Article in Press: Territorial Servitization: Exploring the virtuous circle connecting knowledge-intensive services and new manufacturing businesses

Lafuente, E., Vaillant, Y., Vendrell-Herrero, F.

Available in International Journal of Production Economics.


View the full journal profile of this article at sciencedirect.com.

 

Article highlights

  • KIBS firms help to alleviate operational weaknesses of new manufacturing businesses.
  • A mutually dependent relationship exists between KIBS businesses and new manufacturers.

  • Industry characteristics mediate the connections between KIBS businesses and new manufacturers.

  • Promoting territorial servitization has a key role to play within territorial development strategies.

  • Support policies should facilitate the interaction between manufacturing and KIBS sectors.

Abstract

The mainstream servitization literature mostly describes the success of manufacturing firms in integrating services for their corporate clients. However, the literature is relatively silent on how territories capitalize on the potential interconnectedness between manufacturing firms and the knowledge-intensive business service (KIBS) sector. The analysis of the outcomes that result from the mutually dependent associations between manufacturing businesses and KIBS firms, a process that we call Territorial Servitization, is of great relevance for academics and policy makers. This research hypothesizes that there is a positive symbiotic and bidirectional link between the growth in KIBS activity and employment generation by manufacturing sector start-ups. Furthermore, we scrutinize the mediating role over this relation of relevant industry characteristics, in our case the stock of manufacturing firms and the total number of freights transported. The empirical application considers a unique dataset created from multiple sources—the Global Entrepreneurship Monitor (GEM), the Spanish Institute of Statistics and Eurostat—for the 17 Spanish regions during the period 2006–2012. The results support the view that territorial servitization contributes to employment creation in manufacturing sectors. Territories with a vigorous manufacturing base benefit from a virtuous circle in which KIBS start-ups and newly formed manufacturers are connected through the economic activity of incumbent manufacturing firms. The study offers valuable insights for scholars and policy makers on how to implement specific policies—e.g., the development of digital infrastructures—that facilitate the interaction between manufacturing and KIBS businesses, thus fuelling territorial development.

Keywords

Territorial servitizationKIBSnew manufacturing firmsindustry configuration

Takeaways from the Smart Industry Conference 2016

Professor Lisa De Propris (GVC Cluster, Birmingham Business School, UK) offers some highlights from the Smart Industry Conference jointly hosted by OECD and Vinnova (Stockholm, November 2016).

Academia, policy makers, industry and representatives from international organisations such as OECD, UNIDO and EU have gathered in the sunny -albeit chilly- city of Stockholm to discuss the implications, opportunities and challenges that the New Production Revolution is presenting to advanced economies.

A two year long project kicked off by the OECD culminated in a report to be launched in 2017, and this conference was a chance to present and validate its findings.

Terminology first. The OECD has framed the debate in the context of a “new production revolution (NPR)” which others have referred to as the 4th industrial revolution (REF) leading to a new manufacturing model that in different countries has been labelled in different ways: “Industrie 4.0” in Germany, “smart industry” in Sweden, or “Fabbrica intelligente” in Italy.

The common understanding is nevertheless that there is a bunch of new technologies that once adopted by firms in all manufacturing and service sectors will fundamentally change the nature of those sectors.

The new technologies

It is well accepted now that our economies are about to be hit by a wave of new technologies that will radically change the techno-economic paradigm of our economies, as well as some aspects of our societies.

This technological wave is very much technology-pushed and there is a consensus on the fact that we cannot yet fully appreciate and anticipate the impact of these new technologies on our life.

Speakers from academia and industry have helped us visualise such technologies. Crucially, digitalisation is the most pervasive of all new technologies and probably the one that most people tend to experience first-hand in all walks of life. This includes the Internet of Thing, cloud computing, datafication, and artificial intelligence.

Disruption or transformation?

The transformative potential of synthetic biology has been compared to the introduction of steam power in the first industrial revolution. For example, the emergence of bio-based technology from chemistry to pharma to materials, is making the ambition of a carbon-free world more possible.

Meanwhile, robotics and automation will transform the organisation of factories and value chains by altering again the relationship between capital and labour.

Those who have written about the 4th industrial revolution have stressed the disruptive power of these technologies (something of a real cut from the past).

