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With the development of the globalization, there is a shift from manufacturing to services in HRM. First, the difference about manufacturing and services are presented. According to Standard Industry Classification (SIC) definitions, manufacturing establishments are engaged in the mechanical or chemical transformation of substances or materials into new products while service are engaged in providing a wide variety of services for individuals, business and government establishments, and other organizations. Perhaps most importantly, the literature has long noted important differences between manufacturing and services firms (McColgan, 1997). Service operations have unique characteristics which are rarely found in manufacturing including intangibility, inseparability of production and consumption, heterogeneity, customer participation, and labor intensity (Nie and Kellogg, 1999). The direct participation of customers in the service process adds complexity that is generally not found in manufacturing (Chase and Tansik, 1983). Moreover, direct customer participation means that service firms tend to have many more physical sites than manufacturers along with the unique challenges presented by wide geographic dispersion.
Intangibility is often considered as another fundamental difference between services and goods since a service cannot be touched, seen or tasted in the same manner as a manufactured product (Fitzsimmons and Fitzisimmons, 1997). Services also tend to have higher heterogeneity and thus can be either deliberately or accidentally customized between different service providers and customers in comparison to the greater process standardization of a typical manufacturer’s production. Services are likewise more perishable than physical products given that unused capacity is lost forever. Finally, services are typically more labor intensive in comparison to manufacturing (Heskett, 1986) and hence manufacturers can often realize more productivity gains through technological innovations (Quinn and Gagon, 1986).
Services make a lot of contributions to production, mainly through their direct contribution to total output and final demand, but to some extent also through their indirect contribution through other sectors. However, services are more independent from other sectors than the manufacturing industry. Most inputs which are necessary to produce services are derived from the services sector itself. Furthermore, their role as providers of intermediate inputs to other sectors is not yet as strong as that of the manufacturing sector. Dirk Pilat (2005) shows that a growing number of workers in the manufacturing industry are engaged in services-related occupations. A broad definition of service-related workers, up to 50% of manufacturing workers are in such occupations. He, using firm-level data the paper finds that, despite evidence on a growing number of services turnover within the manufacturing sector, manufacturing enterprises in most countries are not very diversified in their constituting establishment, i.e. they do not have many establishments engaged in services production. Canada is a notable exception in this respect. In other countries, it is likely that diversification primarily occurs at the level of the enterprise group. On the other hand, data on products suggest that manufacturing firms appear to derive a growing share of turnover from services, notably in countries such as Finland and Sweden.
