Structural change, vertical integration and KIBS: Does “fighting” for manufacturing matter?

Abstract

This study investigates how shifts in the manufacturing workforce and value-added influence the integration of KIBS. Using a subsystem approach alongside econometric analysis, we examine the relationship between vertical integration and the contribution of manufacturing to value-added between 2000 and 2014. The findings reveal that a decline in manufacturing in the United States, Japan, and EU15 correlates with reduced KIBS inputs. In response to growing competition from China, these regions have adopted vertical integration strategies, emphasizing Specialized, Scale-Intensive, and Science-Based Supplier subsystems. This study finds that while vertical integration benefits the Supplier-Dominated, Specialized Suppliers, and Science-Based subsystems, it detrimentally impacts the Scale-Intensive subsystem. European countries have more effectively countered China's influence by leveraging vertical integration within the Supplier-Dominated and Specialized Suppliers subsystems rather than by integrating KIBS. Conversely, the US, with its dependence on large-scale production, has struggled with the rise of China's manufacturing sector, rendering vertical integration less effective.