Should everybody be in services? The effect of servitization on manufacturing firm performance

Abstract

The servitization of the manufacturing sector refers to the evolution of manufacturers' capabilities to offer services as complements to or substitutes for the goods that they produce. A vast literature has described these strategies and has shown that this phenomenon is widespread and growing in most developed economies. However, very little systematic evidence of the extent or consequences of servitization based on a comprehensive data set of firms exists. In this paper, we provide such evidence using exhaustive data for French manufacturing firms between 1997 and 2007. We find that the vast majority of French manufacturers sell services in addition to producing goods. The shift toward services is growing steadily but at a slow pace. We also estimate the impact of servitization on firm performance. Controlling for various sources of endogeneity bias, our most conservative results show that firms that start selling services increase their profitability by 0.4%, their employment by 2.1%, and their total sales by 0.6%. For small businesses, we also find a positive impact on the production of goods. We also uncover strong heterogeneity across manufacturing industries.

Uncovering Productivity Gains of Digital and Green Servitization: Implications from the Automotive Industry

“…An important finding of this study is the relevance of digital servitization for firm productivity, confirming Hypothesis 1. This result can be ascribed mainly to the technological attributes of digital services, which enable better coordination of operations [14,16,17], driving firm performance and competitiveness [23][24][25][26][27]; and to the nature of the automotive industry, which is characterized by high investment in R&D and high technological sophistication [8,67,78].…”

“…Such benefits are directly associated with the technological attributes of digitalization [15,18,65,69,71], which enable companies to identify and virtualize assets, facilitating allocation of resources [73], reducing development costs [72], decreasing planning times [13,65] and shortening time to market [14]. All of the above result in higher operating margins [23][24][25], while implementation of digital servitization gives companies sophisticated mechanisms to exploit value from data [62,63,69,71], facilitating and streamlining decision-making processes to respond to internal and external contingencies in a timely and effective manner [15,17]. Thus, digital servitization enables faster response to customer demands [14,18,65,67] and improves the quality of service provision [16,69], increasing the firm's performance and competitiveness [26,27].…”

Territorial servitization: Exploring the virtuous circle connecting knowledge-intensive services and new manufacturing businesses

“…Vandermerwe & Rada (1989) dubbed this business model servitization, while Barnett et al (2013) defined servitization as the process of seeking additional value through taking services propositions to the market. Recent figures indicate that, globally, more than a third of large manufacturing businesses offer services, while this rate increases to over 60% in western economies (Neely, 2008;Crozet & Milet, 2015).…”

Using Input–Output Analysis Framework to Explain Economic Diversification and Structural Transformation in Bangladesh

“…Therefore, we can witness some of these changing patterns in economic development within a relatively short time (10 to 15 years). To compound measurement problems, not only are services making up a larger share of gross domestic product (GDP) in all stages of development, but their growth is intrinsically linked to manufacturing (the so-called "servitization" of economies as discussed by Crozet and Milet 2015).…”

“…It could then end its dependence on RMG in particular, and on manufacturing in general, and establish its own forward and backward linkages with other sectors-including the external sector. Increasingly, many sophisticated services cater to high-end manufacturing (Crozet and Milet 2015). Moreover, the country could establish new services to support exports directly and indirectly, and develop a revealed comparative advantage in certain portions of a global value chain but without directly exporting a product (as measured by the NRCA).…”