THE IMPLICATIONS OF PARENT FIRM OWNERSHIP FOR COMPETENCE DEVELOPMENT IN DIVESTED NEW VENTURES
Annaleena
Parhankangas, Helsinki University of Technology
Pia Arenius, Helsinki University
of Technology
Tomi Laamanen, Helsinki
University of Technology
ABSTRACT
THEORY AND PROPOSITIONS
SAMPLE
METHOD
RESULTS
DISCUSSION OF RESULTS
NOTES
TABLE 1
TABLE 2
FIGURE 1
CONTACT
REFERENCES
This study explores the implications of corporate spin-off arrangements for the evolution and growth of the spin-off firm. Relying on the resource-based view of the firm and the property rights theory, the emphasis of the present study is on the interplay between the parent firm’s level of ownership, and the selection of competencies to be developed in the new venture, and the financial outcome of these developments. The results tentatively suggest that the characteristics of the spin-off venture predict disintegration process characteristics, which, in turn, are associated with the subsequent evolution and growth of the new venture. The present study gives reason to believe that ownership changes throughout the life of the venture may have indirect and direct impact on both the direction and magnitude of competence development in the venture.
According to the property rights approach, ownership matters from the efficiency perspective. In other words, the incentives of the contracting parties and thus, the economic performance, are largely determined by the way in which the property rights are defined (Williamson, 1985). By getting the property rights straight, it is possible to place the residual rights of control in the hands of those who can use those rights most productively.
The rights of ownership of an asset take three parts: the right to use the asset, the right to appropriate returns from the asset, and the right to change the form and the substance of the asset (Furubotn and Pejovich, 1972). In practice, the property rights approach is especially relevant in situations where agents take actions that affect the productivity or value of the assets in the future. These actions may represent an investment in human capital, or investment in a research and development intensive new venture. In the context of a spin-off venture, this means that the parent firm holding an ownership share of the spin-off firm is able to control the selection of competence building activities in a spin-off venture.
While the property rights approach is able to determine the parties influencing the direction of competence building activities, the resource-based approach may shed some light on which competencies these parties are to is going to select for further development. The resource-based literature argues that inherited resources determine the direction of expansion (Nelson and Winter 1982; Penrose 1959; Teece, 1988; Cohen and Levinthal 1990). In other words, firms tend to discriminate against unrelated ventures. Unrelatedness refers here to dissimilarity or non-complementarity of resources.
The inherited resources affect direction of competence building through two mechanisms. First, implementing radically new business ventures may be limited by shortage of labor or physical inputs, shortage of finance, and the lack of sufficient managerial capacity. (Mahoney and Pandian, 1992) Besides the lack of physical and human resources, established routines, (Nelson and Winter, 1982) existing dominant logics, (Prahalad and Bettis 1986) knowledge biases (Wright 1997) and structural inertia (Hannan and Freeman, 1989) may prevent the adoption of new perspectives, routines and new priorities required by a new business venture. Building new competencies may require that an established firm unlearns the capabilities underlying its previous activities (Bettis and Prahalad, 1995) before it is able to run up a learning curve (Pavitt, 1991). Put in a simplified manner, the implementation of diversification strategies may be hindered by the inability of people to change their current way of thinking or behaving. As a result, opportunities for diversification can become firm-specific or locked-in to previous activities (Conner and Prahalad, 1996).
Second, the firms tend to acquire a surplus of certain resources for various reasons. Penrose (1959) states that specialization typically leads to the surplus of certain types of resources. Surplus of resources may also arise due to asset indivisibilities and the increasing efficiency of human assets through continuous learning. Surplus of resources typically leads to the selection of strategies that help the firms use better their excessive resources.
