalizing trade helped international business?

Ans. TRADE REFORM has long been part of the arsenal of policies used to promote
economic efficiency, the development of new markets, and growth. Perhaps
surprisingly, even after more than fifty years of trade negotiations, there is still
significant protection in the world economy and thus scope for further benefits once
protection is removed. Protection persists because it is a convenient and
nontransparent way for governments to direct economic benefits to particular groups.
Although trade liberalization raises the average standard of living in the medium
term, groups that had been favored by protection will see their incomes decline, and
the resulting restructuring of the economy may create economic dislocations in the
short term.

There is increasing awareness that some of those who lose from trade reform might
be the poorest members of society, who have fewer assets to draw on to protect
themselves during hard times, and are thus less able to absorb adjustment costs,
than their fellow citizens. Even a transitory loss of income can cause the poor to lose
opportunities to acquire human capital through education, health care, and better
nutrition and thus can reduce their chances of escaping poverty. The vulnerability of
the poor justifies looking more carefully at the effects of trade liberalization on the
poor and asking whether trade liberalization can be designed to minimize its negative
effects.

Liberalization's effects

Trade liberalization can affect the welfare of the poor

 Changing the prices of tradable goods and improving access to new

products;

 Changing the relative wages of skilled and unskilled labor and the cost of
capital, thereby affecting the employment of the poor;

 Affecting government revenue from trade taxes and thus the government's
ability to finance programs for the poor;

 Changing incentives for investment and innovation and affecting economic

growth; and

 Affecting the vulnerability of an economy to negative external shocks.

B.) What are the merits and demerits of international trade?

Ans. Advantages of International Trades Unions:

  Increase wages for its members: Industries with trade unions tend to have
higher wages than non-unionised industries.

 Counterbalance Monopsonies: In the face of Monopsony employers,

Trades Unions can increase wages and increase employment. Monopsony
employers are those who have market power in setting wages and employing
workers. Traditionally, monopsonies occur when there is only 1 firm in a town,
or type of employment. However, in modern economies, many employers
have a degree of market power (monopsony).

 Represent Workers: Trades Unions can also protect workers from

exploitation, and help to uphold health and safety legislation. Trades unions
can give representation to workers facing legal action.

 Productivity deals: Trades Unions can help to negotiate productivity deals.

This means they help the firm to increase output; this enables the firm to be
able to afford higher wages. Trades unions can be important for implementing
new working practices which improve productivity.

 Important for Service Sector: Modern economies have seen a fall in trade
union power. This is because of a decline in manufacturing and rise in service
sector employment. Service sector jobs tend to more likely to be part time
and temporary; unions are needed to protect workers in these kind of jobs.

Demerits of International Trades Unions:

 Create Unemployment: If labor markets are competitive, higher wages will

cause unemployment. Trades unions can cause wages to go above
equilibrium through the threat of strikes etc. However, when the wage is
above the equilibrium it will cause a fall in employment.

 Ignore non Members: Trades unions only consider the needs of its
members; they often ignore the plight of those excluded from the labor
markets, e.g. the unemployed.

 Lost Productivity: If unions go on strike and work unproductively (work to

rule) it can lead to lost sales and output. Therefore their company may go out
of business and be unable to employ workers at all.

2. Discuss the impact of culture on International Business?

Ans. International Marketing and Culture: Culture is the way that we do things around
here. Culture could relate to a country (national culture), a distinct section of the
community (sub-culture), or an organization (corporate culture). It is widely accepted
that you are not born with a culture, and that it is learned. So, culture includes all that
we have learned in relation to values and norms, customs and traditions, beliefs and
religions, rituals and artifacts (i.e. tangible symbols of a culture, such as the Sydney
Opera House or the Great Wall of China).
Therefore international marketing needs to take into account the local culture of the
country in which you wish to market.

The Terpstra and Sarathy Cultural Framework help marketing managers to assess
the cultural nature of an international market. It is very straight-forward, and uses
eight categories in its analysis. The Eight categories are Language, Religion, Values
and Attitudes, Education, Social Organizations, Technology and Material Culture,
Law and Politics and Aesthetics.

Language: With language one should consider whether or not the national culture is
predominantly a high context culture or a low context culture (Hall and Hall 1986).
The concept relates to the balance between the verbal and the non-verbal
communication. In a low context culture spoken language carries the emphasis of
the communication i.e. what is said is what is meant. Examples include Australia and
the Netherlands.

