Exploring the financial consequences of the servitization of manufacturing

Commentators suggest that to survive in developed economies manufacturing firmshave to move up the value chain, innovating and creating ever more sophisticatedproducts and services, so they do not have to compete on the basis of cost.While this strategy is proving increasingly popular with policy makers andacademics there is limited empirical evidence to explore the extent to which itis being adopted in practice. And if so, what the impact of this servitizationof manufacturing might be. This paper seeks to fill a gap in the literature bypresenting empirical evidence on the range and extent of servitization. Data aredrawn from the OSIRIS database on 10,028 firms incorporated in 25 differentcountries. The paper presents an analysis of these data which suggests that: [i]manufacturing firms in developed economies are adopting a range of servitizationstrategies—12 separate approaches to servitization are identified; [ii] these 12categories can be used to extend the traditional three options forservitization—product oriented Product–Service Systems, use orientedProduct–Service Systems and result oriented Product–Service Systems, by addingtwo new categories “integration oriented Product–Service Systems” and “serviceoriented Product–Service Systems”; [iii] while the manufacturing firms that haveservitized are larger than traditional manufacturing firms in terms of salesrevenues, at the aggregate level they also generate lower profits as a % ofsales; [iv] these findings are moderated by firm size (measured in terms ofnumbers of employees). In smaller firms servitization appears to pay off whilein larger firms it proves more problematic; and [v] there are some hidden risksassociated with servitization—the sample contains a greater proportion ofbankrupt servitized firms