FIGURE 4.16 In India, the Share of Servitized Manufacturing Firms and Their Service Intensity Have Both Roughly Tripled Share of manufacturers that sell services and the share of services in their total revenue, India, 1994–2013
Share of servitized manufacturing firms (%)
60
20
50 15
40 30
10
20 5 10 0
Share of services in total revenue (%)
25
70
0 1994
1996
1998
2000
2002
2004
Share of servitized firms (left scale)
2006
2008
2010
2012
Service intensity (right scale)
Source: Grover and Mattoo 2021. Note: “Servitized” firms are those manufacturers that also sell services. “Service intensity” is the share of total revenue attributable to the sale of services.
What Explains the Bundling of Manufactured Goods and Services The growing complementarity between manufactured goods and services described above is attributable to both supply- and demand-related factors (Grover and Mattoo 2021). The supply side relates to economies of scope in production. For example, a cell phone is a good, but it is tied to the use of telecommunications services, which allow the user to install apps with purchased content that can give rise to additional transactions such as audiovisual services (streaming movies or music), publishing (e-books), or computer services (video games). Apple’s combination of iTunes with the iPod provides a relevant example whereby the company profited from pairing a music device with a service that allowed consumers to buy music instantly and remotely (Amit and Zott 2012). Amazon’s Echo—a music player that comes with an artificial intelligence (AI)enabled digital assistant, “Alexa”—provides a more recent example. The embedded voice recognition technology, which enables the digital assistant to accomplish tasks such as creating a reminder for a certain activity or estimating the length of a commute, has improved the Echo speaker’s profitability (Son and Oh 2018). ICT services and professional, scientific, and technical services are therefore increasingly complementary to the manufacture of computing machinery. The demand-side explanation for this bundling of goods and services relates to consumer preferences that can enable a firm to differentiate its product from those of Look Before You Leap: Services Before Manufacturing?
211
