Product Life Cycle, and Market Entry and Exit Decisions Under Uncertainty

A key characteristic of the Product Life Cycle (PLC) is the depletion of the product's market potential due to technological obsolescence. Based on this concept, we develop a stochastic model for evaluating market entry and exit decisions during the PLC under uncertainty. The model explicitly shows the conditions for the optimality of a two-threshold policy based on the estimated earnings potential of the product, and can be used by manufacturing firms to assess entry and exit decisions under such conditions. To aid the applications of the model in actual decision situations, we also provide the procedures for computing the exact and approximate values of the two thresholds

In the 1980s, the unresponsiveness of trade flows to exchange rate swings inspired models in which sunk costs in combination with exchange rate instability generate trade hysteresis, meaning that temporary exchange rate misalignments have a persistent effect on trade. This paper furnishes an empirical complement to the theoretical literature. First, it describes a computerized experiment in which 100 subjects generated over 1000 decisions on market entry and exit under conditions congruent with a model of trade hysteresis developed by Paul Krugman. Secondly, these data are used to test the main predictions arising from the model. Our experiment bears out the main qualitative predictions of Krugman's model; in particular, that firms' trading policy is unresponsive to exchange rate movements over a wide range of values. Moreover, in the repeated-decision setting of the experiment, we find evidence that the stochastic behaviour of subjects' entry- and exit-price decisions tend towards consensus as they gain experience, even though they do not interact with one another during the experiment. This effect, which is not predicted in Krugman's model, supports the supposition that behaviour at the firm level in the presence of sunk costs and exchange rate uncertainty is a plausible microeconomic foundation for otherwise puzzling macroeconomic phenomena.

Learning outcomes After completion of the case study, students will be able to: 1. understand the basis for developing global supply chains for exploring international markets, 2. identify the various sources of geopolitical risk while expanding globally, 3. assess the market entry or exit decisions from a principled and commercial perspective and 4. identify and weigh different options when faced with an exit situation under conditions of geopolitical risk. Case overview/synopsis The Japanese fast fashion brand Uniqlo opened 45 stores in Russia as a part of its international retail expansion strategy. The brand provided affordable fashion for everyone. However, the Russia–Ukraine armed conflict had put the company in a dilemma. The Japanese Government and the public joined the broader global community in condemning Russia’s armed intervention in Ukraine. These countries also imposed economic sanctions on Russia, resulting in many multinational companies winding up their operations in Russia. Uniqlo faced a market exit dilemma. Russia had the largest number of Uniqlo stores in Europe. The company CEO also highlighted the necessity of meeting the clothing needs of the Russian people. However, people in Japan and elsewhere considered Russia as an aggressor nation. Any economic link with the Russian market would be ethically wrong, and consumers in Japan, the USA and the European Union might see this as support for Russia’s war efforts. The company had to choose between continuing operations in Russia or exiting the Russian market. Complexity academic level This case study can be used in basic marketing management and international business courses to discuss the market attractiveness and risk aspects for market entry or exit decisions. It can also be used in advanced courses such as strategic management, global strategy and global political economy, highlighting the impact of geopolitical conflicts on business operations. Supplementary materials Teaching notes are available for educators only. Subject code CSS 11: Strategy.

PurposeThis research identifies the level of misallocation in Vietnamese manufacturing sector for the period 2000–2015. Meltiz and Polanec dynamic productivity decomposition is used to compare the relative productivity contributions from surviving, entering and exiting firms to aggregate productivity change by the type of ownership. Heckman's two-step model is used to examine the effect of misallocation and industry- and firm-level factors on entry or exit decision and market share of firms in Vietnamese manufacturing sector.Design/methodology/approachThe level of misallocation and efficiency gains in total factor productivity (TFP) are assessed using Hsieh and Klenow (2009) productivity decomposition framework for the period 2000–2015. The dynamic productivity decomposition of Meltiz and Polanec (2015) is used to compare the relative contributions from surviving, entering and exiting firms to aggregate productivity change. The effects of misallocation and other factors on entry or exit decisions and market share of firms are determined by using Heckman choice model.FindingsThe results indicate three main points. Firstly, resource misallocation is found to be highest among state-owned enterprise (SOEs) and low technology industries. TFP is found to 81.2% greater if there is no resource misallocation among firms. Secondly, the aggregate productivity change for the entering, exiting and surviving firms is 35% due to productivity reallocation among three groups. Finally, the decision of entry or exit as well as the market share of firms are influenced by misallocation and industry- and firm-level factors such as Vietnam's WTO entry, tax policy, financial frictions, industrial concentration, technology gap, capital intensity, human capital, scale of firm, time entry and FDI spillovers. The result finds the higher misallocation level is, the lower the probability and market share for a new firm to enter in the industry is.Research limitations/implicationsThe main limitation of the study is that the market is assumed perfectly competitive and the method has only decomposed misallocation of resources to those arising from output and capital distortions. The results of Heckman choice model only clarify on the sub-sample of state-owned enterprises and low technology firms.Originality/valueThe focus of many previous research papers on resource misallocation was generally to look at the level of misallocation in developed countries. However, knowledge about the effect of misallocation and other factors on entry or exit decisions and market share of firms is limited, particularly in the context of developing countries. This paper clarifies the level of misallocation in Vietnamese manufacturing sector and the effect of misallocation and other factors on entry or exit decisions and market share of firms.