Religion: The nature and complexity of the different religions an international

marketer could encounter is pretty diverse. The organization needs to make sure that
their products and services are not offensive, unlawful or distasteful to the local
nation. This includes marketing promotion and branding.

In China in 2007 (which was the year of the pig) all advertising which included
pictures of pigs was banned. This was to maintain harmony with the country's
Muslim population of around 2%. The ban included pictures of sausages that
contained pork, and even advertising that included an animated (cartoon) pig.

In 2005 France's Catholic Church won a court injunction to ban a clothing

advertisement (by clothing designers Marithe and Francois Girbaud) based upon
Leonardo da Vinci's Christ's Last Supper.

Values and Attitudes: Values and attitudes vary between nations, and even vary
within nations. So if you are planning to take a product or service overseas make
sure that you have a good grasp the locality before you enter the market. This could
mean altering promotional material or subtle branding messages. There may also be
an issue when managing local employees. For example, in France workers tend to
take vacations for the whole of August, whilst in the United States employees may
only take a couple of week's vacation in an entire year.

In 2004, China banned a Nike television commercial showing U.S. basketball star
LeBron James in a battle with animated cartoon kung fu masters and two dragons,
because it was argued that the ad insults Chinese national dignity.

In 2006, Tourism Australian launched its ad campaign entitled "So where the bloody
hell are you?" in Britain. The $130 million (US) campaign was banned by the British
Advertising Standards Authority from the United Kingdom. The campaign featured all
the standard icons of Australia such as beaches, deserts, and coral reefs, as well as
traditional symbols like the Opera House and the Sydney Harbour Bridge.

Education: The level and nature of education in each international market will vary.
This may impact the type of message or even the medium that you employ. For
example, in countries with low literacy levels, advertisers would avoid
communications which depended upon written copy, and would favors radio
advertising with an audio message or visual media such as billboards. The labelling
of products may also be an issue.

In the People's Republic of China a nationwide system of public education is in

place, which includes primary schools, middle schools (lower and upper), and
universities. Nine years of education is compulsory for all Chinese students.

In Finland school attendance is compulsory between the ages of 7 and 16, the first
nine years of education (primary and secondary school) are compulsory, and the
pupils go to their local school. The education after primary school is divided to the
vocational and academic systems, according to the old German model.

Social Organizations: This aspect of Terpstra and Sarathy's Cultural Framework

relates to how a national society is organized. For example, what is the role of
women in a society? How is the country governed - centralized or devolved? The
level influence of class or casts upon a society needs to be considered. For example,
India has an established caste system - and many Western countries still have an
embedded class system. So social mobility could be restricted where caste and class
systems are in place. Whether or not there are strong trade unions will impact upon
management decisions if you employ local workers.

Technology and Material Culture: Technology is a term that includes many other
elements. It includes questions such as is there energy to power our products? Is
there a transport infrastructure to distribute our goods to consumers? Does the local
port have large enough cranes to offload containers from ships? How quickly does
innovation diffuse? Also of key importance, do consumers actually buy material
goods i.e. are they materialistic?

Trevor Baylis launched the clockwork radio upon the African market. Since batteries
were expensive in Africa and power supplies in rural areas are non-existent. The
clockwork radio innovation was a huge success.

China's car market grew 25% in 2006 and it has overtaken Japan to be the second-
largest car market in the world with sales of 8 million vehicles. With just six car
owners per 100 people (6%), compared with 90% car ownership in the US and 80%
in the UK, the potential for growth in the Chinese market is immense.

Law and Politics: As with many aspects of Terpstra and Sarathy's Cultural
Framework, the underpinning social culture will drive the political and legal
landscape. The political ideology on which the society is based will impact upon your
decision to market there. For example, the United Kingdom has a largely market-
driven, democratic society with laws based upon precedent and legislation, whilst
Iran has a political and legal system based upon the teachings and principles Islam
and a Sharia tradition.

Aesthetics: Aesthetics relate to your senses, and the appreciation of the artistic
nature of something, including its smell, taste or ambience. For example, is
something beautiful? Does it have a fashionable design? Was an advert delivered in
good taste? Do you find the color, music or architecture relating to an experience
pleasing? Is everything relating to branding aesthetically pleasing?

