In literature, two types of technology-based companies stand out: Knowledge-Intensive Business Services o KIBS, and New Technology-Based Firms or NTBF. The former are firms that provide business services aimed at solving problems related to technology; they are also intensive in applied and predominantly non-routine knowledge.1 In new technology-based companies, technology (soft and hard) is seen as input and product, and is characterized by bringing together a dynamic body of knowledge closely linked to changes in technical devices and products with physically measurable attributes; they have also been in the market less than 15 years.2
According to García, Olea and Contreras, for the Mexican case analysis, KIBSs and NTBFs can be grouped in business spin-offs and startups.3 This typology considers the differences in the formation process, the industrial escalation trajectory, as well as the accumulation of technological capacities and innovation of companies. This article considers this distinction to study Mexican knowledge-intensive and technology-based SMEs, with the purpose of establishing some public policy strategies to boost entrepreneurship, technology transfer, productive development and the internationalization of smaller-sized companies.
COMPANIES INCUBATING COMPANIES
Spin-offs are companies that are set up by former multinational employees that, for these purposes, capitalize tacit and coded knowledge, and technological abilities acquired in the time they worked for the parent company. Klepper calls intra-industry those companies that are created within another firm and carry out medium to high technology activities in the same sector than that of the company they come from.4 For their creation, spin-offs tend to use resources from both the entrepreneur and the home company under the label of personal savings, technical and organizational knowledge, socio-professional networks, certifications and others. This type of company differs from corporate spin-offs, whose origin is located in the financial or fiscal restructuring of the parent company, which does not exclude that they can be constituted into new business units to exploit some technology in the market.5 Spin-offs—specifically—operate like independent entities in legal, technical and commercial terms, and focus on activities that were originally carried out by the companies that gave them life. These are enterprises led by an employee (or group of employees) when founding a new company to develop new business units, products or services, exploiting useful knowledge, technological capabilities and innovations accumulated during the time they worked in the parent company.6
The main mechanism at the formation stage of spin-offs is the transfer of technology, and tangible and intangible knowledge that are accumulated through processes of interactive learning, innovation, and the need to build absorption skills to be commercially exploited in the market.7 Depending on the place where the key technology of entrepreneurship or useful knowledge in commercial terms originates, spin-offs can be classified as: research, if they come from a research center; academic, if work is conducted in a higher education institution; or business related, if the origin is in a private organization or company, as is what we are interested in in this article.8
Startups are different knowledge-intensive or technology-based ventures. The difference lies in that its formation and development are closely linked to recurring interactions between entrepreneurs and different actors of the innovation system, mainly in their regional and sectorial aspects.9 During its gestation and growth, higher education institutions, research centers, and government funds intended for this purpose intervene. Their knowledge base depends fundamentally on the formal education of the entrepreneur, on the assistance of innovation system actors, and not on the previous work relationship of entrepreneurs in transnational companies (TCs), as in the case of spin-offs.10
Based on the aforementioned elements, different trajectories can be seen between spin-offs and startups in industrial escalation, product and process innovation processes, and the relationships they establish with the innovation system, on the one hand, and with multinational companies (MC), on the other.
In spin-offs, training and industrial escalation is associated with global value chains and knowledge spillovers of foreign direct investment from two main aspects: the human capital detachments from MCs, and supply links. In the case of startups, however, their innovation processes are associated with the nature, intensity and frequency of links with innovation system organizations in which two methods stand out: the one based on Science, Technology and Innovation, and the one based on Making, Using and Interacting. These methods contrast with the innovation processes of spin-offs, where the accumulation of technological capacities entails the spillover of direct and indirect knowledge from MCs.11
SPIN-OFFS AND THEIR CONTRIBUTION TO REGIONAL DEVELOPMENT
This article argues in favor of spin-offs, mainly those created in northern, central and western Mexico, in industrial sectors like aerospace, that of medical devices, electronic, automotive and others, due to their contribution to the strengthening innovation and knowledge transfer processes, to the development of medium to high technology industrial clusters in regions with many MCs, and in broader terms, due to their potential as a regional economic development lever.12
The creation of spin-offs, a relatively recent phenomenon, took on special importance as of the beginning of the North American Free Trade Agreement and the increase in foreign direct investment flows, particularly for the country’s manufacturing sector.13 Underpinned by the productive dynamics of the trilateral treaty, the mobility of human capital between MCs, industries and sectors allowed highly specialized workers—with advanced training in areas such as engineering and administration—to detect business opportunities and, eventually, set up their own businesses.
