Spinoff dynamics beyond clusters: pre-entry experience and firm survival in peripheral regions

Abstract

This paper investigates local spinoff dynamics in manufacturing industries in peripheral areas. It focuses on the question whether local inheritance of competences and routines from parent firm to spinoff is also relevant for firm survival in peripheral areas. The analysis is based on a unique data-set, tracking all manufacturing firms at five observation points during the time span of 1980–2004 in two case study regions in Switzerland. The results show that the local inheritance of capabilities gives spinoffs a competitive advantage in peripheral regions as well. Further, the findings suggest that spinoff dynamics differ between different types of peripheral regions, depending on their varying local economic conditions. Finally, spinoff dynamics in the periphery might be characterized by a stronger hostility of larger parent firms towards spinoffs. This research adds a distinct peripheral perspective to the entrepreneurial heritage literature and advocates for a more nuanced discussion on spinoff dynamics in varying geographical settings.

Keywords:

• Entrepreneurship
• evolutionary economic geography
• manufacturing industries
• peripheral regions
• spinoffs
• Switzerland

Acknowledgement

I would like to thank Heike Mayer, Ron Boschma and Martin Warland for their constructive comments. Any errors or omissions remain, of course, my responsibility.

Notes

1. In Switzerland, five metropolitan regions exist: Zurich, Basel, Bern, Geneva–Lausanne, and the Swiss area of the Milan region (Schuler et al. 2005). See also Figure 1.

2. Especially Germany, Austria and Switzerland host many Hidden Champions, relatively unknown, but highly specialized SMEs who are world market leaders in a specific niche (Simon 2009). It is not unusual that these companies are located in small towns and peripheral areas.

3. The Population as of 2012 is roughly 75,000 for the Rheintal and 82,000 for the Toggenburg.

4. In 2012, the Rheintal holds 678, the Toggenburg 582 manufacturing firms.

5. All figures presented in this paragraph are based on data from the Statistical Service of the Kanton of St. Gallen (statistik.sg.ch/) and the National Statistics Office of Switzerland (bfs.admin.ch/).

6. The entries in the Ragionenbuecher do not clearly distinguish between firm and establishment. Since this paper is focusing on the work experience entrepreneurs gather during their employment in local establishments, the distinction between firm and plant is not relevant in this context. I will thus refer to local establishments as firms, regardless if this is a single plant company, or a branch plant.

7. The place of citizenship, or ‘Buergerort’, is a specificity of Swiss citizenship. It is neither the place of birth, nor the place of residence, but the municipality from which an individual got his civil rights granted. Legally speaking, it is practically irrelevant today, but can be used for statistical purposes.

8. Firms surviving after 2004 are treated as right-censored cases. For the empirical analysis, firms founded after 1999 were excluded in order to prevent that very young firms were classified as ‘survived’. This would cause an overrepresentation of surviving firms founded between 2000 and 2004.

9. The firms’ branch affiliation is based on the Swiss General Classification of Economic Activities (NOGA), which is grounded on the NACE (rev. 2) classification. However, the raw data does not classify the firms following the NOGA code, but only contains a general description of the firm’s main economic activity. Thus, the 2-digit and 4-digit industry classification was manually derived from the firm’s business activity description.

10. A firm is considered not small if it has more than three active managers. I controlled if the proxy variable shows high correlation with the actual size of the firm in the following way. I extracted the population of manufacturing firms of the case study regions as of June 2015 from the AMADEUS Database (http://www.bvdinfo.com) which contains information on the number of management persons as well as a firm size classification. Based on the number of management persons, a second size classification was constructed. When compared to the firm size classification of the AMADEUS database, 82% of the firms are classified correctly within the classification based on the number of management persons.

11. The municipality where the firm is located is used as spatial fixed effects dummy. As Switzerland is a highly federalized state, the municipalities have some scope of action when it comes to supporting newly founded firms. Further, 4-digit industry dummies (Swiss NOGA Classification) are included, as it is widely recognized that differences between industries (such as technology intensity, market structure etc.) are important for explaining different entrepreneurial dynamics.

12. The largest contribution to a clusters consists of 1,600 employees (roughly 30% of total employment in the cluster) from the Rheintal region to the plastics cluster of north–eastern Switzerland (Dembinski, Schoenenberger, and Bologna 2008).