Cross Cultural Marketing Blunders: Although cruel, cross cultural marketing

mistakes are a humorous means of understanding the impact poor cultural
awareness or translations can have on a product or company when selling abroad.

Below we have provided a few classic cross cultural marketing blunders for your
enjoyment. For more examples, please visit the 3 links at the end of the page.

 Locum is a Swedish company. As most companies do at Christmas they sent

out Christmas cards to customers. In 1991 they decided to give their logo a
little holiday spirit by replacing the "o" in Locum with a heart. You can see the
result.

 The Japanese company Matsushita Electric was promoting a new Japanese

PC for internet users. Panasonic created the new web browser and had
received license to use the cartoon character Woody Woodpecker as an
interactive internet guide.

 The day before the huge marketing campaign, Panasonic realized its error
and pulled the plug. Why? The ads for the new product featured the following
slogan: "Touch Woody - The Internet Pecker." The company only realized its
cross cultural blunder when an embarrassed American explains what "touch
Woody's pecker" could be interpreted as!

 The Swedish furniture giant IKEA somehow agreed upon the name
"FARTFULL" for one of its new desks.

 In the late 1970s, Wang, the American computer company could not
understand why its British branches were refusing to use its latest motto
"Wang Cares". Of course, to British ears this sounds too close to "Wankers"
which would not really give a very positive image to any company.

 There are several examples of companies getting tangled up with bad

translations of products due to the word "mist". We had "Irish Mist" (an
alcoholic drink), "Mist Stick" (a curling iron from Clairol) and "Silver Mist"
(Rolls Royce car) all flopping as "mist" in German means dung/manure.
Fancy a glass of Irish dung?

 "Traficante" and Italian mineral water found a great reception in Spain's

underworld. In Spanish it translates as "drug dealer".

 In 2002, Umbro the UK sports manufacturer had to withdraw its new trainers
(sneakers) called the Zyklon. The firm received complaints from many
organisations and individuals as it was the name of the gas used by the Nazi
regime to murder millions of Jews in concentration camps.

 Sharwoods, a UK food manufacturer, spent £6 million on a campaign to

launch its new 'Bundh' sauces. It received calls from numerous Punjabi
 speakers telling them that "bundh" sounded just like the Punjabi word for
"arse".

 Honda introduced their new car "Fitta" into Nordic countries in 2001. If they
had taken the time to undertake some cross cultural marketing research they
may have discovered that "fitta" was an old word used in vulgar language to
refer to a woman's genitals in Swedish, Norwegian and Danish. In the end
they renamed it "Honda Jazz".

 A nice cross cultural example of the fact that all pictures or symbols are not
interpreted the same across the world: staff at the African port of Stevadores
saw the "internationally recognized" symbol for "fragile" (i.e. broken wine
glass) and presumed it was a box of broken glass. Rather than waste space
they threw all the boxes into the sea!

3. A) Explain the brief structure of WTO.

Ans. The World Trade Organization (WTO) is an organization that intends to supervise
and liberalize international trade. The organization officially commenced on January 1,
1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and
Trade (GATT), which commenced in 1948. The organization deals with regulation of
trade between participating countries; it provides a framework for negotiating and
formalizing trade agreements, and a dispute resolution process aimed at enforcing
participants' adherence to WTO agreements which are signed by representatives of
member governments and ratified by their parliaments. Most of the issues that the WTO
focuses on derive from previous trade negotiations, especially from the Uruguay Round
(1986-1994).

The organization is currently endeavoring to persist with a trade negotiation called the
Doha Development Agenda (or Doha Round), which was launched in 2001 to enhance
equitable participation of poorer countries which represent a majority of the world's
population. However, the negotiation has been dogged by "disagreement between
exporters of agricultural bulk commodities and countries with large numbers of
subsistence farmers on the precise terms of a 'special safeguard measure' to protect
farmers from surges in imports. At this time, the future of the Doha Round is uncertain."

The WTO has 153 members, representing more than 97% of total world trade[8] and 30
observers, most seeking membership. The WTO is governed by a ministerial
conference, meeting every two years; a general council, which implements the
conference's policy decisions and is responsible for day-to-day administration; and a
director-general, who is appointed by the ministerial conference. The WTO's
headquarters is at the Centre William Rappard, Geneva, Switzerland.

