A Look at Corporate Spin-Offs in the EU A Look at Corporate Spin-Offs in the EU - findings from a study by the IPTS, DG Enterprise, and the ESTO network Presented to the “OECD Workshop on Research-Based Spin-Offs” OECD, Paris, 8. December 1999 By European Commission, Joint Research Centre Institute for Prospective Technological Studies Project leader: Pietro Moncada Paternò-Castello

2 Activities from March to December 1999 Study plus (1) Study based on existing information on Corporate Spin-Off phenomena in 7 EU countries (Denmark, France, Germany, Italy, Spain, Sweden, and the UK) plus additional information screening and analysis. questionnaire survey (2) European-wide questionnaire survey addressed to 887 CEOs of industry and services on their experience with Corporate Spin-Offs. 144 responses from 13 countries (the above mentioned plus Austria, Belgium, Greece, the Netherlands, Portugal, and Switzerland). working seminar (3) One-day working seminar with 27 high-level representatives from industry, academia and the European Commission.

3  Broad definition:  Broad definition: “A Corporate Spin-Off is the division of an existing company into two, usually a bigger one (the parent company) and a smaller one (the Spin-Off).”  Two main types by motivation: Restructuring-driven Spin-Offs:Restructuring-driven Spin-Offs: Medium to large parents dispose of businesses that no longer fit the parent’s strategy, outsource functions in order to reduce costs or sell a unit in order to avoid costly social plans. Entrepreneurial Spin-Offs:Entrepreneurial Spin-Offs: The Spin-Off entrepreneur forms a new company based on critical know-how acquired during his previous professional experience. Definition and Typology

4 Where do Corporate Spin-Offs occur?  Origins  Origins of (mainly restructuring-driven) Spin-Offs: Manufacturing, Energy, and Telecommunications. Deregulation has been a driving factor in Energy and Telecommunications.  Destinations:  Destinations: Services in general and ICT services easy to enter  Spin-Offs are encouraged by markets that are easy to enter and where: embodiedCritical design and production techniques are embodied in skilled labour, ExperienceExperience constitutes a critical information advantage, Multiple market segmentsMultiple market segments exist, and transferableTechnologies are readily transferable.

5 Impacts on Competitiveness Corporate Spin-Offs considerable share of new firm formationConstitute a considerable share of new firm formation high (asset) growth lower failure ratesCombine the high (asset) growth of a new or refocused company with considerably lower failure rates than normal start-ups regionallyConcentrate their activities regionally, raising their environment’s competitiveness commercialisingPlay an important role commercialising new technologies Benefit the parentBenefit the parent, who returns from sub-standard to average performance

6 Impacts on Employment Corporate Spin-Offs net creationstableLead to a net creation of stable jobs on the long run job qualityRaise job quality through more employment diversity and job enrichment indirectInduce indirect employment growth into the industrial cluster

7 Corporate vs. Research-Based Spin-Offs  Swedish study: more frequentCorporate Spin-Offs are more frequent than Research-Based Spin-Offs, twice as fastCorporate Spin-Offs grow twice as fast as New Technology Based Firms, stay small and grow slowlyUniversity Spin-Offs stay small and grow slowly, they concentrate on high patent activity, systemThere is a system of technology-related ownership changes.

8 Spin-Offs as a Role for Policy?  Obstacles to Corporate Spin-Offs highlighted by the seminar participants: fragmentedHighly fragmented fiscal/tax regimes of the EU member states, inflexibilityLabour market inflexibility, including pension arrangements and the transferability of employee benefits, Intellectual Property RightIntellectual Property Right issues, financeAccess to (expansion) finance remains a major problem, negativelyAn entrepreneurial failure is very negatively perceived.  Spin-Offs from public RTD-institutions face further obstacles: market-relatedFew market-related experience and customer contacts, technology-development gapBigger technology-development gap to commercialisation, entrepreneursLess entrepreneurs, more bureaucracy.

9 Where should Policymakers pay attention? remove obstacles Help remove obstacles to Spin-Offs, but not prefer Spin-Offs against start-ups, Encourage risk-taking Encourage risk-taking, but not take risks away from the Spin-Off entrepreneur, Benchmark Best Practices. Benchmark Corporate Spin-Offs and spread information in form of Best Practices.