Servitization in Europe

Advanced economies are characterized by high wages, high skills and high disposable income. Business models that focus on the exploitation of economies of scale thus became obsolete for European manufacturers at the turn of the twenty-first century. Product and service firms have conventionally been thought of as largely independent entities. Evidence suggests, however, that potential synergies between products and services could ultimately enhance consumer satisfaction. The business strategy of bundling products and services in manufacturing sectors is known as the servitization of manufacturing. Manufacturing drives servitization for relatively poor countries, but has the opposite effect once countries reach a certain income threshold. One explanation for this result is that the richest countries are less dependent on the manufacturing-installed base to deploy service business models. The horizontal and vertical axes show the Digital Economy and Society Index values and manufacturing value added as percentages of gross domestic product, respectively.