From manufacturing to services: perfecting the mix

Trade Pacts experts are regularly invited to submit academic papers and contribute to international publications. Our team has had research published in some of the world’s most revered academic journals and editorial collections. My most recent contribution, an exciting collaboration with editors Krista Nadakavukaren-Schefer and Thomas Cottier, will be used for a Chapter on Linking Goods and Service (Global Value Chains Section), in The Encyclopaedia of International Economic Law. Published by Edward Elgar Publishing, the Encyclopaedia is a collection of studies by some of the world’s foremost trade law experts and economists – and a must-read for professionals in the field. Get your copy when it becomes available in June this year!

My editorial reviews the evolution of servicification. What sounds like another convoluted marketing description, is, in layman terms, the consolidation of value-adding services into the manufacturing environment. The term is by no means new. While some customer-pleasing aspects of servicification were probably used from the 1760s, during the industrial revolution, manufacturers formally recognised in the early 70s that the integration of services into their business models was vital to up productivity and international reach.

Servicification transformed significantly over the last four decades. What was predominantly an after-sales and product advisory service offered to customers, is now applied at various stages of the global value chain (GVC). These services are sourced both internally and externally, for manufacturing and design (The Internet of Things, for example), in the delivery phase, or to enhance client-customer relationships post-sales as described.

Today, these value-adding services are wide-ranging and sophisticated. A manufacturer’s service departments may include those for maintenance, research and development, and supply chain functions (logistics and transportation, storage, and so on). Servicification is also frequently aligned to technologies, incorporated into the exported goods themselves. Developments in RFID technology and GPS monitoring, in the trade of electronic goods and automobiles for example, and updatable software for mobile communication devices, have helped manufacturers in already-developed economies climb the global value chain.

Perfecting the mix, advancing trade

Unlike Fordism and similar manufacturing models, the impact of servicification on the manufacturing sector and greater trade is hard to measure. Success varies according to product and service types, but, certain benefits are clear. As well as bolstering trade of both goods and services, manufacturing firms are believed to benefit considerably from an international presence and consequently save on international trade costs.

As described in my contribution to The Encyclopaedia of International Economic Law, governments need to do more to stimulate manufacturers’ trade in services by introducing a balanced mix of policies that would allow for such. The current situation is far from ideal and can discourage manufacturers to service.

Current challenges and limitations include localisation requirements of governments, investment and labour challenges, underinvestment in training and education, and various other government barriers; including inadequate infrastructure (of transport and communications), and service backlogs.

I don’t propose that the servicification wheel is reinvented or that the GVC be turned on its head. But, a little fine tuning to existing legislation could see individual manufacturers and the trade aggregate benefit enormously.

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