Although previous researches have indicated that service innovation is an effective strategy to gain competitive advantages for manufacturing firms, there still lacks an in-depth and clear account of how service innovation strategies actually influence manufacturing firms’ competitive advantages in the context of dynamic competitive environment. Thus，from the perspective of dynamic capability theory, we selected 247 Chinese manufacturing firms as a sample and investigate the practical relationship between service innovation strategies and firms’ competitive advantages. This empirical research indicates that both incremental and radical service innovation strategies have a directly positive impact on manufacturing firms’ competitive advantages in the dimensions of market performance and financial performance. These two strategies contribute more to improving the manufacturing firms’ market performance and financial performance when the market is more dynamic. The competition intensity, as a moderator, has a positive moderating influence on the relationship of the radical service innovation strategy with financial performance, as well as the market performance; while as for incremental service innovation strategy, it only has a positive influence on the relationship of the radical service innovation strategy with financial performance. These findings have important theoretical contributions to the existing literature and also have important practical implications for Chinese manufacturing firms’ service strategy in dynamic environment.