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Employee spinoffs and other entrants: stylized facts from Brazil

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  • Oana Hirakawa
  • Marc-Andreas Muendler
  • James E. Rauch

Abstract

Where do the capabilities of new firms in developing countries come from? One answer is from other firms: employees spin off to launch their own businesses. In this project, Marc Muendler and James Rauch of the University of California, San Diego computed, for the first time, the share of employee spinoffs in a representative sample of a developing country’s new firms using precise and replicable criteria. Working with a comprehensive linked employer-employee database for Brazil, Muendler and Rauch found that, depending on definition, employee spinoffs accounted for between one-sixth and one-third of the new firms in Brazil’s formal private sector during the period 1995-2001. Having identified employee spinoff firms, Muendler and Rauch used them to shed light on two kinds of intrafirm learning. The first kind is learning by employees about their employer’s technology, customers, and suppliers. The second kind is learning by employees about the capabilities and preferences of their colleagues. The first kind of intrafirm learning is reflected in the findings of Muendler and Rauch for basic indicators of performance of new employee spinoff firms compared to other entrants. Regardless of definition, size at entry is larger for employee spinoffs than for new firms without “parents” but smaller than for diversification ventures of existing firms. Similarly, exit rates for employee spinoffs are less than for new firms without parents and comparable to those for diversification ventures of existing firms. These results are consistent with the idea that a spinoff partially inherits its spawning parent’s productivity through the knowledge that the founding workers take with them. Muendler and Rauch also found evidence that employee spinoff firms learned about the customers of their parents. In particular, exporting spinoffs from exporting parents copied their parents’ export destinations and even supplanted their parents as suppliers for those destinations. Supplying their parents’ customers may be one of the reasons for Muendler and Rauch’s finding that spinoffs locate even closer to their parents than their parents’ own new plants, contributing to the formation of industrial clusters. Muendler and Rauch obtained results for the second type of learning as well, that of employees about their colleagues. They contrasted the survival at spinoff firms of employees who moved together from the parent with outside workers hired at the same time. The year-to-year survival rate of the founding-team workers was substantially higher, reflecting that they had been recruited by colleagues who knew they would be good fits with the new firm, but the survival rate of the outsiders gradually caught up as the ones who were bad fits were weeded out. After five years, workers hired from the parent firm were 52 percent more likely to remain with the spinoff firm than outside hires. The research of Muendler and Rauch shows that, in a developing country like Brazil, employee spinoff firms offer an important mechanism through which informal learning by employees within firms is mobilized to create new firms and jobs.

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File URL: http://eprints.lse.ac.uk/36384/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 36384.

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Length: 27 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:ehl:lserod:36384

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Citations

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Cited by:
  1. Martin Andersson & Steven Klepper, 2013. "Characteristics and performance of new firms and spinoffs in Sweden," Industrial and Corporate Change, Oxford University Press, vol. 22(1), pages 245-280, February.
  2. Veysel Avsar, 2013. "Antidumping, Retaliation Threats, and Export Prices," World Bank Economic Review, World Bank Group, vol. 27(1), pages 133-148.
  3. Douglas L. Campbell, 2010. "History, Culture, and Trade: A Dynamic Gravity Approach," EERI Research Paper Series EERI_RP_2010_26, Economics and Econometrics Research Institute (EERI), Brussels.
  4. James E. Rauch, 2013. "Employee Spinouts, Social Networks, and Family Firms," CESifo Working Paper Series 4539, CESifo Group Munich.
  5. Oana Hirakawa & Marc-Andreas Muendler & James E. Rauch, 2010. "Employee spinoffs and other entrants: stylized facts from Brazil," LSE Research Online Documents on Economics 36384, London School of Economics and Political Science, LSE Library.
  6. Fackler, Daniel & Schnabel, Claus, 2013. "Survival of spinoffs and other startups: First evidence for the private sector in Germany, 1976-2008," Discussion Papers 84, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  7. Veysel Avsar, 2010. "The Anatomy of Trade Deflection," Working Papers 1004, Florida International University, Department of Economics.
  8. Vivarelli, Marco, 2012. "Drivers of entrepreneurship and post-entry performance : microeconomic evidence from advanced and developing countries," Policy Research Working Paper Series 6245, The World Bank.
  9. H. Fryges & M. Wright, 2013. "The origin of spin-offs – A typology of corporate and academic spin-offs," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 13/864, Ghent University, Faculty of Economics and Business Administration.
  10. Fryges, Helmut & Müller, Bettina & Niefert, Michaela, 2013. "Job machine, think tank, or both: What makes corporate spinoffs different?," ZEW Discussion Papers 13-093, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  11. Marco Vivarelli, 2012. "Entrepreneurship and Post-Entry Performance: the Microeconomic Evidence," DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali dises1286, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  12. Vivarelli, Marco, 2012. "Entrepreneurship in Advanced and Developing Countries: A Microeconomic Perspective," IZA Discussion Papers 6513, Institute for the Study of Labor (IZA).

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