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

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  • Matthieu Crozet
  • Emmanuel Milet

Abstract

The servitization of the manufacturing sector refers to the evolution of manufacturers' capabilities to offer services as a complement to or a substitute 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 dataset 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 provide evidence of a causal impact of servitization on firm performance. Controlling for various sources of endogeneity bias, we find that firms that start selling services experience an increase in their profitability between 3.7% and 5.3%, increase their employment by 30%, increase their total sales by 3.7%, and increase their sales of goods by 3.6%. The results hold for most industries, although some heterogeneity exists.

Suggested Citation

  • Matthieu Crozet & Emmanuel Milet, 2015. "Should everybody be in services? The effect of servitization on manufacturing firm performance," Working Papers 2015-19, CEPII research center.
  • Handle: RePEc:cii:cepidt:2015-19
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    References listed on IDEAS

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    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.
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    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.
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    11. Breinlich, Holger & Soderbery, Anson & Wright, Greg C., 2014. "From selling goods to selling services: firm responses to trade liberalization," LSE Research Online Documents on Economics 60523, London School of Economics and Political Science, LSE Library.
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    14. Matthieu Crozet & Emmanuel Milet, 2014. "The Servitization of French Manufacturing Firms," Working Papers 2014-10, CEPII research center.
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    Cited by:

    1. Catherine Fuss & Pierre Blanchard & Claude Mathieu, 2017. "Why do manufacturing firms produce services? Evidence for the servitization paradox in Belgium," Working Paper Research 330, National Bank of Belgium.
    2. Andrea Ariu & Holger Breinlich & Gregory Corcos & Giordano Mion, 2017. "The interconnections between services and goods trade at the firm-level," Working Paper Research 329, National Bank of Belgium.
    3. Fiorini, Matteo & Hoekman, Bernard & Malgouyres, Clément, 2016. "Services Policy Reform and Manufacturing Employment: Evidence from Transition Economies," CEPR Discussion Papers 11694, C.E.P.R. Discussion Papers.
    4. Omar Bamieh & Matteo Fiorini & Bernard Hoekman and Adam Jakubik, 2017. "Services Input Intensity and US Manufacturing Employment. Responses to the China Shock," RSCAS Working Papers 2017/39, European University Institute.
    5. repec:cuf:journl:y:2017:v:18:i:2:liu is not listed on IDEAS
    6. repec:eee:proeco:v:192:y:2017:i:c:p:19-28 is not listed on IDEAS
    7. Andrea Ariu & Florian Mayneris & Mathieu Parenti, 2016. "Providing Services to Boost Goods Exports: Theory and Evidence," Working Papers ECARES ECARES 2016-43, ULB -- Universite Libre de Bruxelles.

    More about this item

    Keywords

    Servitization; Deindustrialisation; Firm performance;

    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

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