The dawning of the era of the knowledge economy has had a huge impact on the macro environment for the manufacturing sector. Strategies that worked in the past – mass production, focusing on cost reduction, and working to grab market share – are no longer as effective as they used to be. Data from the annual surveys conducted by the Directorate General of Budget, Accounting and Statistics, Executive Yuan indicates that the performance of manufacturing in Taiwan as a whole has been deteriorating steadily. Given the growing importance of knowledgeintensive business models, manufacturing enterprises are being forced to transform themselves. Companies need to focus on the two ends of the "smile curve", building up their R&D capabilities and developing the ability to provide high value-added services. This process can be described as the "servitization" of manufacturing industry.

Three Key Issues Relating to Manufacturing Sector Servitization The servitization of manufacturing industry constitutes an extension of the value chain. It involves taking products as the foundation, and then adding value through services to create a business model that maximizes value creation. The Institute for Information Industry's IDEAS (Innovative DigiTech-Enabled Applications & Services Institute) has identified three key aspects of manufacturing sector servitization:

1.Leveraging IT to enhance manufacturing capabilities
2.Product service systems
3.Service over the internet

Leveraging IT to Enhance Manufacturing Capabilities Manufacturing enter prises need to upgrade their manufacturing services capabilities, reduce production costs and improve yield rates. By making effective use of information technology, manufacturing firms can innovate and strengthen their service provision capabilities. One example here is the development of remote monitoring and diagnostics services in the machine tool industry. The development of this type of service has made it possible for machines to communicate with one another, and to undertake the critical or relative status in the factory automatically. The recorded data will be sent to the central control unit and be compared by the parameter database to identify any causes of system failure. The system will undertake real-time, online troubleshooting of these causes to keep the machine tool operating smoothly. If a problem cannot be remedied on-line, the engineers can still use the remote monitoring system to verify which components are causing the problem, so that know which replacement parts and tools to take with them when they go to perform on-site repair, thereby saving time and money by avoiding the necessity for repeat trips. The development of remote monitoring and diagnostics represents an important instance of innovation in manufacturing technology. Whereas in the past machines sat passively waiting for maintenance personnel to come and repair them, it has now been possible to create a low-cost, real-time, remote maintenance and repair model.

Product Service Systems
As the name suggests, a Product Service System integrates products and services. With this type of system, the enterprise's goal is not so much product sales as the provision of services or functions to meet consumers' needs and create value.

Amazon Kindle, which is attracting so much attention at the moment, is a classic example of a product service system. Launched by Amazon, the world's largest online bookstore, Kindle is an e-book reader device that enables the user to download books, magazines and newspapers to read at low cost from any location with a communications link. Kindle users can also subscribe to blogs, and send and receive e-mail. From the consumer's point of view, the value that Kindle provides derives not so much from "possession" of the e-book reader device itself as from the ability to “use” the device to access the e-book services and functions that Amazon provides.

Service over the Internet
For a manufacturing industry seeking to create more value,the Internet makes it possible to provide a wider range of services in a convenient, timely manner, thereby developing new, more profitable business models. Besides providing "physical" services such as maintenance and repair, manufacturing firms can now also leverage the Internet to provide virtual services. The Internet helps enterprises to overcome the spatial and temporal restrictions that have hampered service provision in the past; manufacturers can deliver services worldwide, in a quicker and more efficient manner.

The development of 3D virtual fitting service by the textile and garment industry is a fine example of Webbased service innovation. Using virtual reality technology, garment manufacturers can create a "virtual fitting room" environment. The consumer creates a personal 3D model of herself or himself either through scanning or by inputting the necessary settings themselves online. The consumer "try on" clothes in the virtual environment via the virtual model. Consumers can also share their fitting experience with others and offer suggestions. 3D virtual fitting service makes the process of buying clothes much smoother and more convenient, thereby helping to raise the consumer’s satisfactory.

In the past, manufacturing companies had little experience with, or few interests in, service provision; they tended to view the provision of services as merely an adjunct to or extension of the industry. However, times have changed. The emergence of service engineering has been accompanied by higher expectations on the part of consumers. For the manufacturing companies, servitization is obviously the way to be. Manufacturing companies have to focus on creativity and innovation if they were to keep pace with the transformation that is taking place in the manufacturing sector and succeed in creating value from services.