Others are pointing to their transformative muscle instead. On the front line, big businesses have suggested that companies that do not invest in these new technologies will be outcompeted, disrupted by smart ones. The jury is still out.

A new production model?

Once rolled out and fully adopted by firms, these new technologies will change the parameters of our production model. A new manufacturing model will take shape.

Smart Industry or Industry 4.0 will change the organisation of production inside factories thanks to the adoption of robotics and automation, the integration of digital technology to connect people with machine as well as machine with machine.

Scaling up and down will be possible. Productivity with be coupled with flexibility and customisation. Large firms seem to be up to the challenge but small and medium sized firms are more exposed to inertia.

Some large multinationals described their intention to talk about the implications and opportunity of all the new technologies in the Smart Industry model to their suppliers to raise awareness and to prompt change.

A new production value chain model?

The adoption of the Smart Industry model by large firms only will not be enough to deliver the productivity gains that everybody expects (or hopes for). The change has to occur throughout value chains.

Production processes are functionally and spatially fragmented with supply chains spreading globally through webs of first, second and nth tier suppliers.

Less discussed over these two days was how the new technologies will change the distribution of value creation along the supply chain. Will the buyer push their suppliers to adopt new technologies?

Manufacturing

Many times during these two days ‘the manufacturing sector’ has been mentioned with a renewed understanding on its socio-economic value.

With Brexit and the Trump election in the US fresh in everybody’s minds, many conversations and debates in and out the sessions echoed a revived passion for manufacturing in advanced economies.

From the German experience mentioned many times, we have become aware of the socio-economic benefits of a resilient and competitive manufacturing sector.

It is not by chance then that it is Germany that has coined the term Industrie 4.0 to reiterate the advantages of manufacturing which in advanced economies has to be constantly on the technological frontier. Hence the term ‘Industrie 4.0’.

The Swedish host also has been very committed to its manufacturing industries and the vision and engagement of the innovation agency Vinnova is testimony of that. Its programmes reconcile the need to diffuse frontier technologies across the country’s core industries which are the backbone of communities’ socio-economic wellbeing.

Manufacturing in the US

The deindustrialisation of American rust belt had devastating implications for millions of people and it showed how manufacturing is not like any other sector. It is the skeleton of an economy and its society. Deindustrialisation caused long term joblessness, the thinning of manufacturing value chains, and finally the de-linking of manufacturing from related innovation and service.

The Advanced Manufacturing Programme launched by the Obama’s administration is meant to create an institutional infrastructure (with the Advanced Manufacturing Institutes), collaborative mechanism and a process to upgrade what is left of its manufacturing base.

Two big challenges: one, only 5% of US venture capital is directed to manufacturing activities preventing the translation of the start-up model in ICT to manufacturing; and two, the ‘extended pipeline model of innovation’ allows public support for the entire  innovation process only for defence procurement projects.

Jobs and skills

The skills gap, education, training, and re-training: these were concerns that kept popping up over and over again at the conference. Creating new skills and enabling re-skilling is crucial for a) unleashing the ‘production revolution’ b) maintaining jobs and c) creating new jobs.

And what about job destruction or job creation? Productivity gains thanks to robotics and automation will lead jobs based on routine tasks being displaced.

There are fears of job destruction, but evidence was presented of huge opportunities for job creation in the longer term. And this is crucial.

New technologies will create new sectors, new products, new markets; this will require new skills and if skills are available they will translate in new jobs. The passage from new technology to new jobs is neither automatic nor instantaneous.

So what should policy do?

Over and over again three things emerged as crucial to create the conditions for firms to be able to adopt this new manufacturing model.

First of all, skills. Education, training and re-training will be crucial to be feed firms with the relevant and demanded skills. Matching the skills required by firms will go some way towards creating new jobs and saving some of the existing ones.

Secondly, public investment in technology infrastructure and creating a clear regulatory framework fit for the new digital age.

And finally, governments have to be aware of their role in managing the societal change that this technological revolution will bring to ensure social cohesion and diffused benefits.

General consensus suggested that doing nothing is not an option. Risky times require the government to hold the hand of businesses to share some of that risk and leverage the immense opportunities that lie ahead.

