Abstract: Servitization has become an important way for manufacturers to obtain and maintain competitive advantages, the nature of which is the extension of enterprise value chain, including input and output servitization. When servitizing, manufacturers can choose to internalize or externalize the input and output service functions. A theoretical model is built from the product level to study and compare four kinds of servitization paths:(1) Externalize input service and output service; (2) Externalize input service, internalize output service; (3) Internalize input service, externalize output service; (4) Internalize input service and output service. Firstly, by analyzing model variables of demand quality elasticity and quality cost coefficient, quality and price of product and service of manufacturers, quality and price of service of producer service enterprises, and market base of manufacturers and producer service enterprises, etc. the maximum profit of manufacturers under each path is obtained. Secondly, by comparing the maximum profit of manufacturers under each path, the critical conditions of path selection are obtained. Lastly, the effectiveness and practicability of the model is verified by a MATLAB numerical experiment and the case analysis of shipping business of Baowu Iron & Steel Co., Ltd. The results show that, which path becomes a better choice depends on the manufacturers' own conditions and the market environment. Under the premise that the quality cost coefficient is larger enough than the demand quality elasticity, (1) if market base of output service is larger than the critical value of market bases of input service and product, Path 1 is better than Path 2, otherwise, the reverse; (2) if the market base of input service is larger than the critical value of market bases of output service and product, Path 1 is better than Path 3, otherwise, the reverse; (3) if market bases of input and output services are larger than the critical values, and market base of product is relatively small, Path 1 is better than Path 4, otherwise, the reverse; (4) if market base of input service is larger than the critical value of market bases of output service and product, Path 2 is better than Path 3; if market base of input service is larger than the critical value of market bases of output service and product, Path 3 is better than Path 2; (5) if market base of input service is larger than the critical value of market base of product, Path 2 is better than Path 4, otherwise, the reverse; (6) when the quality cost coefficient is larger than square of demand quality elasticity, if market base of output service is larger than the critical value of market base of product, Path 3 is better than Path 4, otherwise, the reverse; when the square of demand quality elasticity is between one and two times the quality cost coefficient, Path 3 is better than Path 4. The results provide theoretical basis and solutions for manufacturers to make the optimal servitization path selection according to their own conditions and the market environment.

Key words: servitization, input services, output services, internalization, externalization, path selection