A new era in services trade: The “servicification” of manufacturing

If a service can be performed remotely, it can be traded.¹ This is the underlying principle of services trade, which consists of a host of activities, from troubleshooting (particularly for hardware and software) to professional services from consultants, lawyers and accountants. Although overall services trade experienced a sharp decline in the early months of the covid-19 pandemic, as travel and tourism ground to a halt, the volume of services delivered using information and communications technology (ICT) tools swelled.²

What makes some of these services interesting is their ability to be bundled with goods that are exported, referred to as the “servicification” of manufacturing. These are services that are delivered from abroad either as inputs into the manufacturing process or as after-sales services once the good is exported. In this article we discuss three factors that could potentially drive an expansion in the international delivery of these services.

First, the adoption of advanced technologies in manufacturing and supply-chain management is creating new opportunities for services in the value chain. For instance, by remotely monitoring a digital twin of a machine, manufacturers can offer customers predictive maintenance planning services. Examples include the TotalCare programme of automotive firm Rolls-Royce, which offers this service internationally through a data analytics centre in the UK, and heavy-equipment manufacturer John Deere’s JDLink connection, which enables the remote diagnosis of machinery. Such insights allow manufacturers to provide vital post-sales services across borders.

The creation of these services represents an opening for greater participation in global value chains from less industrialised developing countries. Since the 1990s business process outsourcing services have contributed to economic growth and job creation in countries such as India and the Philippines.³ The expansion of advanced tech adoption expected in Africa and Asia Pacific in 2022 (cited in Economist Impact’s Trade in Transition survey⁴) will unlock such opportunities for more developing countries in these regions. To be truly realised, however, tech adoption must be matched with efforts to expand IT education and digital infrastructure.

Combined with technology, sustainability priorities can also motivate companies to introduce more remote services. Machinery which previously needed to be shipped back to the manufacturer’s facility for repair can now be fixed remotely using augmented reality (AR) or robotics to support technicians on the ground. This reduces the carbon footprint of transporting the machinery to and from the manufacturer dramatically. Service technicians at Mercedes-Benz use HoloLens2, developed by Microsoft, to see a 3D model of the engine remotely; they can annotate the visual and then offer solutions. Overall, this enhances the efficiency of service technicians and reduces travel related to the service.

Finally, digital trade agreements can help to accelerate servicification by addressing non-tariff barriers that impede services trade. Under the Singapore-Australia Digital Economy Agreement, signed in August 2020, the two countries are moving towards the mutual recognition of digital identities, adopting common e-invoicing frameworks and prohibiting rules that mandate the in-country storage of data, among others.⁵ Enabling data transfers outside the country, in particular, would allow the likes of John Deere and Rolls-Royce to offer remote data analytics and maintenance services.

These are three levers that could accelerate servicification and unleash a new era of services trade by allowing companies to expand their offering and providing countries, especially those behind on the industrialisation curve, with an entry point into global value chains. Failing to give these factors serious consideration would be a missed opportunity.