Magazine article Journal of Services Research

Firm Strategy in Shifting to Service-Oriented Manufacturing - the Case of Japan's Electrical Machinery Industry

Magazine article Journal of Services Research

Firm Strategy in Shifting to Service-Oriented Manufacturing - the Case of Japan's Electrical Machinery Industry

Article excerpt

(ProQuest Information and Learning: ... denotes formulae omitted.)


In line with the paradigm shift from an industrial society to an information society, it is generally anticipated that the value of the firm has been shifting from tangible assets to intangible assets as demonstrated in Figure 1 (Sullivan, 2000; Watanabe, 2002). Looking at Figure 1, we note that the share of intangible assets has shown dramatic increase from 30% in 1978 to 55% in 1998 and to 70% in 1998.

Consequently, the value of manufacturing industry has shifted from the value of manufactured goods to that of services. However, due to the complexity of the measurement of the gross value of firm, identification of such shifting trajectory has still remained in a black box (Barth and Clinch, 1998).

Provided that the market is competitive and investors/customers are clever enough to choose higher gross value of firm, their evaluations in the marketplace can reflect substantial value of services in firms (Grossman and Helpman, 1991).

To date, a number of studies have attempted to identify this value by tracing a firm's stock price that can be considered as a result of evaluations of firm value in the marketplace (Watanabe, 2002). While stock price generally represents investor/customer evaluations of the gross value of firm, it is subject to the value of liabilities. Therefore, in order to evaluate the gross value of firm, the value of liabilities should be taken into account. However, the existing work primarily focuses on market value of stock alone and lacks comprehensive perspective measuring the gross value of firm. Thus, it is necessary to develop more systematic approach taking account of the value of liabilities simultaneously to avoid misled evaluations of the gross value of firm.

At the same time, as an information society advances, knowledge based economy is playing a decisive role in a firm's competitiveness which inevitably entails effective increase in firm's knowledge stock, particularly their technological knowledge stock (Lehman, 1996; Alic, 1997).

While technological knowledge stock is proportional to R&D investment1 as a number of preceding works have discussed (Griliches, 1980), due to economic stagnation, the increase of such investment has become toilsome task. Therefore, efficient and effective ways of increasing such technological knowledge stock, i.e., how to maximize the productivity of this stock, has become crucial for firm's survival strategy (Watanabe et al., 2001). In this regard, the marginal productivity of technology has come to play a decisive role in enhancing the firms' value with respect to their competitiveness.

The foregoing observations indicate that marginal productivity of technology plays a decisive role in increasing gross value of firm. Therefore, in order to identify an idealistic trajectory for the firms, to maximize effective utilization of potential resources in innovation, corresponding to service oriented industry, the measurement of marginal productivity of technology should also become a crucial subject for firm's competitive strategy.

While as a number of works have attempted to measure marginal productivity of technology by regression models (Mansfield, 1980; Griliches, 1980), the regression models alone had several limitations. For example, although regression models are useful at the aggregate level analysis that assumes a stable condition between variables, they are hardly satisfactory for the measurement of individual firm's economic performance under dramatically changing circumstance such as megacompetition, globalization, etc. Consequently, under such circumstance, expectations of complementary approaches have increased. While the micro economic approach incorporating cost constraints has developed more sophisticated models, it inevitably does not depend on a few price and cost data, that are generally either classified into confidential area, are not necessarily reliable. …

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