Trends and Characteristics of “Manufacturing X”: An empirical analysis using panel data for Japanese firms

This study uses panel data on Japanese firms to examine trends in the shift of manufacturing firms toward service-oriented activities—referred to as “Manufacturing X.” A distinguishing feature of this study is its analysis not only of overall non-manufacturing activities but also of narrowly defined service activities. The main findings are as follows. First, the share of non-manufacturing activities within manufacturing firms has been steadily increasing. If the current trend continues, the share of non-manufacturing sales among these firms is projected to reach 16.5% by 2040. Second, both the proportion of firms engaged in, and the sales share of services such as machine repair, professional services, and business services are rising, indicating a gradual shift toward narrowly defined services. Third, the share of employees working in service and information service sectors within manufacturing firms is also increasing, reflecting servitization in terms of labor input. Fourth, while the expansion of narrowly-defined service sales is positively associated with sales growth and profit margins, the servitization of labor composition appears to have little impact on firm performance, suggesting instead the importance of headquarters functions.