Thus by combining the property rights theory and the resource-based approach, it is possible to make a prediction about how parent firm ownership affects competence building activities in a divested spin-off unit. To sum up, the property rights approach predicts that the level of parent firm ownership is positively associated with the ability of the parent firm to exert influence on the direction of competence building activities in a divested spin-off venture. The resource-based approach, in turn, predicts that the parent firm will favor competence development activities serving its own core businesses. Looking at the situation from the opposite angle, parent firms giving up their ownership share cannot influence so strongly on the competence building activities in a spin-off venture. This may give the spin-off venture the freedom to enter new product areas, regardless the needs of the parent firm. Thus, it is proposed that
Proposition 1: The direction of competence building activities in the spin-off venture is associated with the changes in the ownership structure of a spin-off venture.
Proposition 1a: A decreasing level of parent firm ownership is associated with entering new product areas.
Proposition 1b: An increasing level of parent firm ownership is associated with focusing on product areas serving the core businesses of the parent firm.
The resource-based approach gives reason to believe that some characteristics of the divested units are powerful determinants of disintegration process characteristics. More specifically, the resource-based approach and the property rights theory hold that the degree of resource complementarities between the parent firm and the spin-off firm have important implications for the timing of the divestment, the intensity of post spin-off collaboration with the parent firm and parent firm ownership.
The property rights approach holds that the complementarity of assets is a significant determinant of ownership structure. According to the property rights theory, the parties to a resource exchange relationship should own highly complementary assets together (Hart and Moore 1990). In the case of the spin-off firm, this would mean that the parent firm should acquire an ownership share of a spin-off firm holding highly complementary assets for the parent firm. This argument is in line with the Williamsonian view that firm-specific investments should be protected by vertical integration (Williamson, 1975). This is because equity ownership enables a party to an exchange relationship to make sure that the complementary assets are developed or used in its best interests. In addition, partial ownership may guarantee that both parties may reap the benefits accruing from residual rights under incomplete contracting (Grossman and Hart 1986; Hart and Moore, 1990; Brynjolfsson, 1994; Autio and Koskinen, 1996).
Resource-based literature, the resource dependence view and some empirical studies (Ito, 1995; Lindholm, 1994) hint that spin-offs having shared resources with the parent firm prior to the separation are likely to remain quasi-externalized. Staying quasi-externalized means that they develop an ongoing relationship with the parent firm. Resource-based literature suggests that the replication of resources previously provided by the parent firm tend to be slow, due to time compression diseconomies, asset mass efficiencies and asset interconnectedness (Dierickx and Cool, 1989). In addition, organizational inertia (Hannan and Freeman, 1989) and existing dominant logics (Prahalad and Bettis, 1986) increase the likelihood of sharing a common asset base even after the separation from the parent firm. Thus, maintaining collaborative linkages may prevent the negative impacts of divestitures, possibly leading to disregard of some previous knowledge (Von Krogh et al., 1996; Hedberg, 1981; Ito and Rose, 1994). It is thus expected that the spin-off firm continues its prior resource sharing relationships with the parent firm even after the establishment of the spin-off firm.
The resource-based literature and the resource dependence view (Pfeffer and Salanick, 1978) give reason to believe that changing resource needs of a spin-off venture are one of the key factors determining the timing of divestment. The resource-based literature and the resource dependence view implicitly assume that synergy effects are one of the key factors in determining the satisfaction of parties to an exchange relationship. This is because complementarities are likely to increase synergy effects and decrease costs associated with competence acquisition from outside of the parent firm. What is largely neglected in previous diversification literature is that the resource needs of a venture are susceptible to changes in the course of the evolution of the spin-off venture. As a consequence, the capability of a parent firm to contribute to the development of its business unit may change over time.
For instance, in order for the spin-off venture to embark on rapid growth, the parent firm may have to invest heavily in developing adequate marketing and distribution competencies. However, the principal motivation of the parent firm may only include the development of a product for its own use. As a result, the parent firm may perceive the costs of building a distribution channel for the spin-off venture too costly compared with benefits accruing from investing in one of its non-core areas. To sum up, the of lack of resources or failure to commit new resources may serve as potential barrier to the continuity of the parent-spin-off relationship. Thus, the nature of resource portfolio held by the parent firm is associated with the timing of divestment in terms of the development stage of a spin-off venture.
