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

Matthieu Daniel CROZET, Emmanuel MILET

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

26 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)820-841
Number of pages22
JournalJournal of Economics and Management Strategy
Volume26
Issue number4
Early online date2 May 2017
DOIs
Publication statusPublished - Nov 2017
Externally publishedYes

Fingerprint

Sales
Industry
Profitability
Service economy
Firm performance
Manufacturing firms
Substitute
Small business
Endogeneity bias
Manufacturing sector
Manufacturing industries

Bibliographical note

This article also published as Crozet, M., and Milet, E. (2015). Should everybody be in services? The effect of servitization on manufacturing firm performance. CEPII Working Paper, (2015-19). France: CEPII. Retrieved from http://www.cepii.fr/PDF_PUB/wp/2015/wp2015-19.pdf

Keywords

  • Deindustrialisation
  • Firm performance.
  • Servitization

Cite this

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title = "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.",
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Should everybody be in services? The effect of servitization on manufacturing firm performance. / CROZET, Matthieu Daniel; MILET, Emmanuel.

In: Journal of Economics and Management Strategy, Vol. 26, No. 4, 11.2017, p. 820-841.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

TY - JOUR

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AB - 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.

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