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.”

Citation

Zhang, J., Sun, X., Dong, Y., Fu, L. and Zhang, Y. (2023), "The impact of servitization on manufacturing firms’ market power: empirical evidence from China", Journal of Business & Industrial Marketing, Vol. 38 No. 3, pp. 609-621. https://doi.org/10.1108/JBIM-06-2021-0279