To sum up the discussion above, it is proposed that
Proposition 2: Disintegration process characteristics are associated with the degree and the nature of resource complementarities between the parent firm and the spin-off venture.
The hypotheses were tested on 54 technology-related spin-off firms from large corporations. Since no existing database contains a complete record of technology-related ownership changes through spin-off arrangements, several search strategies were used to identify the spin-off firms from the largest Finnish industrial firms.1
The first search strategy was to retrieve potential spin-off firms from the Talouselämä database.2The second search strategy was to contact the venture capitalists, and the corporate managers, division managers and technology managers of the largest Finnish industrial firms and the venture capitalists to ask for their listing of spin-off companies. In addition, some potential spin-off cases were learned through colleagues. These multiple search strategies yielded 129 cases for further analysis.
To be a technology-related spin-off firm, the firm had to exploit technological competencies developed internally by the parent firm. This eliminates spin-offs acquired by the parent firm. Second, this study focuses on spin-off firms founded during the years 1987–1997. Exclusion of spin-off firms founded prior to the year 1987 can be explained by the fact that it would have been very difficult to find people knowledgeable of the founding processes of older spin-off firms. Third, sell-offs in which another firm becomes the main owner of the firm were eliminated from the study. In other words, this study focuses on independent ventures. Fourth, the spin-off firm had to operate in an industrial sector, this also includes technical services. Finally, the spin-off firm had to operate in Finland. The application of the criteria described above eliminated 64 out of 129 potential cases. From the remaining 62 cases 54 were willing to participate in the study. This yields a participation percentage of 87%. The very high participation rate can be partly explained by the use of personal interviews instead of a mail survey.
The spin-off companies operated in seven broad industrial sectors: chemicals, information technology, rubber and plastics, metals and machinery, electrical and optical equipment, transportation equipment, and printing and publishing.3The average year of establishment was 1992. On the average, the sample companies employed 112 persons. The average size of the companies was 146 MFIM (5 FIM ~ USD 1) in terms of annual sales.
To test the propositions, a cross-sectional study using questionnaires and structured interviews was used. Two pilot case studies were carried out in summer 1997. In the course of pilot interviews, the questionnaire was pre-tested and revised. The key respondents interviewed in the study were persons knowledgeable of the history of the spin-off venture. All the data was gathered during fall 1997. Relying on only one interviewer might introduce subjective bias into the interpretation of the results. To control for this bias, the interview questions were structured in a way that they measured facts rather than perceptions and opinions.
Description of Statistical Analysis
Cluster analysis was used to identify different types of disintegration processes through which the divestment through spin-off arrangement took place in sample companies. The cluster analysis is a useful tool for grouping group objects based on the characteristics they possess (Hair et al., 1995; Ketchen et al., 1996). If successful, cluster analysis should result in clusters with high internal homogeneity and high external heterogeneity.
Cluster analysis may lead to misleading results if not carried out with great care. This is because cluster analysis requires several methodological choices that determine the quality of a cluster solution. These choices include the selection of the cluster variate, clustering algorithms, similarity measures and the number of clusters. In addition, the researcher must be confident that the obtained sample is representative of the population to guarantee the generalizability of findings. Finally, multicollinearity among the variables included in the variate may blur the results of the cluster analysis (Green, 1978).
Based upon theoretical considerations, pre spin-off complementarities, vertical complementarities, research and development intensity, timing of the separation, parent firm ownership level and post spin-off collaboration were included in cluster analysis as cluster variables. In cluster analysis, hierarchical agglomerative procedure was used. The distance between clusters was calculated using Ward’s method. Ward’s method was chosen to minimize the within-cluster differences and to avoid the problem of chaining of the observations (Hair et al., 1995). Since most distance measures are rather sensitive to differing scales and the magnitudes among the variables, the data was standardized before similarities were calculated. Standardization eliminates distortions resulting from the tendency of cluster analysis to give more weight to variables with large ranges in defining the cluster solution than to variables with narrow ranges.
