The impact of servitization on manufacturing firms’ market power: empirical evidence from China

Abstract

Purpose Servitization has been used widely by manufacturing firms to secure strategic positions in industrial transformation. However, its impact on firms’ market power remains to be investigated, especially in developing countries. This study aims to investigate servitization’s impact on firms’ market power, along with the moderating roles of research and development (R&D) intensity and firm size. Design/methodology/approach Using the two-stage least squares with instrumental variables (2SLS-IV) method, the authors conduct an empirical analysis of servitization in China based on panel data for 1,797 publicly traded manufacturing firms during the period 2012–2018. Findings The findings show that servitization helps increase a firm’s market power. Furthermore, heterogeneity analysis suggests that embedded servitization increases a firm’s market power, whereas hybrid servitization reduces it. The findings also indicate that this effect varies depending on critical firm conditions. Servitization’s effect on firms’ market power increases with R&D intensity but decreases with manufacturer expansion. Research limitations/implications This study describes the positive effects of servitization on firms’ market power in response to calls for research that will adopt a comprehensive business performance perspective on the servitization field. Practical implications The findings provide guidance for what type of servitization manufacturing firms should choose and how it fits with their size and R&D capabilities. Originality/value This pioneering empirical study uses a large longitudinal data set and the 2SLS-IV method to examine the effects of embedded servitization and hybrid servitization on firms’ market power. The findings provide a new perspective on ongoing discussions of “desertification” and the “service paradox.”

Servitization in cross-border relationships: investigating the effects of global supply chain dependence on the servitization level of the manufacturers

“…To quantify the extent of servitization, we use the Compustat Historical Segments database to obtain annual sales for various operating segments, with a focus on product-related service segments such as maintenance, logistics, testing and repair services. We exclude other pure service segments such as “ Hotel Operations ,” “ Food Services ,” “ Office Building Rental ,” “ Accommodations ,” and “ Outdoor Recreation .” The total sales of product-related services are summed, and a service ratio is computed for each firm-year pair (Zhang et al ., 2022) to capture the integration of relevant services with products, which is at the core of the servitization concept (Cusumano et al ., 2015) [1].…”

“…The third stream focuses on how servitization transforms the way firms are positioned in the supply chain. Essentially, power shifting in the service contracts drives the repositioning (Zhang et al ., 2022). Servitization posits a manufacturer in the ecosystem from upstream to downstream (Huikkola et al ., 2020).…”

“…On the other hand, they are more likely to be regulation makers and first-movers. They can easily safeguard their relative power in the markets and influence other firms in the same industry to follow their service expansion (Shah et al ., 2020; Zhang et al ., 2022).…”

The more the better? Service transition for shaping sustainable development in manufacturing firms and the role of top management team attributes

“…According to RBV, the benefits of product‐unrelated service transition for SP are evident in that firms can increase their efficiency and reduce costs by getting access to unique resources not available to the internal product business. For example, firms can develop expertise in new technologies and markets by providing knowledge and technologies that go beyond those supporting core products, thereby providing valuable solutions to sustainability issues (Zhang, Sun, et al, 2023 ). Product‐unrelated services, such as financial and public relations services, enable manufacturers to acquire diversified and customized information as a source of new thoughts to achieve green goals and engage in social innovation (Visnjic et al, 2019 ).…”

“…Therefore, some studies suggest that service transition aligns more closely with the essence of sustainable development compared to product‐based business models (Tukker, 2015 ). This potential also drives a growing argument that service transition holds promise as a responsible and inclusive business strategy for pursuing sustainable development (Kjaer et al, 2019 ; Zhang, Sun, et al, 2023 ).…”