IDEAS home Printed from https://ideas.repec.org/a/bla/jemstr/v26y2017i4p820-841.html
   My bibliography  Save this article

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

Author

Listed:
  • Matthieu Crozet
  • Emmanuel Milet

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.

Suggested Citation

  • Matthieu Crozet & Emmanuel Milet, 2017. "Should everybody be in services? The effect of servitization on manufacturing firm performance," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(4), pages 820-841, December.
  • Handle: RePEc:bla:jemstr:v:26:y:2017:i:4:p:820-841
    DOI: 10.1111/jems.12211
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jems.12211
    Download Restriction: no

    File URL: https://libkey.io/10.1111/jems.12211?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Victor R. Fuchs, 1968. "Some Implications of the Growth of a Service Economy," NBER Chapters, in: The Service Economy, pages 183-199, National Bureau of Economic Research, Inc.
    2. L. Rachel Ngai & Christopher A. Pissarides, 2007. "Structural Change in a Multisector Model of Growth," American Economic Review, American Economic Association, vol. 97(1), pages 429-443, March.
    3. Magnus Lodefalk, 2013. "Servicification of manufacturing - evidence from Sweden," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 6(1), pages 87-113.
    4. Xiaolan Fu, 2012. "Foreign Direct Investment and Managerial Knowledge Spillovers through the Diffusion of Management Practices," Journal of Management Studies, Wiley Blackwell, vol. 49(5), pages 970-999, July.
    5. Fernando F. Suarez & Michael A. Cusumano & Steven J. Kahl, 2013. "Services and the Business Models of Product Firms: An Empirical Analysis of the Software Industry," Management Science, INFORMS, vol. 59(2), pages 420-435, November.
    6. Vandermerwe, Sandra & Rada, Juan, 1988. "Servitization of business: Adding value by adding services," European Management Journal, Elsevier, vol. 6(4), pages 314-324, December.
    7. David J. TEECE, 2008. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," World Scientific Book Chapters, in: The Transfer And Licensing Of Know-How And Intellectual Property Understanding the Multinational Enterprise in the Modern World, chapter 5, pages 67-87, World Scientific Publishing Co. Pte. Ltd..
    8. Daron Acemoglu & Veronica Guerrieri, 2008. "Capital Deepening and Nonbalanced Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 467-498, June.
    9. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    10. Andrew B. Bernard & Teresa C. Fort, 2013. "Factoryless Goods Producers in the US," NBER Working Papers 19396, National Bureau of Economic Research, Inc.
    11. Bart van Ark & Erik Monnikhof & Nanno Mulder, 1999. "Productivity in services: an international comparative perspective," Canadian Journal of Economics, Canadian Economics Association, vol. 32(2), pages 471-499, April.
    12. Holger Breinlich & Anson Soderbery & Greg C. Wright, 2018. "From Selling Goods to Selling Services: Firm Responses to Trade Liberalization," American Economic Journal: Economic Policy, American Economic Association, vol. 10(4), pages 79-108, November.
    13. Mol, Michael J. & Birkinshaw, Julian, 2009. "The sources of management innovation: When firms introduce new management practices," Journal of Business Research, Elsevier, vol. 62(12), pages 1269-1280, December.
    14. Lodefalk, Magnus, 2017. "Servicification of Firms and Trade Policy Implications," World Trade Review, Cambridge University Press, vol. 16(1), pages 59-83, January.
    15. Matthieu Crozet & Emmanuel Milet, 2014. "The Servitization of French Manufacturing Firms," Working Papers 2014-10, CEPII research center.
    16. Dirk Pilat & Agnès Cimper & Karsten Bjerring Olsen & Colin Webb, 2006. "The Changing Nature of Manufacturing in OECD Economies," OECD Science, Technology and Industry Working Papers 2006/9, OECD Publishing.
    17. Wolfgang Ulaga & Andreas Eggert & Jens Hogreve & Eva Muenkhoff, 2011. "Industrial services, product innovations, and firm profitability: A multiple-group latent growth curve analysis," Post-Print hal-00632809, HAL.
    18. Bill McEvily & Akbar Zaheer, 1999. "Bridging ties: a source of firm heterogeneity in competitive capabilities," Strategic Management Journal, Wiley Blackwell, vol. 20(12), pages 1133-1156, December.
    19. Victor R. Fuchs, 1968. "The Service Economy," NBER Books, National Bureau of Economic Research, Inc, number fuch68-1, September.
    20. Gebauer, Heiko & Gustafsson, Anders & Witell, Lars, 2011. "Competitive advantage through service differentiation by manufacturing companies," Journal of Business Research, Elsevier, vol. 64(12), pages 1270-1280.
    21. Eugene W. Anderson & Claes Fornell & Roland T. Rust, 1997. "Customer Satisfaction, Productivity, and Profitability: Differences Between Goods and Services," Marketing Science, INFORMS, vol. 16(2), pages 129-145.
    22. Michael A. Cusumano & Steven J. Kahl & Fernando F. Suarez, 2015. "Services, industry evolution, and the competitive strategies of product firms," Strategic Management Journal, Wiley Blackwell, vol. 36(4), pages 559-575, April.
    23. Gebauer, Heiko & Fleisch, Elgar & Friedli, Thomas, 2005. "Overcoming the Service Paradox in Manufacturing Companies," European Management Journal, Elsevier, vol. 23(1), pages 14-26, February.