Operationalization of Variables
The intensity of pre spin-off resource sharing or the intensity of pre-spin-off complementarities reflects synergy at an operational level. The intensity of pre-spin-off complementarities indicates the extent to which the spin-off firm and the parent firm share similar or complementary resources. The operational level synergy measures include the measures of technological complementarities, and marketing and distribution complementarities. Technological complementarities were measured using three statements about the intensity of technological linkages between the spin-off firm and the parent firm. The items were measured using a seven-point Likert-scale, ranging from 1 (strongly disagree) to 7 (strongly agree). Production complementarities were operationalized in terms three statements measuring the compatibility of the production facilities of the parent firm to the needs of spin-off venture. Marketing and distribution complementarities were captured using three statements about the extent to which the spin-off venture and the parent firm shared customers, sales force, advertising and marketing functions. Cronbach’s alphas show that these measures achieve an acceptable level of reliability. It should be noted that the measure of intensity of pre-spin-off complementarities only covers the last three years before the separation from the parent firm.
Vertical complementarities refer to the degree to which the products or services of the spin-off venture were sold to the parent firm. Vertical complementarities were measured as a percentage of sales sold to the parent firm.
Research and development intensity was measured as the percentage of expenditures attributed to research and development during the past three years prior to the study. This measure is consistent with previous literature (Gomez-Meijia, L., 1992; Zahra, S., 1996).
Timing of separation was operationalized using the achievement of certain milestones in the venture evolution as a proxy. Based on the stage of growth model by Kazanjian and Drazin (1988, 1989), the introduction of a product prototype, the ability to produce the product at a commercially viable scale, and the achievement of an established position in the market by the time of the separation from the parent firm serve as milestones in the evolution of a technology-based venture.
Parent firm ownership level was simply operationalized as the equity share of the spin-off firm held by the parent firm at the time of the study (Lindholm, Å., 1994; Ito and Rose, 1994).
The intensity of post spin-off collaboration was measured by asking the respondents to indicate the intensity of technological, production, marketing and distribution collaboration with the parent firm in the following functional areas: research and development, production, marketing, and distribution. The intensity of post spin-off collaboration was measured on a three-point Likert scale. In this scale, 1 indicates in-existent collaboration between the spin-off firm and the parent firm and 3 indicates intensive collaboration between the parent firm and the spin-off firm.
Post spin-off growth was measured as absolute change in sales between 1997 and the year of establishment of the spin-off firm. The categorization of innovative assets was adopted from Christensen (1995) and is explained in the section focusing on the interpretation of clusters. The novelty of technology to the parent firm was divided into three categories. First, there were technologies that are totally unrelated to the current and past technology base of the parent firm. Second, there are technologies closely related to the current technology base of the parent firm. Third, there are technologies currently unrelated to the technology base of the parent firm which were once the core technologies of the parent firm. The novelty of markets can have two values. The markets served by a spin-off firm are either new to the parent firm or old markets served by the spin-off firm.4The status of the spin-off venture within the parent firm can be divided into three categories: project team, business unit and subsidiary. Post spin-off trend for collaboration and for parent firm ownership was either increasing, stable or decreasing. Finally, post spin-off diversification strategies were captured by controlling whether the spin-off firm had introduced new product applications of the original product.
Three clusters emerged from the statistical analysis (See Table 1). The criteria for settling down for a three cluster solution are both statistical and conceptual. First, agglomeration schedule may be used to define the appropriate number of clusters, (SPSS Professional Statistics 6.1 pp. 90–91). Agglomeration schedule showed that there is a fairly large increase in the value of coefficient from a three cluster solution to a two cluster solution. Second, the three cluster solution provides theoretical and conceptual clarity, thus adding to our understanding of the disintegration processes of technological competencies.
