The Servitization of European Manufacturing Industries

This paper provides new evidence for the servitization of European manufacturing – the trend that manufacturing firms increasingly offer services along with their physical products. We employ input-output data as well as data from a company survey to give a comprehensive picture of servitization across countries and industries. The share of services in the output of manufacturing industries increased in the large majority of European countries between 1995 and 2005 and between 2000 and 2005. Service output of manu-facturing, however, is still small compared to the output of physical products. The highest service shares are found in small countries with a high degree of openness and R&D intensity. EU-12 Member States have lower shares of service output compared to the EU-15. There is a strong link between servitization and technological innovation at different levels. Countries with the highest shares of services on manufacturing output have also the highest R&D intensities at the aggregate level. The service output of these countries consists predominantly of knowledge-intensive services. Highly innovative sectors reveal also the highest share of firms that offer services and the highest turnover generated with services. Examples are electrical and optical equipment, machinery, or the chemical and pharmaceutical industry. At the firm level, we find a U-shaped relationship between firm size and service output, which indicates that small, but also large manufacturing firms have advantages in servitization. Producers of complex, customized products tend to have a higher share of services in output than producers of simple, mass-produced goods. Moreover, firms which have launched products new to the market during the last two years are more likely to realize higher shares of turnover from services compared to companies which launched no products new to the market.