Abstract:With the in-depth development of trade globalization and international division of labor, the boundary between service and manufacturing has become more and more blurred, and service-oriented manufacturing, also known as servitization, has become an important theoretical tool for academics to explain industrial transformation and upgrading. However, some scholars have questioned the implementation of servicing strategies implemented by manufacturing companies, believing that increasing service input will only increase the operating costs of manufacturing companies and worsen financial performances, at least in the short term, resulting in the so-called “Servitization Paradox”.We used the 2001-2011 financial data and WIOD input-output data of listed Chinese manufacturing companies to conduct an in-depth research on the Servitization Paradox. Firstly, we verified whether the phenomenon of the Servitization Paradox exists in the listed Chinese manufacturing companies. Secondly, based on the typical fact of the explosive development of China’s Internet economy after 2008, we used the analytical method of quasi-natural experiments to construct a generalized triple-differential model to study the relationship between Internet economy, servitization and financial performance (expressed by return on equity). Finally, we further analyzed the moderating effect of the Internet economy in this progress of servitization, exploring the important role of two intermediary variables, personnel structure and industry productivity.The results of empirical analyses show that listed companies in China’s manufacturing industry do have a widespread Servitization Paradox problem after controlling the fixed effects of industry and year, which means increasing the proportion of service input will significantly deteriorate the financial performance of the company. However, after introducing the Internet variables into the model, increasing the proportion of service input no longer deteriorates the financial performance of the enterprise, but it can significantly improve the financial performance as well. Compared with low-Internet service-consumption industries, high-consumption enterprises will improve their performance by 6.18% for every additional unit of service input, according to the estimation results of the triple-difference model we built, and this shows that the Internet economy can effectively alleviate the Servitization Paradox problem encountered by manufacturing companies. We believe that the Internet economy may have broken through the mechanism of the Servitization Paradox. It can effectively alleviate the financial difficulties after the rapidly soaring service input through the way of increasing the proportion of highly skilled workers and then the ensuing high economic benefits. Another important finding of this paper is that the Internet economy may not be able to alleviate the Service Paradox problem by increasing the total factor productivity, although the development of the Internet economy has increased labor productivity at the industry level.In this paper, we provide a new theoretical explanation for the government’s implementation of servicing and digitalization policies to cultivate new business forms for economic and trade development. We believe that the government should pay more attention to the implicit costs of enterprises, as well as doing a good job in optimizing the supply of human resources and cultivating Internet talents, in the process of implementing servicing strategies.