4. A) Give a short note on the regional economic integration.

Ans. Regional integration has been defined as an association of states based upon
location in a given geographical area, for the safeguarding or promotion of the
participants, an association whose terms are fixed by a treaty or other arrangements.
Philippe De Lombaerde and Luk Van Langenhove define regional integration as a
worldwide phenomenon of territorial systems that increase the interactions between their
components and create new forms of organisation, co-existing with traditional forms of
state-led organisation at the national level.According to Hans van Ginkel, regional
integration refers to the process by which states within a particular region increase their
level of interaction with regard to economic, security, political, and also social and
cultural issues.In short, regional integration is the joining of individual states within a
region into a larger whole. The degree of integration depends upon the willingness and
commitment of independent sovereign states to share their sovereignty. Deep
integration that focuses on regulating the business environment in a more general sense
is faced with many difficulties, as Simone Claar and Andreas Nölke write. Deep
Integration

Regional integration initiatives, according to Van Langenhove, should fulfil at least

eight important functions:

 the strengthening of trade integration in the region

 the creation of an appropriate enabling environment for private sector
development
 the development of infrastructure programmes in support of economic growth
and regional integration
 the development of strong public sector institutions and good governance;
 the reduction of social exclusion and the development of an inclusive civil society
 contribution to peace and security in the region
 the building of environment programmes at the regional level
 the strengthening of the region’s interaction with other regions of the world.

The crisis of the post-war order led to the emergence of a new global political
structure. This new global political structure made obsolete the classical Westphalian
concept of a system of sovereign states to conceptualise world politics. The concept
of sovereignty becomes looser and the old legal definitions of an ultimate and fully
autonomous power of a nation-state are no longer meaningful. Sovereignty, which
gained meaning as an affirmation of cultural identity, has lost meaning as power over
the economy. All regional integration projects during the Cold War were built on the
Westphalian state system and were to serve economic growth as well as security
motives in their assistance to state building goals. Regional integration and
globalisation are the two phenomena challenging the existing global order based
upon sovereign states at the beginning of the twenty-first century. The two processes
deeply affect the stability of the Westphalian state system, thus contributing to both
disorder and a new global order.

Closer integration of neighbouring economies is seen as a first step in creating a

larger regional market for trade and investment. This works as a spur to greater
efficiency, productivity gain and competitiveness, not just by lowering border barriers,
but by reducing other costs and risks of trade and investment. Bilateral and sub-
regional trading arrangements are advocated as development tools as they
encourage a shift towards greater market openness. Such agreements can also
reduce the risk of reversion towards protectionism, locking in reforms already made
and encouraging further structural adjustment.

In broad terms, the desire for closer integration is usually related to a larger desire
for opening to the outside world. Regional economic cooperation is being pursued as
 a means of promoting development through greater efficiency, rather than as a
means of disadvantaging others. Most of the members of these arrangements are
genuinely hoping that they will succeed as building blocks for progress with a
growing range of partners and towards a generally freer and open global
environment for trade and investment. Integration is not an end in itself, but a
process to support economic growth strategies, greater social equality and
democratisation.

Regional integration arrangements are a part and parcel of the present global
economic order and this trend is now an acknowledged future of the international
scene. It has achieved a new meaning and new significance. Regional integration
arrangements are mainly the outcome of necessity felt by nation-states to integrate
their economies in order to achieve rapid economic development, decrease conflict,
and build mutual trusts between the integrated units. The nation-state system, which
has been the predominant pattern of international relations since the Peace of
Westphalia in 1648 is evolving towards a system in which regional groupings of
states is becoming more important than sovereign states. There is a powerful
perception that the idea of the state and its sovereignty has been made irrelevant by
processes that are taking place at both the global and local level. Walter Lippmann
believes that, "the true constituent members of the international order of the future
are communities of states." E.H. Carr shares Lippmann view about the rise of
regionalism and regional arrangements and commented that, "the concept of
sovereignty is likely to become in the future even more blurred and indistinct than it is
at present."

5. A) Explain five-element product wave model

Ans. Life cycle theory has been used since the 1970s to describe the behavior of a
product or service from design to obsolescence.

