New Services from New Manufacturing

It is said that the productivity of Japan's service sector remains low. Many also predict that productivity will go down as the economies of the world's developed countries become more sophisticated and there is a greater shift from manufacturing to services. Is there no way to increase the productivity of the service sector?

It is true that it is difficult to increase the productivity of the service sector. To begin with, it is not possible to reduce costs through mass production, as is done in manufacturing. In fact, when it comes to services provided by barbers and restaurant waiters, the premise is that the service is customized to meet the needs of individual customers, so costs only increase.

This is likewise true for digital services. An extreme example is an app providing services. Making electronic copies is easy and reproduction is associated with no marginal costs. As such, the providers cannot receive fees and in most cases, the apps are supplied free of charge. The providers have no choice but to generate revenue through advertising and other means.

In this way, even advanced digital services surprisingly are not profitable. In fact, while tech giants like GAFA (the four largest IT companies in the United States) yield profits, overall revenue growth for digital companies in the United States, including GAFA, is close to zero. It is well-known that, excepting GAFA, many are in the red.

Nonetheless, the strategy of seeking to expand corporate value in new areas by incorporating the digital technologies into one's own business is a sound one, and many companies are seeking to do this. This is because digital technology can make possible things that analog technology cannot, thus allowing companies to provide completely new services.

For example, the service of self-driving cars can only be realized by combining high-performance stereo cameras and AI (artificial intelligence). Medical services will become even more sophisticated through 3D-printed artificial organs and medical equipment enabling high-precision image analysis.

It is quite difficult to create novel services in the digital world. Even if you do, people will come to take them for granted and will not pay for them. What people hope for is that companies use digital technologies to produce completely new goods and provide completely new services, thereby solving problems. In the end, the era of manufacturing will not come to an end. Conversely, the companies that are able to put "new services from new manufacturing" into practice will be able to increase productivity by leaps and bounds.