INDUSTRIES IN CENTRAL AND EASTERN EUROPE ARE MAKING STRIDES TOWARD SERVITIZATION

This paper is intended to examine, without empirical evidence, the way industries in Central and Eastern Europe are heading toward convergence of knowledge-intensive sectors. Emboldened by European Union’s commitment to become the world’s most competitive entity, industries in the new member countries are phasing out low skilled labor-intensive activities such as subcontracting of final assembly, concomitantly trying to integrate skilled labor-intensive inputs in production. Following a powerful trend that is manifest in global manufacturing, firms in the region are endeavoring to enhance the value of their offerings by providing knowledge-intensive services in addition to physical products. Like in the case of trade in intermediate inputs, the producer service business is extending toward economies in Central and Eastern Europe mostly via East-West trade, outsourcing being the chief conveyance vehicle. However, unlike intermediate inputs, knowledge-intensive services are dependent to a lesser degree on foreign investment in physical capital but rather on host-countries’ self-induced technological and educational progress.