The three cluster solution is examined from an inside-out perspective in Table 1. In inside-out perspective, the differences in the means of variables included in the cluster analysis were compared across the three clusters. The Mann-Whitney test indicates that except for post spin-off collaboration and pre spin-off resource sharing, all the variables differ at a statistically significant level (p=0.01) across clusters one and three. Clusters two and three differ in terms of all the other variables but parent firm ownership level. The means of research and development intensity, technological complementarities, timing of separation, and parent firm ownership level differ at a statistically significant level between clusters one and two.5
In Table 2, the three cluster solution is analyzed from an outside-in perspective. In outside-in analysis, the three clusters were examined in terms of the asset category of innovative assets, the relation of the venture to the technology and customer base of the parent firm, post spin-off growth of the spin-off firm, and the development of the parent-spin-off firm relationship in terms of collaborative and equity linkages. As Table 2 indicates, the three clusters differed from one another in terms of all these variables. The interpretation of the results of the cluster analysis is presented in the following chapters.
Cluster 1: Spinning of Novel Technologies
The first cluster produced with the Ward’s clustering method represents spinning off leading-edge, new-to-market technologies. This cluster includes eight firms. Using the classification of assets for technological innovation by Christensen (1995), the spin-off firms in the cluster develop scientific research assets still far from reaching the stage where the commercial exploitation of competencies is possible.
In most cases, the idea for technology development came initially from outside the parent firm, such as universities and research institutes. In most cases, the purpose of the ventures was to create a new business area for the parent firm. The tacit nature of technological competencies being developed, and uncertainty about their commercial viability made embryonic ventures the first targets of refocusing activities.
In general, the parent firm acquired an ownership share of the newly formed spin-off firm. The ownership share served as an option to follow the development of technology and, if necessary, to reintegrate it back to the parent firm. It is interesting to note that the importance and commercial viability of technologies being developed were noticed by the parent firm only after the spin-off firm entered the commercialization stage of technology. In seven out of eight cases, the resource sharing between the spin-off firm and the parent firm increased during the post spin-off period.
The strengthening of operational linkages had implications for the development of technological competencies in the spin-off firm. In most cases, the spin-off firm decided to focus on product applications serving best the needs of the parent firm. The development and the exploitation of other possible product applications were either discontinued or postponed. Three out of eight spin-off firms in this cluster were acquired and re-integrated by the parent firm.
The spin-off firms in cluster one seem to be characterized with relatively low profitability and growth figures. This is understandable given the high research and development investments, and emerging markets. One out of eight spin-off firms failed after the separation from the parent firm. In this case, the spin-off firm was totally isolated from the parent firm, thus, unable to exploit the resource base of the parent firm.
Cluster 2: Divestment of New Market Applications of Closely Related Technologies
The firms in cluster two can be labeled as divestments of new market applications of closely related technologies. The common nominator of the firms in the second cluster is that the technology base of the parent firm and the spin-off firm is essentially the same. Using the terminology of Teece (1982) and Christensen (1995), the competencies developed by the spin-off firms fall into the category of product application assets, such as specialized industrial machinery or industrial components, software services and integrated information technology systems.
The impetus for the initiation of spin-off ventures was either to support the core businesses of the parent firm, or to exploit the possibilities of core technologies to the fullest. In most cases, the parent firm had technological and production related complementarities to aid the evolution of the new, technology-based venture. However, the targeted clientele of the spin-off venture was very different from the customer base of the parent firm. In other words, the parent firm could not provide the spin-off venture with functional application assets or knowledge concerning design and service characteristics that can match user-needs.