    24. Valérie Mathieu, 2001. "Service strategies within the manufacturing sector: benefits, costs and partnership," Post-Print hal-01796269, HAL.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhou, Dan & Yan, Tingting & Zhao, Lilong & Guo, Jingjing, 2020. "Performance implications of servitization: Does a Manufacturer's service supply network matter?," International Journal of Production Economics, Elsevier, vol. 219(C), pages 31-42.
    2. Andrea Tenucci & Enrico Supino, 2020. "Exploring the relationship between product-service system and profitability," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 24(3), pages 563-585, September.
    3. Matthieu Crozet & Emmanuel Milet, 2014. "The Servitization of French Manufacturing Firms," Working Papers 2014-10, CEPII research center.
    4. Lütjen, Heiner & Tietze, Frank & Schultz, Carsten, 2017. "Service transitions of product-centric firms: An explorative study of service transition stages and barriers in Germany's energy market," International Journal of Production Economics, Elsevier, vol. 192(C), pages 106-119.
    5. Herrendorf, Berthold & Rogerson, Richard & Valentinyi, Ákos, 2014. "Growth and Structural Transformation," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 855-941, Elsevier.
    6. L. Rachel Ngai & Barbara Petrongolo, 2017. "Gender Gaps and the Rise of the Service Economy," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(4), pages 1-44, October.
    7. Iscan Talan, 2010. "How Much Can Engel's Law and Baumol's Disease Explain the Rise of Service Employment in the United States?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-43, September.
    8. Lee, Sunghee & Yoo, Shijin & Kim, Daeki, 2016. "When is servitization a profitable competitive strategy?," International Journal of Production Economics, Elsevier, vol. 173(C), pages 43-53.
    9. Myungjin Hyun & Jieun Kim, 2021. "Challenge or opportunity? A case of tire rental servitization from financial and channel perspectives," Service Business, Springer;Pan-Pacific Business Association, vol. 15(1), pages 1-17, March.
    10. Fedderke, Johannes W., 2018. "Exploring unbalanced growth: Understanding the sectoral structure of the South African economy," Economic Modelling, Elsevier, vol. 72(C), pages 177-189.
    11. Cenamor, J. & Rönnberg Sjödin, D. & Parida, V., 2017. "Adopting a platform approach in servitization: Leveraging the value of digitalization," International Journal of Production Economics, Elsevier, vol. 192(C), pages 54-65.
    12. Datta, Partha Priya, 2020. "Hidden costs in different stages of advanced services – A multi-actor perspective of performance based contracts," Journal of Business Research, Elsevier, vol. 121(C), pages 667-685.
    13. Alessandro Augurio & Laura Castaldi & Felice Addeo, 2018. "Servitization in managerial literature: A content analysis," MERCATI E COMPETITIVIT, FrancoAngeli Editore, vol. 2018(2), pages 131-160.
    14. Sophie BOUTILLIER & Blandine LAPERCHE & Fabienne PICARD, 2013. "L’économie de la fonctionnalité : perspective historique et illustration empirique [The economy of functionality: historical perspective and empirical illustration]," Working Papers 35, Réseau de Recherche sur l’Innovation. / Research Network on Innovation.
    15. Yan, Kaining & Li, Gang & Cheng, T.C.E., 2020. "The impact of service-oriented organizational design factors on firm performance: The moderating role of service-oriented corporate culture," International Journal of Production Economics, Elsevier, vol. 228(C).
    16. Gebauer, Heiko & Saul, Caroline, 2014. "Eine bibliometrische Analyse des Forschungsstandes und der zukünftigen Forschungsfragen für die Transformation vom Produzenten zum Dienstleister," Die Unternehmung - Swiss Journal of Business Research and Practice, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 68(4), pages 229-249.
    17. Dachs, Bernhard & Biege, Sabine & Borowiecki, Marcin & Lay, Gunther & Jäger, Angela & Schartinger, Doris, 2012. "The Servitization of European Manufacturing Industries," MPRA Paper 38873, University Library of Munich, Germany.
    18. Ariu, Andrea & Breinlich, Holger & Corcos, Gregory & Mion, Giordano, 2019. "The interconnections between services and goods trade at the firm-level," Journal of International Economics, Elsevier, vol. 116(C), pages 173-188.
    19. Holger Breinlich & Anson Soderbery & Greg C. Wright, 2018. "From Selling Goods to Selling Services: Firm Responses to Trade Liberalization," American Economic Journal: Economic Policy, American Economic Association, vol. 10(4), pages 79-108, November.
    20. Chun, Hyunbae & Hur, Jung & Son, Nyeong Seon, 2021. "Global value chains and servicification of manufacturing: Evidence from firm-level data," Japan and the World Economy, Elsevier, vol. 58(C).

    More about this item

    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jemstr:v:26:y:2017:i:4:p:820-841. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.kellogg.northwestern.edu/research/journals/JEMS/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.kellogg.northwestern.edu/research/journals/JEMS/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.