The Survival Benefits of Service Intensity for New Manufacturing Ventures: A Resource-Advantage Theory Perspective

Abstract

We investigate the association between service intensity and the survival odds of new manufacturing ventures. Although previous research extensively addresses the value of servitization in established firms, this is the first empirical study that asks whether service intensity, defined as the percentage of sales from services, is beneficial or detrimental to new ventures. Drawing on resource-advantage theory, we further ask whether, under increasing service intensity, new ventures with a higher industry-adjusted ratio of tangible to total assets, labor productivity, or current ratio improve survival odds. Based on a comprehensive data on 6,683 new Portuguese manufacturing ventures founded between 2006 and 2010 and followed until 2015 (33,272 venture-year observations), the results show that higher service intensity lowers the odds of survival. For entrepreneurs, we caution against higher service intensity but demonstrate that survival odds can improve under increasing service intensity when the company can achieve a higher industry median–adjusted ratio of tangible to total assets, improved labor productivity, or a stronger current ratio position. The findings are robust after controlling for endogeneity and self-selection into services.

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