The spin-off triggering factor for the firms in cluster two was the unwillingness of the parent firm to support the diversification of the spin-off venture into new markets. After the establishment of the spin-off firm, the parent firm tended to acquire a moderate ownership share of the spin-off venture and continue the exploitation of operational linkages. Nevertheless, as the spin-off firm introduced new product applications of the technology, the operational and equity linkages between the spin-off firm and the parent firm tended to weaken. The second cluster is characterized with relatively high growth and profitability figures.
Cluster 3: Divestment of Old Core Competencies
The firms belonging to the third cluster can be best described as divestments of old core competencies. Fifteen out of eighteen spin-off firms were former established business units of parent firms. The technological competencies being developed were rather mature. Using the typology of Christensen, the technological assets being developed fall mainly into a category of process development assets, such as metals and machinery, as well as rubber and plastics. Firms in this cluster were separated from the parent firm in the mature stage of venture evolution.
The spin-off firms in the third cluster had once been closely related to the technology and the customer base of the parent firm. At the earlier stages of the venture evolution, these ventures had shared technology, production, marketing and distribution-related competencies with the parent firm. In the course of time, however, the parent firm decided to renew its competencies. As a result, the strategic importance of older business units for the parent firm gradually decreased. In the end, the spin-off units in this cluster were totally isolated from the other operations of the parent firm. Being characterized with steady cash flow and high profits, the spin-off units had long a legitimized position within the parent firm.
Restructuring policies in the parent firms served as spin-off triggering factors. Except for the reduction of equity ownership, hardly anything changed in the parent spin-off relationship after the separation from the parent firm. As before the spin-off, resource sharing between the parent firm and the spin-off firm was non-existent. The main challenges faced by the spin-off venture managers were associated with the improvements of process technologies and the development of new product generations. During the post spin-off period, these firms have been characterized with excellent financial performance in terms of growth.
A closer examination of disintegration processes in three clusters reveals interesting patterns of change in the degree of disintegration and in the degree of relatedness (See Figure 1). Relatedness here refers to operational linkages between the parent firm and the spin-off firm. As depicted in figure 1, the parent-spin-off relationship in cluster one starts with low levels of relatedness and with relatively high levels of integration. The imbalance between dynamic complementarities and the degree of integration leads to a establishment of a spin-off firm. After the separation, the emphasis of activity in the spin-off firm shifts from the development of product technologies to the development of market related competencies. This enables the parent firm to assess the true value of the technology. In most cases, the recognition of the value of technology leads to a tighter integration of the spin-off venture to the parent firm. Reintegration usually means focusing on applications closely related to the product base of the parent firm. As a result, the degree of relatedness increases in parallel with the degree of integration.
The disintegration processes of the firms in clusters two and three differ from the disintegration processes experienced by the firms in the first cluster of novel technologies in many respects. Clusters two and three were at first characterized with a high degree of relatedness to the technological base of the parent firm. In cluster two, the technologies developed by the spin-off venture were almost identical to the core technology of the parent firm. Only the clientele of the spin-off venture was totally different from the customer base of the parent firm. As the newly founded spin-off firm started to develop new competencies related to the user-interface, the degree of relatedness to the parent firm gradually decreased. This also led to the weakening of equity and operational linkages between the spin-off firm and the parent firm.
Cluster three, comprising old core technologies, differs from cluster two in terms of timing of disintegration and post spin-off development. Old core technologies were separated from the parent firm only after the venture had established its position in the markets. At the time of separation, technological and market relatedness between the parent firm and the spin-off venture was relatively low. In cluster three, the parent firm-spin-off firm relationship had in most cases remained relatively stable after the establishment of the spin-off firm. To sum up the discussion above, changes in the ownership structure seem to be associated with the direction competence building activities in the divested unit, thereby giving support to Propositions 1a and 1b.
