Bridging Knowledge Resources: The Location Choices of Spinouts

• DOI: http://doi.org/10.1002/sej.1241
• Published date: 01 June 2017
• Date: 01 June 2017
• Author: Franco Malerba,Roberto Fontana,Pamela Adams

BRIDGING KNOWLEDGE RESOURCES: THE

LOCATION CHOICES OF SPINOUTS

PAMELA ADAMS,

1,2

ROBERTO FONTANA,

2,4

and

FRANCO MALERBA

2,3

*

1

Department of Management, Stillman School, Seton Hall University, New

Jersey, U.S.A.

2

ICRIOS, Bocconi University, Milano, Italy

3

Department of Management, Bocconi University, Milano, Italy

4

Department of Economics and Management,UniversityofPavia,Pavia,Italy

Research summary: This study develops a framework that links a typology of spinouts

with distinct product/market strategies and the characteristics of localization economies

to study location choice. Specifically, we examine focal spinouts and user-industry spin-

outs entry into generic and market-specific product categories and localization econo-

mies related to the focal industry and to downstream, user industries. We test our

hypotheses on a sample of 413 spinouts in the U.S. semiconductor industry from 1997 to

2007. Our findings show that focal spinouts make different location choices than user-

industry spinouts and that such choices are mediated by product strategy at entry. Our

results contribute to the literatures o n location choice a nd strategic entrepr eneurship.

Managerial summary: This study concerns the location choices of different types of spin-

outs at the moment of entry. Our study suggests that location may be a key decision for

entrepreneurs to increase their exposure to potential knowledge spillovers. Location, there-

fore, should not be taken as a given in either studies or business plans related to entrepre-

neurship. Rather, location needs to be treated as a strategic choice to be exercised by new

firms as they enter an industry. Our research also underscores the importance of down-

stream industries both as a source of entrepreneurship and as a source of knowledge. In

some cases, localization economies related to downstream industries might offer greater

potential to entrants than localization economies related to the focal industry. Copyright ©

2016 Strategic Management Society.

INTRODUCTION

Spinouts, a distinct category of entrepreneurial ven-

tures started by ex-employees of incumbent firms

in an industry, have received increasing attention

from management scholars in recent years. Much

of this interest is grounded in evolutionary theory

that suggests that firms differ in term of their his-

torical antecedents and capabilities and that such

differences matter (Nelson, 1991). Spinouts are dis-

tinct from other start-ups due to the knowledge they

inherit through their founders’pre-entry experience in

an industry. Scholarship on entrepreneurship suggests

that the pre-entry knowledge resources of spinouts,

embodied in their founders, affects not only their entry

strategies, but also their long-term performance and

ability to survive (Agarwal et al., 2004; Bruderl, Prei-

sendorfer, and Ziegler, 1992; Chatterji, 2009; Klepper

and Simons, 2000; Klepper and Sleeper, 2005). But

how do the knowledge resources inherited by spinouts

affect their location choices? This question has been

largely unexplored in the literature on spinouts.

The literature on spinouts and cluster formation

generally starts from the observation that spinouts

Keywords: spinoff; location; resource based view; knowledge;

quantitative research method

*Correspondence to: Franco Malerba, Bocconi University, via

Roengten 2, 20136 Milan, Italy. E-mail: franco.malerba@

unibocconi.it.

Copyright © 2016 Strategic Management Society

Strategic Entrepreneurship Journal

Strat. Entrepreneurship J, 11:93–121 (2017)

Published online 17 February 2017 in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/sej.1241

tend to make the same choices as other types of

start-ups in terms of locating in their region of ori-

gin due to their knowledge of, and contacts within,

the local context (Buenstorf and Klepper, 2010;

Klepper, 2007). How the specific nature of the

resources inherited by spinouts affects such deci-

sions is, therefore, left unexplored. Research on

spinouts’decisions to stay near their parent firms

or leave their regions of origin, however, suggests

that the explanation for such decisions is based on

factors related to firm strategy and agglomeration

economies (Berchicci, King, and Tucci, 2011).