New collaboration between MAKERS and the Regional Studies Association

MAKERS of value: New Manufacturing Regions

The Regional Studies Association has awarded Prof Lisa De Propris (@BBS) together with Prof David Bailey (ABS), Dr Jennifer Clark (Georgia Institute of Technology, US) and Laura Wolf-Powers (CUNY, New York, US) with £10,000 to set An International Research Network to undertake comparative research and organise themed workshops. Some of these workshops will be jointly organised with MAKERS.

Topic: The manufacturing sector is changing and a new manufacturing model is emerging. Recent scholarly debate has unpacked this ‘production organisation revolution’. It is therefore timely to understand what form this new manufacturing model will take in both Europe and the United States how it can contribute to regional economic development.  Indeed, the core of this ‘New Manufacturing Regions’ network is to examine whether – and under what conditions – the new manufacturing model may offer the potential to develop and anchor manufacturing activities in relatively high-cost regional economies in the EU and US.

Article in Press: Servitization, digitization and supply chain interdependency

Ferran Vendrell-Herrero, Oscar F. Bustinza, Glenn Parry, Nikos Georgantzis

Available in Industrial Marketing Management

Abstract

This study draws on literature at the intersection of servitization, digital business models and supply chain management. Work empirically explores how digital disruption has affected Business-to-Business (B2B) interdependencies. Dematerialization of physical products is transforming the way firms are positioned in the supply chain due to a reduction in production and transport costs and the different ways business engage with customers. Specifically, we propose that these new market conditions can empower downstream firms. We further propose that upstream firms can still capture additional value through digital service if their servitized offer includes difficult to imitate elements. The context of the analysis is the publishing industry. The Payment Card method employed is used to test UK and US consumer’s perceptions of digital formats (eBooks) and assess their willingness to pay in relation to printed formats. The method undertaken enables us to elicit aggregated consumer demand for eBooks which in turn identifies optimal pricing strategies for the digital services. Analysis demonstrates that during digital servitization upstream firms should seek to deploy unique resources to ensure their strategic position in the supply chain is not diminished.

“Digitisation, Integrated Solutions and Organisational Commitment”

Unioncamere del Veneto (Via delle Industrie 19/d – 30175 Venezia, Italia)

September 12, 2016

digitisation-integrated-solutions-and-organisational-commitment-2After collecting data from 1,400 manufacturing firms in the Veneto region preliminary results were presented in the Unioncamere del Veneto venue.

This data collection process is part of an extensive quantitative analysis of the phenomenon of servitization in this region. The event was well-attended, and practitioners and researchers from various institutions engaged in the discussion on how digital technologies and service business models can foster manufacturing competitiveness.

This was an exciting outcome of the fruitful collaboration between MAKERS participants involved in this study, including researchers from the university of Birmingham, the University of Granada, Unioncamere del Veneto and Ca’ Foscari University. This is hopefully the beginning of a series of studies on the topic.

“Servitization Processes and Digital Manufacturing: The Veneto Case Study”

 Ca’ Foscari University (Dorsoduro, 3246, 30123 Venezia, Italia)

September 30, 2016

oscar-bustinza2Six months of Oscar Bustinza’s secondment on Unioncemere del Veneto came to an end on September 30th. As a final wrap up activity Ca’Foscari University organized a seminar in which the main findings were presented and discussed. In addition to MAKERS´ researchers, faculty members and postgraduate students of Ca’Focari attended the seminar. Furthermore, Unioncamere del Veneto gave a kind and warm goodbye to Oscar Bustinza with coffee and cakes.

 

Learn more: http://www.unioncameredelveneto.it/schedaNews.asp?idNews=7439

 

Meeting on Local Development – Edition 2016

Places, networks and actors of change. Digital manufacturing, alternative finance, new territorial scenarios

From 21 to 23 November 2016, Prato Textile Museum, Italy (in Italian)

The conference is a forum promoted since the 1991 in Tuscany (Italy) for exchanging ideas and results, between academics and practitioners, on national and international perspectives of local development, industrial districts and clusters, and related themes.  The 2016 will host a Session on the “New manufacturing and local development”, organised in collaboration with the “Makers” project, the University of Birmingham, the Fondazione per la Ricerca e l’Innovazione, the University of Florence and the University of Venice.