Identifying the impact of a design decision on a product's life cycle characteristics is important, but often difficult. Constructing links between these aspects is even more challenging in the early phases of design, since the consequences of the decisions are far away and little is yet known about the product's life cycle. Nevertheless, early design decisions have a high influence on the life cycle characteristics of a product. One early design decision is the selection of product architecture, that is, the fundamental structure and layout of a product. In this paper, we present a method to determine a relative comparison of product architectures based on a model of life cycle costs that can be assessed very early in the design process. The method utilises reliability distributions, relative cost estimates and cost incurrence distributions. We demonstrate our method on a real industrial case study of an energy-producing device. The alternative product architectures of the product are identified to possess very different life cycle characteristics. The relative comparison considers these characteristics and provides valuable information to support the design decision.

Two novel datasets are used to estimate the effect of product standards on firms’ export decisions. The first covers all exporting firms in 42 developing countries. The second covers pesticide standards for 243 agricultural and food products in 80 importing countries over 2006–2012. The analysis shows that product standards affect significantly foreign market access. An increase in the stringency of standards in the destination country, relative to the exporting country, lowers firms’ probability of exporting, deters exporters from entering new markets, and fosters exit from existing markets. Smaller exporters are more affected in their market entry and exit decisions by the relative stringency of destination standards than larger exporters. Networks of other exporters from the same country can help overcome the negative effects of the relative stringency of destination standards on exporter entry and exit.

Asset selection and timing decisions are major investment concerns. To resolve these issues simultaneously, a new class of rainbow trend options is proposed. The diversification effect of rainbow options can reduce the importance of asset selection decisions and trend options can mitigate unfavorable effects on market entry and exit decisions. We consider a general framework to facilitate the derivation of analytic pricing formulas for simple, pure, and Asian rainbow trend options using the martingale pricing method. The properties of these options and their Greeks are analyzed. We also investigate the performance of the dynamic delta hedging strategy for issuers of rainbow trend options. Last, this paper explores the applications of rainbow trend options for hedging price risks, designing executive stock options, modifying countercyclical capital buffer proposed by Basel Committee, and acting as control variates of the Monte Carlo simulation.

The paper estimates the effect of product standards on firms? export decisions using two novel datasets. The first covers all exporting firms in 42 developing countries. The second covers pesticide standards for 243 agricultural and food products in 63 importing countries over 2006?12. The analysis shows that product standards significantly affect foreign market access. More restrictive standards in the importing country, relative to the exporting country, lower firms? probability of exporting as well as their export values and quantities. The relative restrictiveness of standards also deters exporting firms from entering new markets and leads to higher exit rates from those markets. Moreover, firm characteristics mediate the effect of product standards on firms? export decisions. Smaller exporters are more negatively affected in their market entry and exit decisions by the relative stringency of standards than larger exporters. Positive network effects of exporters from the same country may help reduce the burden of importing countries? standards on firms? decisions to enter new markets.