Interestingly, the performance of the spin-off ventures seems to vary across the three clusters. The cluster with the lowest research and development intensity was characterized with highest growth, and vice versa. It is possible to explain this result by saying that ventures engaged in the development of embryonic technologies, by definition, grow slowly (Kazanjian et al. 1989). However, some disintegration process characteristics may provide an additional explanation for the performance differences across the clusters. It seems that the fastest growing clusters two and three also diversified away from their former product base. The diversification away from the former product area, in turn, possibly fueled post spin-off growth.
The relationship between post spin-off growth and disintegration process characteristics may equally be analyzed from the perspective of competence renewal. This study highlights the importance of governance decisions for the renewal of the competencies in the spin-off firm. In clusters two and three, the spin-off decision enabled moving further away from the technological base of the parent firm through the development of new competencies. In cluster one, the spin-off firm was able to develop competencies unrelated to the needs of the parent firm only during a short period of time after the establishment of a spin-off firm. When re-integrated back to the parent firm, the product applications were restricted to the markets currently served by the parent firm. Using the terminology of Elfring et al. (1997) external selection mechanism was replaced with internal selection mechanism favoring the strengthening of core competencies of the parent firm. It is possible that the renewal of the technological competencies in cluster one requires that the venture is spun-off again. In that case, the renewal of technological competencies might take the form of development of new product applications of a given technology following the disintegration pattern of cluster two.
Previous literature focuses on corporate spin-offs as a means of enhancing competence renewal and growth mostly from the parent firm’s point of view. According to the empirical studies, spin-offs are established either to enhance corporate renewal within the parent firm (Takahashi, 1995; Ito et al. 1998) or to protect the old core competencies of the parent firm. (Bower et al., 1995). An international comparison reveals that Japanese firms tend to spin-off their old core competencies in order to develop new ones, while American firms tend to divest leading-edge technologies (Takahashi, 1995). Cluster analysis shows that Finnish firms tend to form both kinds of spin-off firms.
The results imply that the characteristics of the spin-off venture predict disintegration process characteristics, which, in turn, are associated with the subsequent evolution and growth of the new venture. For instance, the nature and the degree of resource complementarities between the parent firm and the spin-off firm were associated with the timing of divestment, the intensity of post spin-off collaboration with the parent firm and parent firm ownership, thus giving weak support to Proposition 2. However, the explorative and tentative nature of this study should be kept in mind while interpreting the results. Cluster analysis requires several methodological choices that determine the nature of a cluster solution. In this paper, only the cluster solution providing the greatest conceptual clarity was reported. Therefore, further research is needed to confirm the results of this study. The practical value of this study lies in its ability to identify different types of spin-off ventures. This ability, for example, enables interest groups to tailor their support mechanisms according to the needs of the new venture.
1. The largest Finnish industrial firms were identified by using the 1990–1997 special issues of Talouselämä journal. Talouselämä is a weekly Finnish magazine focusing on issues related to corporate management and economics. 125 largest Finnish firms were selected for a more detailed analysis. These 125 largest Finnish firms generated a turnover of over 1000 million FIM and employed over 1000 persons. Of these 125 largest Finnish firms, 40 were considered industrial firms.
2. The Talouselämä database contains all the ownership changes in major Finnish corporations. The transactions the worth of which fall beyond 3MFIM are not systematically included in the database.
3. The industry class of each spin-off company was defined based on the NACE Industrial classification, common to the entire European Community.
4. Note that the spin-off firms in the sample did not serve the current markets of the parent firm. This is because hostile spin-offs were excluded from the sample.
5. It should be noted that the cluster solution remains essentially the same even if pre spin-off marketing and distribution complementarities and post spin-off collaboration were eliminated from cluster analysis.
CONTACT: Annaleena Parhankangas, Helsinki University of Technology, PO Box 9500, FIN-02015 HUT; (T) 358-9-451-3097; (F) 358-9-451-3095; annaleena.parhankangas@hut.fi
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1999 by Babson College. All rights reserved. Last updated March 2000.