Rising Servicification of Manufacturing and Its Impact on Wage Growth

What’s in Today’s Article?

• Servicification of Manufacturing Latest News
• Servicification of Manufacturing
• Economic Survey Flags Wage Growth Concerns
• Industry Perspective on Wage Trends
• Call for Balanced Growth
• Servicification of Manufacturing FAQ’s
   

Servicification of Manufacturing Latest News

• The Economic Survey 2024-25 highlighted that while corporate profits have surged in recent years, wage growth has lagged. However, the president of Confederation of Indian Industry (CII) argued that businesses are regularly increasing salaries. 
• He suggested that recent wage trends may not be directly comparable to the past due to the growing servicification of manufacturing, where firms increasingly integrate services with traditional manufacturing, altering employment structures and wage patterns.

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Servicification of Manufacturing

• Servification of manufacturing refers to the increasing integration of services with traditional manufacturing processes. 
• It involves manufacturers offering value-added services such as maintenance, consulting, customization, and digital solutions alongside physical products. 
• This shift is driven by changing consumer preferences, technological advancements, and competitive pressures.

Levels where Servification Takes Place

• Production Stage – Incorporating automation, AI, and data analytics to enhance efficiency.
• Product Enhancement – Bundling services like installation, maintenance, and software updates with products.
• Business Model Transformation – Moving from selling products to offering solutions (e.g., subscription-based models, leasing instead of selling machinery).

Benefits of Servification

• Increased Revenue – Generates new income streams beyond product sales.
• Customer Retention – Enhances customer engagement and loyalty through ongoing services.
• Differentiation – Provides a competitive edge in markets dominated by commoditized products.
• Sustainability – Encourages circular economy practices like remanufacturing and extended product lifecycles.

Challenges of Servification

• High Initial Investment – Requires technological and skill upgradation.
• Complexity in Execution – Managing both manufacturing and service aspects can be challenging.
• Workforce Transformation – Employees need new skills, such as data analysis and customer service.
• Market Adaptation – Customers may be resistant to paying for added services initially.

Economic Survey Flags Wage Growth Concerns

• The Economic Survey 2024-25 highlighted that while corporate profits have surged, wage growth has slowed, potentially dampening demand and economic growth. 
• It noted that revenue for 4,000 listed firms grew by 6% in 2023-24, while corporate profits rose by 22.3%, but employment expanded by just 1.5%. 
• Wage growth for employees and contract workers has not kept pace with inflation, raising concerns about weakening consumer demand.

Industry Perspective on Wage Trends

• Confederation of Indian Industry (CII) president countered that businesses are regularly revising wages based on inflation and industry benchmarks to retain talent. 
• However, he argued that wage comparisons with the past may be misleading due to the increasing servicification of manufacturing, where firms outsource various functions to specialized service providers instead of employing in-house staff.

Impact of Servicification on Employment

• Manufacturing firms now rely more on external agencies for non-core functions like utility management and logistics. 
• This shift leads to structural changes in employment patterns, as many workers are now employed by service providers rather than manufacturers directly, making traditional wage comparisons less relevant.

Call for Balanced Growth

• There is an urgent need to balance profitability with wage growth, cautioning that without higher wages, consumer demand may weaken, affecting long-term growth. 
• The Economic Survey echoed this, stressing that sustained economic expansion requires stronger employment incomes, which fuel consumption and investment.

Servicification of Manufacturing FAQs

Q1. What is servicification of manufacturing?

Ans. Servicification of manufacturing refers to integrating services like maintenance, consulting, and digital solutions with traditional manufacturing processes.

Q2. What are the 3 P’s of manufacturing?

Ans. 3P (aka Production, Preparation and Process) is an event-driven process for developing a new product concurrently with the operation that will produce it.

Q3. What are the three elements of manufacturing?

Ans. The three key elements are materials, labor, and processes, which together define the efficiency and output of a manufacturing system.

Q4. What is the CII (Confederation of Indian Industry)?

Ans. CII is a leading business association in India that promotes industry growth, economic development, and policy advocacy.

Q5. What is the purpose of CII?

Ans. CII works to support industrial competitiveness, economic reforms, and business networking while advocating for policy changes to enhance growth.

Source: TH | WB