Services offer revenue stream
Report notes higher profit margins
Small and medium-sized manufacturing firms that add services to their product offerings can enjoy higher profit margins, more stable revenues and greater competitive advantage, says a Conference Board of Canada and McGill University report.
The Quebec-based report offers the following reasons why product manufacturers should integrate services into their core offerings:
- Profit margins are higher than products.
- Revenue is more stable because services are more resistant to economic cycles that affect investment and equipment purchases.
- Substantial revenue generated from an installed base of products with a long life cycle.
- They add value and strengthen the supplier-customer relationship.
SME Manufacturers in Quebec: Adding Services to Boost Competitiveness and the Bottom Line, is based on case studies, literature reviews and an online survey of 113 Quebec manufacturers. It shows 95% of SMEs who offer services gain revenue. Of these, about one-quarter obtain between 21% and 60% of their revenue from service offerings. A further 67% get between 1% and 20% of their revenue from selling services.
There are challenges, though. The chief one identified by 45% of respondents is the need to employ highly skilled personnel. Other challenges were accessing client needs and identifying what specific services to provide. In-house expertise and knowledge of their products, knowledge of foreign languages and regulations, knowledge of clients’ needs and providing timely solutions were key to successfully delivering services.
Another approach that Quebec SMEs can adopt to compete globally is to integrate with the production networks of multinational corporations (MNCs). The Integrating Quebec SMEs Into Production Networks: A Spur to Competitiveness, report identifies several factors behind successful networks:
- The presence of world-class MNCs to provide access to large markets and knowledge.
- Close lateral relations among SMEs to share information about markets and technology.
- Forums for communication between and among MNCs and SMEs.
- Forums for collaboration between and among industry and academic institutions.
- SMEs willing to foster innovation by hiring highly trained people.
- Government cooperation to ensure, for example, appropriate transportation, communications and financial infrastructure.
Access both reports at www.e-library.ca.
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