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Friday, March 31, 2017

Service and Manufacturing Industries Support Each Other

The development of strong businesses within urban settings is supported by the mutual development of multiple type of industries that create complementary links and interests. According to a study in Chinese Geographical Science, service and manufacturing industries support each other in a way that encourages further economic growth (Yang, Liang & Cai, 2014). A type of synergy between the strengths of two different industries fuse together to foster new opportunities.

The study looked at data from 1987, 1992, 1997, 2002 and 2007 and found that as clusters developed they moved from manufacturing to a more service orientation. Manufacturing was still a key and central part of the cluster but that the cluster took on a more dynamic service approach.

As service industry developed, they created connections with manufacturing that not only enhanced product offerings but also spun off new products. The example used in the study was how metals and safety clothing grew around a "fire" cluster. From this cluster, new types of businesses and products were formed that hedged multiple strengths.

Industry commentaries occurred because service and manufacturing spur greater linkages and competition that leads to the development of new products. The local capacity grows when two different types of industries find they have available "know how" and resources to launch new products.

We can also consider the benefits of pairing service industries with manufacturing industries to offer new revenue streams. For example, the development of a new network equipment that increases the need for IT services is warranted.

As these industries develop and create connections, we find that the local industries are led by a larger anchor business. In the study cluster 20-30% of manufacturing industries accounted for 75-79% of total manufacturing output while 50% of service industry contributed to 85% of total service output.

These large businesses seem to spearhead new connections. Smaller companies were used as support to fill in needed knowledge and service gaps.

This study helps us understand that service and manufacturing industries complement and enhance each other. There are larger companies that support smaller companies within the cluster. As the cluster develops it begins to take a higher service orientation as support services develop in a way that supports manufacturing. Commentaries between these industries often spark new types of products and businesses.

Yang, Z., LIange, J. & Cai, J. (2014). Urban economic cluster template and its dynamics of Beijing, China. Chinese Geographical Science, 24 (6).

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