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day, Swiss machine and equipment manufacturers generate a major share of their total revenue through services. The share of service revenue on total revenue represents a service-related performance outcome in manufacturing companies. Service-related performance outcomes can include the quality of customer relationships (a non-financial outcome) and direct service profitability (a financial outcome) (Homburg et al., 2003). The first construct comprises such aspects as intensity of interaction with customers, intensity of personal relationships with customers, customer satisfaction and loyalty. Direct service profitability relates to the degree to which manufacturing companies directly earn money by offering and charging services to their customers. However, in this proposal, we will focus on the share of total revenue attributable to services. The share of service revenue as a proportion of overall revenue, can be interpreted as the service component in relation to the income generated. The share of total revenue attributable to services is sometimes referred to in the literature as the “value proposition”, for example in Oliva and Kallenberg (2003). However, in this paper, we will use the term share of service revenue to total revenue, which expresses more precisely the phenomenon we wish to convey.
To generate a major share of the total revenue through services cannot be achieved without a clear service marketing and management. According to the 4P model (product, price, place and promotion), there has to be a service that can be priced, communicated, and distributed to the consumers (Grönroos, 1998). This also included typical service management approaches such as empowering service workers to offer services proactively and increasing the service orientation of the corporate culture.
According to our survey in January 2005, Swiss companies achieved on average 21.2 percent of their total revenue through services in Europe. However, the service revenue share is significantly lower in China. Swiss companies indicated that on average they only earn 10.3 percent of their revenue through services. As a result of significantly lower service revenue, Swiss companies are losing potential margins, thus weakening their overall profitability. In general, services offer potentially higher margins than products. The average margin for products is just 1 percent. In contrast, services offer margins of more than 10 percent. Consequently, the operating margin is 5.2 percent in China, compared to 8.1 percent in Europe (see Figure 1).

 

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