Research Summary This study develops a framework providing guidance in examining when exit decisions might be driven by resource redeployment versus divestment. Exploratory analyses of the global retail sector show patterns largely consistent with conventional explanations of exit through divestment. We also provide the first large‐scale empirical evidence consistent with redeployment motives of exit. In particular, by focusing on the potential for redeployment of fixed assets (i.e., physical stores) across portfolio businesses, results show that market exit is more likely when there are combinations of lower resource adjustment costs, higher external transaction costs, and positive inducements. Under the same conditions, we also document a strong correlation between the number of fixed assets of an exiting business and the growth in fixed assets of its surviving siblings. Managerial Summary It is increasingly recognized that multibusiness firms have flexibility advantages over single‐business rivals, because they have the option to redeploy resources across businesses. This flexibility is purported to inspire quicker exit from markets, even if empirical evidence is lacking. We test this conjecture on 3,082 retail chains across 106 countries and find evidence consistent with this view—each additional related sibling in a country raises the hazard of country exit by 11% relative to retail chains without siblings. Since it is difficult to distinguish whether exit occurs through resource redeployment or divestment, we identify a set of unique determinants for each exit mode. Our theoretical framework and empirical findings help managers reconcile when to exit using internal resource markets versus external markets.

Introduction: Product life cycle refers to all phases of a product from development to active market phase and finally the phase in which products possibly exit the market. The product life cycle of medicines in short supply has not been studied in depth, although there is some indication of mature products and products with lower prices and profit margins being exposed to shortages more often. The aim of this study was to examine the product life cycle phases and characteristics of medicines in short supply as well as the features of medicine shortages in Finland from 2017 to 2019.Material and methods: Register data on medicine shortages of human medicinal products from 2017 to 2019 was combined with timely data on marketing authorizations and reimbursement status to gain data on product life cycle phases and characteristics (e.g., the age and the reimbursement status) of medicines in short supply and the features of medicine shortages. The data were analyzed in descriptive manner using appropriate statistical testing.Results: 3,526 shortages were reported during the 3-year study period and the number of shortages increased annually. The average duration of a shortage was 83 days and shortages affected 660 active pharmaceutical ingredients. Most often, shortages occurred with medicines affecting the nervous system, the cardiovascular system, and the genitourinary system. A majority of shortages (n = 2,689) was reported in the reimbursable medicines group, where shortages increased as the number of patients receiving reimbursements increased (p < 0.001). In the reimbursable medicines group, shortages most commonly involved medicines aged 15–19, 20–24, and 25–29, whereas with both reimbursable and non-reimbursable products the shortages most often occurred in medicines aged 50–54. The frequency of shortages differed between the groups (p < 0.001) when both age and reimbursement status were taken into account.Conclusion: Medicine shortages are common and affect commonly used medicines. Product life cycle phase has an effect on the frequency of shortages: Reimbursable medicines and medicines exposed to changes in life cycle are more likely to face a shortage. The impacts of product life cycle on the availability of medicines and medicine shortages should be studied in more detail.

In this paper I develop a dynamic stochastic general equilibrium model of credit frictions in which the production technology provides a U-shaped average cost curve, enabling endogenous solutions for firm size and quantity. Firms weigh the present value of future net revenues against the opportunity cost of staying in business in their entry or exit decisions. I find that credit frictions increase variable investment costs and result in a larger firm size and a smaller number of firms in the steady state. As the economy deviates from the steady state, however, the presence of credit frictions increases fluctuation in the number of firms, raising market entry during an economic upturn and market exit during a downturn. Also, I find that allowing free entry mitigates some of the effects of credit frictions due to macroeconomic fluctuations. In addition to the homogeneous-firm model, I examine the model when firms have heterogeneous access to credit and find that different credit access gives rise to different firm sizes in the steady state. Firms with easier access to credit become larger than those with less access to credit. Heterogeneous credit access also means that these two types of firms will respond differently to a common technology shock.