The typical pattern of a product is represented by a curve divided into four distinct
phases: introduction, growth, maturity, and decline. Recent research in the area has
focused on its use in decision making in areas ranging from those as broad as overall
strategy to those as narrow as equipment replacement.

But does the product life cycle, or PLC, really tell the entire story? Consider the Ford
Mustang. Since its 1964 introduction, the automobile has undergone several changes.
Performance was increased with the addition of the 428 CobraJet in 1968 and Mach I
styling in 1969. Another substantial change took place in 1971 with the introduction of
the high-performance Boss 351. Then a true muscle car, the Mustang was detuned in
1974, when oil prices forced a more fuel-efficient redesign, called Mustang II. The fourth
generation Mustang, introduced as the 1994 model, has been further refined and is more
aerodynamic than its immediate predecessor. Yet it still shares roots with earlier models.
A 302 V-8 is still offered, the wheelbase is similar, and if one looks closely enough, one
can see its genesis in the 1964 model. The pattern evidenced by the life of the Mustang,
then, is several curves of introduction, growth, maturity, and decline.

Another intriguing example is the C-130 Hercules aircraft manufactured by Lockheed.

The company recently announced the sale of 25 "J" models to the Royal Air Force,
which is the fifth version of the Hercules originally produced in the 1950s. Although the
aircraft resembles its older relatives, the new model features a totally different
electronics package and more powerful engines. Here again, the Hercules PLC shows a
curve with five local maximum points (swells of activity, in effect), rather than the
traditional, single maximum point, PLC curve.

The examples above suggest a PLC model represented by waves of product

introductions, growth, maturity, and decline. Design engineering, process engineering,
product marketing, production, and end-of-life decisions are key elements within the
system. Each has its own cycle consisting of varying levels of activity. The waves are
triggered by critical decision points during the life of a product, when production,
operations, and marketing managers must optimize their collective efforts.

Moreover, the waves of activity in marketing, engineering, and production are being
compressed by a proliferation of new product introductions and shorter life cycles. In
turn, as the marketplace forces firms to react faster, these functions must gather, share,
and analyze information with increasing speed. This requires that the firm abandon over-
the-wall forms of organization and, in their place, use cross-functional teams, which
feature short lines of communication and an ability to make decisions quickly.

Conventional Life Cycle Theory

As shown in Figure 1, conventional theory suggests that a product or service goes

through four distinct stages. The objective is to maximize the product's value and
profitability at each stage. In the introductory phase, sales are slow. The strategy is to
create widespread awareness. Costs are incurred in building distribution and increasing
awareness through heavy promotion. It is hoped that the investments made in new
product introduction pay off and the product or service moves to the growth phase.

The firm may either build market share or profitability in the growth phase. Strategies
here are to make differential changes that add value to the product and to target new
markets. Marketing moves away from promotion through personal selling toward more
mass media advertising. Just as predators react to attractive targets, competition begins
to build as awareness increases and sales momentum builds. Unit manufacturing costs
begin to fall as fixed costs are spread over more production units and workers move
down the learning curve. The firm attempts to stay in the growth stage as long as
possible.

Sales growth slows at maturity and the firm moves to defend market position. This is
where marketing managers must pay the most attention. Promotion costs increase
significantly. Cost reduction is crucial as competitors begin to lower prices and introduce
improved versions of the product. With the lower prices come lower profits, and
competitors begin to drop out. This is typically the longest lasting stage, with some
market leaders holding their position over several decades.

The final stage is decline. Here the firm may continue to market the product hoping that
competitors will discontinue their products. Other strategies are to maximize profit by
eliminating as many product costs as possible as sales slow, or else to eliminate the
product altogether.

LIFE CYCLE ELEMENTS

Design engineering, process engineering, product marketing, and production have been
recurring elements in each stage of the product life cycle. In addition, end-of-life (EOL)
issues must be addressed when the product approaches obsolescence. These elements
vary in importance as the product or service moves through its life, thus creating waves
of activity. The fact that they change in importance and magnitude requires that they be
closely managed. Let's begin our discussion of the individual elements with design
engineering.

Design Engineering

The typical design engineering curve (see Figure 2) shows two peaks. One occurs
during the introduction of the new product and the other during a redesign that takes
place during the maturity phase of the life cycle.

