There is always this blurry line between manufacturing and services. It is very difficult to define and seperate the two especially in today’s times.
Industrial classifications tend to depict the economy as a collection of separate sectors, and arbitrary lines are consequently drawn between these sectors. This column argues that this way of thinking ignores the complexity of production processes and management strategies, creating a divide between ‘manufacturing’ and ‘services’ which is stronger than it should be. In fact, manufacturing firms often produce and sell services to third parties – known as ‘servitisation’. Economic policies that fail to take into account the dual aspect of the activities of manufacturing firms may prove inadequate.
A simple look at the data reveals two important facts. First, a vast majority of French manufacturing firms produces and sells services to third parties. Second, this trend is steadily (although slowly) growing over time and reflects a deep transformation of the manufacturing sector, which affects firms’ performance and ultimately their competitiveness.
Figure 1 shows two measures of the extent and evolution of servitisation. In panel (a), we look at the share of ‘servitised’ firms, i.e. firms reporting selling services to third parties, in the manufacturing sector. In 2007, 77% of manufacturing firms were servitised. This share varies by sector, ranging from 60% in the food, beverage and tobacco industry to 90% in transport equipment industry. Servitised firms tend to be larger on average than firms exclusively specialized in the production of goods. In 2007, servitised firms accounted for 92% and 91% of total manufacturing value added and employment respectively. We also observe that the share of servitised firms grew slowly over the period, increasing by one percentage point over the decade for the whole manufacturing sector. In panel (b), we consider the share of services of total industry output. In 2007, services accounted for 11% of the total manufacturing sales. There is much more variation across industries in the importance of services for total sales. In 2007, 4% of the total sales of the food, beverage and tobacco industry were made up by services, while they make up to 17% of the total sales of the machinery, electrical and optical equipment industry.
Overall, the share of services of total production grew by 1.6 percentage points over the decade (1.5% annual growth rate). It actually declined in the wood, paper and printing industry (at an average rate of -4% per year) while it grew substantially in the food, beverage and tobacco industry (+4.3% per year), or in the chemical and plastics industry (+2.9% per year).