Why Do Manufacturing Firms Sell Services? Evidence from India
Manufacturers in India are increasingly selling services—a phenomenon referred to as servitization. Both the proportion of manufacturers selling services and the share of services in total revenue of manufacturers increased threefold between 1994 a...
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| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/en/687351624023153525/Why-Do-Manufacturing-Firms-Sell-Services-Evidence-from-India http://hdl.handle.net/10986/35821 |
| Summary: | Manufacturers in India are increasingly
selling services—a phenomenon referred to as servitization.
Both the proportion of manufacturers selling services and
the share of services in total revenue of manufacturers
increased threefold between 1994 and 2013. More productive
manufacturers and those more exposed to import competition
are more likely to sell services and to obtain a higher
share of their revenue from services. A 10 percent increase
in servitization is associated with 2.6 percent increase in
manufacturing revenue. However, servitizing firms suffer a
greater contraction in manufacturing revenue with increased
import competition. This evidence suggests that
servitization is not a successful defensive strategy to
maintain manufacturing sales in the face of import
competition, and it is more likely to be an exit strategy to
flee import competition. Corroborative results indicate that
past services sales are positively associated with the
introduction of new services products and eventually a
switch out of manufacturing and into services as the primary
activity. Thus, servitization appears to be an aspect of
“premature deindustrialization” in India, driven by the
inability of manufacturers to cope with import competition,
rather than structural transformation associated with a
maturing manufacturing sector. |
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