Design engineering is involved in the five phases of the new product introduction (NPI)
process. Idea validation is first. Engineers take informal ideas and study the market for
needs that are not being met by products currently being offered or planned.
Technology, manufacturing capabilities, competition, and potential revenues are
analyzed in the review.

The second phase is conceptual design. Here, ideas begin to take shape as product
specifications are identified. Initial investigations are made into product pricing,
performance, and styling in a feasibility analysis. Design and manufacturing engineers
may work as part of a concurrent team to develop specifications and resolve technical
aspects of how the product will be produced.

Specification and design are third. This is the phase in which design engineering plays a
large role. The goal is design release. Final decisions are made as to how the product
will work and look.

The objective of prototype production and testing is to provide assurances that the
design is sound and the need for subsequent changes will be small. The product is
tested under a pilot run simulation to see how well it meets specifications and quality
objectives. Manufacturing capabilities are also checked. Engineers may solicit customer
reactions to the product in this phase.

The final traditional phase of NPI is manufacturing ramp-up, or commercialization. The

chief concern is obtaining the desired level of manufacturing capacity as soon as
possible while meeting quality specifications. Design engineers provide solutions to
problems with product reliability and variability in this stage. They also participate in any
resulting manufacturing process changes.

The goal of any new product introduction is to place a quality product in the market, in
desired amounts, at the producing firm's lowest possible cost. Design engineering's
integral role in this process results in the introduction of the initial version of the product.
We call this the "A" model designation, meaning that this is the first model in a potential
series.

The second design engineering activity spike occurs when the cumulative effect of
implemented or contemplated product changes results in a substantially new product. If
the product needs a major face-lift to attract new users, the resulting peak in activity
level may be higher than that for the previous model. Changes made to the product here
typically result in markedly higher quality, new features that increase the product's utility
value, and/or improvements in the attractiveness of the product through styling. This
second, updated model is the "B" version. An example is Caterpillar's high-drive crawler
tractors, which were given an entirely new series designation ("H") upon their
introduction in the 1980s. The high-drive bulldozers, on which the track resembles a
skewed pyramid, represented a substantial departure from conve
National-tracked tractors with their oval tracks. In fact, they have redefined the industry.

Process Engineering

The process engineering function is responsible for the production system. To that end,
process engineers specify the type of system, equipment, tooling, layout, and flow used
in manufacturing or service operations. Their task is to ensure the efficient production of
each part or component. Traditionally, the first step is a review of the end item bill of
materials, which identifies all the separate parts that make up the product or service to
be produced in, or to flow through, the operation area. Once the bill of materials analysis
is completed, the problem of which type of production system to employ may be tackled.

Laufer (1975) identifies three basic types of process structures used in manufacturing
(which could easily be used by service entities as well): intermittent, batch, and
continuous. Typically, the type of product offered by the firm defines which structure will
be employed. Intermittent operations are usually found in custom firms or job shops in
which end item or service specifications are provided by the customer. The product or
service is made as ordered, so production tends to be either infrequent or one time only.
Production run lengths are often small. Output is more standardized in the batch
operation and is produced in higher quantities. The plant is used to process a product
run over a given period of time, after which a different item or good may be produced.
Finally, production in continuous operations is highly standardized, variety is limited, and
output is high.

When considering the type of process to employ, a production layout that facilitates the
product movement through the plant must be chosen. Questions to consider include: Is
the product suited to an assembly line layout, in which work stations are linked by some
type of material handling device? Is production more efficient in a cellular layout, in
which groupings of dissimilar machines work on components that have similar
processing requirements? Should the firm employ a just-in-time layout and pull the
product through the plant?

In conjunction with selecting the process layout, manufacturing decisions must be made
as to the level of automation used within the plant. For example, will the firm feature a
flexible manufacturing system and group numerically controlled machines throughout the
different manufacturing areas? Finally, maintenance and repair decisions must be
made--no small chore. Less frequent maintenance may allow for higher use of
equipment and tooling. Eventually, however, this may be offset by more frequent (and
more expensive) catastrophic failures.

The process engineering curve shadows that of design engineering in Figure 2, with its
two peaks. Activity begins just after receipt of the bill of materials. The initial system is
designed, equipment and tooling are purchased, maintenance programs are put in
place, and flows are decided. The first peak is reached after design and process
changes stabilize. Again, this is the "A" model. The second begins to build with the
development of the "B" version, and peaks just before the system stabilizes, as
equipment, tooling, and flow are adjusted to optimize production.