Again, little reference is made to the resources

inherited by spinouts through their pre-entry expe-

rience, except for knowledge of the local context

and social connections. This research, therefore,

provides only a partial understanding of how the

specific knowledge resources of spinouts might

influence location selection indirectly through

strategy.

We propose that a fuller explanation of the loca-

tion choices of spinouts must start with a deeper

understanding of the interaction between pre-entry

experience, entry strategy, and location characteris-

tics (localization economies). In this study, we

develop and test a theoretical framework that links

a typology of spinouts with distinct product/market

strategies and the characteristics of localization

economies to study location choice. Specifically,

we identify two types of spinouts: focal spinouts

(i.e., started by ex-employees of firms in the same

industry) and user-industry spinouts (i.e., started by

ex-employees of firms in downstream industries).

We examine their product strategies at the moment

of entry (i.e., entry into generic or market-specific

product categories) and the localization economies

(related to the focal industry and to downstream,

user industries) in the areas where they locate their

new businesses. We also distinguish between spin-

outs that remain in their home regions and those

that locate to different regions (the non-home

choice). Our major research question concerns how

the match between firm resources inherited through

pre-entry experience and product/market strategy

influences location choice across regions character-

ized by different types of localization economies.

We test our hypotheses on a sample of 413 spinouts

in the U.S. semiconductor industry from 1997 to

2007. This industry is at an advanced stage of its

life cycle, with differentiated final markets. It is

also an industry in which spinouts entered the

industry from incumbent firms in both the focal

industry and downstream, user industries (Adams,

Fontana, and Malerba, 2013). It is, therefore, an

appropriate setting for the study.

Our findings show that focal spinouts make dif-

ferent location choices than user-industry spinouts.

They further show that such choices depend on

the entry strategy adopted by spinouts at the

moment of entry. For focal spinouts that produce

generic products, regions characterized by localiza-

tion economies related to the focal industry seem

to be more attractive. For focal spinouts entering

market-specific product categories, however,

regions with localization economies related to

downstream, user industries seem to exert a greater

pull. User-industry spinouts, by contrast, are more

likely to locate in areas with a higher presence of

firms in the focal industry when producing both

generic and market-specific products. Finally, we

find two cases in which localization economies in

the region of origin seem not to affect the location

decisions of spinouts: user-industry spinouts that

produce generic products and focal spinouts that

produce market-specific products in cases where

they stay in their region of origin. These are both

cases in which the degree of dissimilarity between

pre-entry knowledge resources and product/market

strategy is relatively high and the entrants are less

equipped to benefit from local externalities.

This work contributes to three major areas of

the literature. We contribute to the literature on

evolutionary economics and industry dynamics by

showing that the degree of match between the

required resource profile of an entry strategy and

the pre-entry resources of spinouts affects not only

entry and survival, but also location choice (Helfat

and Lieberman, 2002; Klepper, 2001, 2009; Nelson

and Winter, 1982). By investigating how location

choice is affected by the degree and nature of the

resource gaps spinouts face at the moment of entry

and the localization economies present in different

regions, our study also contributes to the literatures

on strategic entrepreneurship and location theory

(Agarwal et al., 2004; Aharonson, Baum, and Feld-

man, 2007; Figueiredo, Guimaraes, and Wood-

ward, 2002). Our findings are consistent with

scholarship that argues that location is a strategic

choice that may be actively used by entrepreneurs

who seek to fill resource gaps by locating their new

ventures in areas that provide higher potential for

knowledge spillovers (Alcácer and Chung, 2007).

94 P. Adams, R. Fontana, and F. Malerba

Copyright © 2016 Strategic Management Society Strat. Entrepreneurship J, 11:93–121 (2017)

DOI: 10.1002/sej