Services and the internationalization of manufacturing firms in Indonesia

Abstract

Services have become the engine of the global economy. However, the role of services in the internationalization strategy of emerging market firms remains under researched. In a case study of Indonesia, we focus on the role played by manufacturing firms’ increasing use, production, and sale of services (or “servicification”) in their productivity and exports. We provide a theoretical and empirical framework to study the relationship between servicification, productivity, and exports at firm level. In terms of theory, we rely on the Resource-Based View of internationalization in a heterogeneous firms setting. Regarding methodology, we use panel techniques with administrative firm-level data from the automobile industry. We show that servicification increases the probability of emerging market manufacturing firms exporting, both directly and indirectly through increases in productivity. Results from our case study provide evidence for emerging market firms that, on the one hand, productivity mediates the relationship between servicification and internationalization, and on the other hand, servicification moderates the relationship between productivity and internationalization. Our findings imply that creating unique resources through servicification allows firms to gain a competitive advantage that increases their productivity and helps them to internationalize.