مجله مدیریت مالی چند ملیتی – Journal of Multinational Financial Management

In conventional sense, the offering of service is deemed to consume resources and capital while product offering is a firm’s source of revenue; that’s why services have long been thought as a burden on manufacturers since they have to provide certain services (such as after-sale services) so to maintain steady revenue from their product offerings. With the subprime crisis in 2008 devouring a substantial number of manufacturers, firms home and abroad have been trying new ways to survive the critical moment. Servitization is among the strategies that firms employ when they abandon the tradition to focus only on tangible products and turn to service offerings for vitality.

For a manufacturing firm, servitization can at least bring the following three benefits: (1) due to the unduplicated feature of services, a firm can enhance customer satisfaction and loyalty through offering of unique and unparalleled services, thus strengthening the firm’s competitiveness; (2) a firm’s revenue can be increased through services provided with long accumulated professional knowledge; this is a typical case where knowledge is transformed to economic benefits as knowledge-based service offerings promotes the product selling and ultimately boost the development of the firm; (3) in reality, resources are always limited with fluctuating prices, while servitization can reduce a firm’s dependency on resources so to minimize the impact of resource price volatility on the firm’s profitability; by adding services into the portfolio, the firm no longer depend only on products as its source of profit through “moving its eggs into different baskets”. As to the society, on one hand, employment can be increased through growing investment in human resources with the progress of servitization; on the other hand, by integrating resources and increasing efficiency in energy consumption, servitization can realize conservation of resources, and the negative influence of economic growth on environment can also be minimized.

It can be seen that the transformation of manufacturing firms towards servitization is more than an innovation of business model but also a worldwide transition of economic pattern. This trend is caused by the imperative demand of firms to enhance and maintain competiveness while adapting to new market environment. However, many manufacturers, unfortunately, are not reaping expected returns when stepping into servitization. Based on annual reports of listed companies in Zhejiang, China, this paper investigates the paradox that manufacturers encounter on the path to servitization.