What are the energetic forces that induce established firms to enter new product markets? While most previous research has explained the economic profits expected from a new product market as firms' distinctive motivation for market entry, some recent studies also emphasize interfirm competition and benchmarking activities as another important factor that motivates firms' new market entry. To explain the established firms' diverse new product market entry behaviors, this study presents a two‐dimensional scheme of entry motivation in terms of the degrees oftarget market profit focusandcompetitor focus. The first dimension captures the economic motivation of firms' new market entry that ranges from focusing on the direct expected profits from the target market to considering more strategic/indirect benefit incentives. The second dimension captures the degree of firms' external motivation for entry affected by competitors that ranges from independent entry decisions to fully competitor‐oriented entry decisions.Using multiple‐industry survey data, the current study empirically verifies that these two entry motivation dimensions explain a great portion of actual firms' new product market entry behaviors and that they are independent of each other. Subsequently, this study validates that firms' operational size and their environmental factors like perceived technological uncertainty and competitive intensity upon new market entry affect the degrees of the two dimensions of firms' new product market entry motivation. More specifically, large firms less emphasize target‐market profits than small firms, and when perceived technological uncertainty is high, potential market entrants become less target market profit focused but more competitor focused. Under a highly competitive new market condition, firms focus on both target‐market profits and competitors.Based on the analysis of new market entry motivation dimensions, the current study proposes a new typology of established firms' market entry behaviors. The suggested typology represents the four different types of new product market entrants and examines specific characteristics and entry strategies for each type of potential entrants. This entry‐motivation framework should provide a deeper understanding of the backgrounds of entry behaviors and assist firms in developing appropriate entry strategies and in advantageously responding to rival firms' actions with regard to entry.

Aim: The internal market for manufacturers of consumer products companies is often too small in order to grant long-term success. Therefore, companies expand and enter foreign markets. This paper presents a planning process for market penetration for the selected foreign market, which will show the possibility of a withdrawal and shows also whether an exit scenario is planned by manufacturers of consumer products and when companies tend to think about a market exit.Design / Research methods: First, the literature was studied. Based on this, hypothesis were prepared. This was followed by a telephone survey of decision-makers from German manufacturers of the consumer products companies. Conclusions / findings: A planning process for market penetration was developed, which shows next to the market entry also the market exit. Additional this paper shows that manufacturers of consumer products companies can be better prepared for a market exit than companies without an exit strategy, in particular, if the manufacturer sets out relevant economic parameters for the foreign market which determine whether to remain in the market or leave.Originality / value of the article: When analysing literature on planning processes for market entry, it becomes clear that an exit strategy is not planned. This may indicate that the authors did not consider a market exit and/or anticipate this as a worst case in their market entry assumption.Implications of the research: The last market entry of the surveyed companies usually occurred recently. For market exit results to be determined, a further consultation of the companies examined should be undertaken over a longer period of time.

If one associates the scope of logistics with widely understood logistic competition, looking at logistics through the prism of enterprises competition factor and hence the factor which influences the market, one may also easily find the essential role of logistics in methodological approach concerning the shaping of the market and referring to the assumptions of new industrial economics – the approach that stresses the so‑called dynamics in market structures and is connected with market entries and exits (the mobility of market players) as well as with power and domination in the market, problems of appearing and disappearing of the businesses (businesses demography) other than competition between the forms of market coordination. This paper focuses on one of the most fundamental areas of new industrial economics, such as market entries and exits and barriers to them, which may be of logistic type. That is why the purpose of this article is to identify and characterise logistic barriers to market entries and exists. The paper is based on critical analysis, system analysis and hermeneutic methods. If one associates the scope of logistics with widely understood logistic competition, looking at logistics through the prism of enterprises competition factor and hence the factor which influences the market, one may also easily find the essential role of logistics in methodological approach concerning the shaping of the market and referring to the assumptions of new industrial economics – the approach that stresses the so‑called dynamics in market structures and is connected with market entries and exits (the mobility of market players) as well as with power and domination in the market, problems of appearing and disappearing of the businesses (businesses demography) other than competition between the forms of market coordination. This paper focuses on one of the most fundamental areas of new industrial economics, such as market entries and exits and barriers to them, which may be of logistic type. That is why the purpose of this article is to identify and characterise logistic barriers to market entries and exists. The paper is based on critical analysis, system analysis and hermeneutic methods.

The article addresses the dynamics through which product markets become derailed from early product life cycle (PLC)-tracks and engaged in complementary convergence with other product markets or industries. We compare and contrast the theories that can explain, respectively, the PLC and the derailing of this cycle into a process of complementary convergence. The article challenges the standard industry conception and proposes a distinction between the emergent industrial sector, the emergent product market (or niche) and the industry as a more well-established entity. Based on empirical evidence from the IT security sector, two trajectories of complementary convergence are identified, the integration of different product markets in a sectoral context, and higher-end the integration of product markets into the offerings of established industries. While young ventures dominate lower-order integration, incumbents in established industries dominate higher-order integration. For both trajectories mergers and acquisitions represent a central means for realizing convergence. Copyright 2011 The Author 2011. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved., Oxford University Press.