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Companies that integrate goods and services in their offerings are more likely to be exporters and more likely to endure

According to a report by the Exporters' Club
Antonio Bonet, presidente del Club de Exportadores e Inversores Españoles

 -   Antonio Bonet, President of the Spanish Exporters and Investors Club

The Spanish Exporters and Investors Club, through its Committee for Reflection on Internationalisation, which brings together experts from the world of business and academia and former senior government officials, has published a report in which it highlights that the percentage of exporting companies with revenue from sales of services is significantly higher than that of pure manufacturing companies. While the former account for more than 80%, the latter represent 65%. This result, moreover, is repeated in all company size groups.

The study, published as a technical note by University of Castilla-La Mancha professors Rosario Gandoy and Carmen Díaz-Mora, and entitled "Servicification of manufacturing and exports", highlights that manufacturing companies that offer goods and services together are more inclined to internationalise their activity, with a higher probability of being exporters, and are less likely to abandon foreign activity.

The study also observes that these traits are more evident in SMEs, "presumably because the servicification strategy allows them to increase customer loyalty, especially in more competitive and uncertain contexts such as foreign markets", the authors explain.

The servicification or tertiarisation of manufacturing is understood as the growing presence of services in industrial production. This is an element that has become essential for their competitiveness and is partly a consequence of the growing internationalisation of production through global value chains (GVCs) that require a high availability of services for their proper functioning.

"When a production process crosses multiple borders, it is essential to have high quality services in transport, logistics, communications, quality control and management, among others, that minimise the costs caused by the dispersion of activity and ensure that there are no interruptions in production chains," say the professors.

The report reveals that the servicification associated with value chains is compounded by the offshoring of production to low-wage economies, confining high value-added activities such as design, technology, quality control, brand management, marketing, advertising, financing and distribution to advanced economies.

However, the development of digital technologies has led to a new path, the so-called servitisation, the "newest and most radical". This new path adds the provision of services to the traditional supply of goods, which adds new functionalities to the goods to meet specific customer needs. There is therefore a change in the business model, offering integrated solutions that incorporate goods, services, support and/or knowledge to the products. Currently, almost half of the industrial companies incorporate services in their sales and these constitute a quarter of the aggregate sales of the industrial sector. Despite this, companies in general have a low level of servicification, less than 10% of their sales.

Making progress in the liberalisation of services trade

The Reflection Committee on Internationalisation, insofar as services are a direct stimulus to productivity growth, competitiveness and the internationalisation of business, considers it essential to make progress in the liberalisation of trade in services. "The regulation of trade in services increasingly deserves a prominent position in trade negotiations. The dynamics of servicification require the reduction of trade barriers to facilitate access to foreign service inputs that encourage improved efficiency and external competitiveness," explain Professors Gandoy and Díaz-Mora.

They also consider it a priority to deploy economic policy measures to guide manufacturing companies, especially SMEs, on the benefits for their competitiveness and export potential derived from the incorporation of advanced services in their production processes and, especially, in their traditional supply of goods.

Finally, they recommend promoting the technological improvement of companies, encouraging innovation and cooperation between them, but also collaboration with public research centres and universities. "The boost to the implementation of digital technologies is essential for the development of quality services in manufacturing, as it facilitates the connection between consumers and producers. European post-COVID recovery funds can actively contribute to this digital transformation," they conclude.