An empirical study of servitization paradox in China

There is a paradox experienced by manufacturing firms attempting to servitize that their substantial investment in adding services to the existing product portfolio does not bring expected higher returns. The purposes of this paper are to gain more understanding as to the servitization status in Zhejiang Province of China and the influence of servitization on business performance of manufacturers. We conduct a regression analysis based on 134 listed manufacturing firms in 12 sectors in Zhejiang Province of China in 2012. Our results show that there is a significant positive relationship between servitization and business performance for manufacturing firms in Zhejiang; a U-shape relationship between servitization and profit per capita of firms is identified. In addition, the strategy of servitization is more suitable for larger firms and the effect of servitization in boosting business performance becomes more prominent once servitization has grown beyond certain threshold.