The session will present the Makers project, focusing in particular on the perspectives of manufacturing recovery led by systems of SMEs, like those typical of the Italian industry, in face of the present-day challenges. These include the effects of the long economic crisis, the relation with Industry 4.0, the trends of re-shoring and near-shoring in the global the value chains, the innovation processes supported by the exchange of knowledge with universities, the identification of new jobs. Guidelines for public policies and private investment strategies will be discussed considering also the increased uncertainty in market horizons, technological trajectories, and institutional structures.

Chair and introduction: Marco Bellandi, University of Florence.

Website: http://www.incontridiartimino.it/

Dr Ferran Vendrell-Herrero presents his research at the University of Granada

During his secondment in Galdon Software (Spain) Dr Ferran Vendrell-Herrero has engaged with the strong academic community at the faculty of business and economics at the University of Granada (Spain). Based on this growing and warm collaboration the past November 4th he was invited to present his research on “service innovation and firm internationalization” to the students of the master in economics, as well as various faculty members. The seminar stimulated the academic debate between attendants, and strengthened the research connections between University of Birmingham and University of Granada.

Is EU manufacturing ready for industry 4.0?

Thursday 13th October 2016, Brussels

In 2015 the EU Commission (DG Internal Market, Industry, Entrepreneurship and SMEs) and the European Parliament started raising awareness that a new manufacturing model was emerging: this is referred to as Industry 4.0 or smart manufacturing. Technological change, digitalisation and a new demand are driving a ‘production organisation revolution’ that is redefining the nature or the manufacturing sector and its contribution to the wider economy.

Industry 4.0 is argued to mean more servitised and customised manufacturing goods and the pervasive exploitation of key enabling technology across all sectors. Industry 4.0 offers a unique opportunity to upgrade EU industrial capabilities, to reshore and anchor competences and functions in the EU and to repopulate advanced industry systems across regions to secure jobs and prosperity. Speakers have discussed what it means and what it will take to align EU manufacturing sectors to Industry 4.0.

Speakers:

Prof Lisa De Propris (Birmingham Business School)

Prof Patrizio Bianchi (Regione Emilia Romagna, Italy)

Prof Steffen Kinkel (Karlsruhe University, Germany)

Prof David Bailey at NUS in Singapore: Meeting the GPN@NUS Group

I met faculty, post-docs and PhD researchers of the Global Production Network Centre at the National University of Singapore (NUS) at their research seminars and regular GPN meetings. This dynamic group of researchers spans Geography, Economics, Sociology, and Political Science at NUS. They are interested in studying global production and economic development, in particular in East Asia; it is directed jointly by Professor Henry Yeung and Professor Neil Coe from the Department of Geography. Visit their website for info: http://gpn.nus.edu.sg/

On-going projects, fieldwork and activities of the GPN Centre were discussed, as well as the MAKERS project. The GPN Centre is looking forward kicking off collaborations with all MAKERS partners.  In a number of meetings with Henry and Neil, we talked about avenues for joint collaborations, secondments and engagement.

While in Singapore, I worked on a number of papers relating to WP4 (reshoring) and WP6 (industrial policy) – see secondment report. I also met local policymakers to discuss industrial policy, and wrote a MAKERS blog on the testing of driverless cars in Singapore, see:

While at NUS, I gave a joint MAKERS – GPN seminar entitled “Brexit, UK automotive and implications for industrial policy”.  Abstract below, followed by some photos of the event:

Abstract: The UK’s automotive industry has been seen as one of the ‘star performers’ of the UK economy in recent years – unlike most other manufacturing sectors. Output has increased by 60% since 2010 and there has been over £8bn worth of investment in the industry in the last four years. The industry supports some 800,000 jobs in the UK. The industry is seen as having benefitted from EU membership. So what might Brexit mean for the UK automotive sector, and in turn for industrial policy in the UK? This presentation considers short run impacts, before turning to the impact of uncertainty on foreign direct investment inflows and then the nature of a possible trading relationship. Some concluding thoughts highlight the need for a renewed industrial policy to support UK auto and manufacturing.