Production

Production activity follows demand for the product or service; both are linked by
manufacturing planning and control systems. Activity begins in earnest during production
ramp-up. Equipment, processes, and trained production personnel must be in place.
Targets for product cost, conformance to specification, and overall quality must be met.
As customer sales begin to speed up production, overhead per-unit costs decrease and
direct costs increase.

Manufacturing activity ramps up during initial production, leaps through growth, and
peaks near the point at which customer demand is highest. The shape of the curve,
then, is similar to the traditional PLC shown in Figure 1. Potts (1988) suggests that
demand for service parts shadows the installed base and also shows one peak, albeit
lagging somewhat behind product sales.

Relationships

Design engineering, process engineering, and production are all related. The purpose of
presenting the traditional relationship here is to facilitate later comparisons with the five-
element wave. The model is illustrated in Figure 3, which shows that traditional product
engineering follows a linear path. The first step is design engineering, in which the good
or service is taken from concept and detail design to prototyping. The product moves to
process engineering, where technologies and production methods are evaluated as a
system is set into motion. Finally, the product flows to production, where down-stream
manufacturing activities, such as production planning and scheduling, take place. This is
known as the over-the-wall method of product design and development, with each stage
separate from the next.

Product Marketing

New products are usually supported with high advertising budgets to build awareness
and encourage an initial purchase. If the target is the entire market, a typical first
strategy is to attack it with one theme. When resources are relatively limited, the
business may choose to identify smaller, more homogenous concentrations within the
market and tailor the advertising to those groups. Once the product becomes
established, fewer advertising dollars per sales unit are required to encourage demand.

Sales promotion is another tool used to stimulate immediate demand. Emphasis on

sales promotion is highest at new product introduction, falls during product growth, and
increases as the good or service becomes more of a commodity after competitors and
the market adjust. Sales promotion effects tend to be short-term. According to Kotler and
Armstrong (1991), "Sales promotion consists of short-term incentives to encourage
purchase or sales of a product or service. Whereas advertising offers reasons to buy a
product or service, sales promotion offers reason to buy now." Examples of these
promotions are free samples, rebates on purchases, and the ubiquitous newspaper
coupon.
There are two occurrences of particularly high activity or expenditure in marketing a
product or service. The first peak occurs during introduction-the "A" version--where plans
are created and first put into action. During growth, marketing activity begins to fall as
the product begins to generate its own demand. The second flurry of activity occurs after
demand growth flattens and the product becomes somewhat of a commodity, when the
product is modified and results in a new and improved "B" version. Finally, once the firm
decides to allow the good to gracefully exit the market as it moves towards
obsolescence, advertising and promotion activity levels naturally fall to zero.

End of Life

This element considers what happens when sales decline to the point at which revenues
drop to a level that supposedly precludes continued production of a good by the firm.
One strategy is to cease production and allow inventory levels to drop to zero. An
alternative tactic is to attempt to give new life to the product and risk succumbing to what
is known as "The Thomas Lawson Syndrome." Harari (1994) provides this summary:

Even before it sank, the sailing ship Thomas Lawson had become obsolete as steam-
powered vessels emerged. Its saga symbolizes the fatal tendency of organizations to
cling to old beliefs and outmoded technologies.

In other words, the firm ignores the technological warnings of the industry and continues
to make the product at the expense of future success. This is analogous to the ostrich
that sticks its head in the sand when approached by a hungry lion. The bird (firm)
expects that it cannot be hurt by what it cannot see, while the lion (the competitor) sees
nothing but an easy meal How big a problem is EOL decision making? It may be
immense, considering that the largest firms in the U.S. have many products in the late
mature stage. Most technological changes occurred in a 20-year period after World War
II. Markets boomed, owing to large population increases and repressed demand during
the Depression and the ensuing war years. The market's hangover began in the 1970s.
Product break-through were expensive and few. Companies began to cut R&D
expenditures, and population growth slowed. Businesses that made names for
themselves in the postwar boom had begun to feel invincible. They relied on dated
products, ignored potential new products that could result from research and
development, and created businesses filled with hierarchical practices rather than the
flexibility required for growth.