Which type of servitization promotes firm performance: Embedded or hybrid?

The diversity and complexity of manufacturing firms' servitization strategies are increasing; however, theoretical developments have provided little guidance on the practice of differentiated servitization strategies for firms. In terms of product relatedness and the degree of integration in the value chain, servitization is divided into two categories: embedded (product-related service offerings) and hybrid (product-unrelated service offerings). Based on a large longitudinal dataset of Chinese manufacturing firms between 2012 and 2018, this study empirically investigates the heterogeneous impact of different types of servitization on firm performance. The results reveal a U-shaped effect of embedded servitization on firm performance; in contrast, hybrid servitization plays a linear negative role. Innovative resources and asset specificity positively moderate the effect of embedded servitization on a firm's profitability and aggravate the negative impact of hybrid servitization on firm performance. The findings provide guidance for manufacturing firms to choose the best servitization strategy to achieve profitability.