With time, some of these ventures secured a spot in the market and successfully participated in global value chains, where supply links with MCs favored their access to global knowledge networks. It is precisely from these links that knowledge transfer processes are intensified due to the various forms chain governance takes,14 as well as the technical requirements, standards and certifications that are needed to remain in the market.15 Hence, the transfer of knowledge related to organizational routines, tacit and coded knowledge, technologies, capacities and other support originated in the parent enterprise are what differentiate spin-offs from startups.16
While it is important to study in greater detail the nature and scope of this type of technological ventures, so is the formulation of consistent public policies that take into account the mechanisms that favor the creation, strengthening, industrial escalation and international insertion of intra-industry spin-offs. We are not suggesting here that startups be relegated, but that spin-offs occupy a prominent place in the agenda of academia, business organizations and, above all, the government, in order to capitalize on their ability to create high quality jobs, their innovative financial performance, their technological development and their potential to increase the national content of the country’s exports.17
TECHNOLOGY-BASED SMES AND MEXICO’S FOREIGN TRADE
In the recent renegotiation of the North American Free Trade Agreement, the fundamental role SMEs play in strengthening the region’s competitiveness was acknowledged. Chapter 25 of the current trilateral agreement is dedicated to small and medium enterprises. There, action plans are established to increase participation in regional trade, promote the competitiveness of local SME exports in global markets—and particularly—the creation of mechanisms and incentives for SMEs to strengthen their technological skills and innovation.18
Approaching spin-offs and startups that operate in the US-Mexico border region is a starting point to draft public policies that favor the participation of Mexican SMEs in trilateral trade and investment flows. According to Contreras et al., although most spin-offs and startups in this region belong to the service sector, there are substantial differences between them.19 Where the capital of companies that hire their services comes from, is one of them. In the case of spin-offs, 81% of their clients are foreigners, a high percentage due to the fact that 59% of the founders of this type of firm have worked in MCs.20 In contrast, the participation of Mexican companies in startup client portfolios is substantially higher (55.2%), which is attributed to the fact that 87% of the owners come from companies with national capital. Another key difference has to do with the education of entrepreneurs, while high school is predominant among the founders of startups (66.7%), bachelor’s / engineering degrees and postgraduate degrees prevail in spin-off founders (62.7%).
Some startup disadvantages can be identified from the company and entrepreneur profile. Since the main link of their founders are state universities, local technological institutes or government public funds, it is common they do not boast a career path that favors their access to knowledge about specific technologies or makes it possible to contact global knowledge networks. Thus, public policies could aim to promote the creation of spin-offs, not only because of their relative advantages, but also because of the ease they have to join highly competitive markets that demand continuous processes of product and process innovation.
For spin-offs, learning and innovation processes are essential to maintain and strengthen their market share. In this sense, the empirical evidence reported by Contreras argues that spin-offs exhibit more robust rates of interactive learning for product and process innovation; in addition to standing out because of the numerous knowledge exchanges they have with multinational companies. Global innovation indicators reinforce this panorama: 79.7% of spin-offs are above the average value, a proportion that substantially exceeds that reported for startups (20.3%). The best innovation performance of spin-offs can be attributed mainly to two factors: the continuous link with MCs that favors the direct and indirect transfer of knowledge, supply and international certification processes; and their greater capacity to absorb knowledge and skills associated with the work history of entrepreneurs in MCs, as well as their solid academic training (postgraduate studies). In this sense, one aspect of the industrial policy proposal could address the strengthening of spin-off absorption capacities, particularly with the creation of mechanisms that encourage joint collaboration in technological innovation projects, direct knowledge transfer and establishing a supplier development program for MCs in medium and high technology sectors.
Finally, policies must contribute to remedy the main limitations faced by knowledge-intensive SMEs, namely: (1) difficulties in accessing sources of financing; (2) entrepreneur liquidity problems, particularly for working capital in the early stages of the company’s life cycle, and (3) technological limitations, in machinery and equipment when companies start operating. Faced with this panorama, access to loans under competitive conditions must be improved, especially if we take into account the positive impact of spin-offs on economic development, which materializes in the creation of well-paid jobs, better performance in terms of innovation and technological development, and in a broader participation in global trade and investment flows, among other benefits.
1 Emmanuel Muller and David Doloreux, “What we should know about knowledge-intensive business services,” Technology in Society, vol. 31, no. 1, pp. 64–72.
2 Ove Granstrand, “Towards a theory of the technology-based firm,” Research Policy, vol. 27, no. 5, pp. 465-489.
3 Maciel García, Jaime Olea and Óscar Contreras, Las capacidades de innovación de las Pymes intensivas en conocimiento: ¿cuáles son los principales retos para seguir creciendo?, El Colef-Conacyt, en prensa.
4 Steven Klepper, “Spinoffs: A review and synthesis,” European Management Review, no. 6, pp. 159-171.
5 Steven Klepper and Sally Sleeper, “Entry by Spinoffs,” Management Science, vol. 51, no. 8, pp. 1291-1306.
6 Els Van de Velde, Bart Clarysse, Mike Wright and Johan Bruneel, “Exploring the boundary between entrepreneurship and corporate venturing: from assisted spin-outs to entrepreneurial Spinoffs,” Working Paper of Faculty of Economic and Business Administration, no. 472, Ghent University, Belgium, 2007.
7 Maciel García, Jaime Olea and Óscar Contreras, op. cit., and Gabriela Dutrénit and Alexandre O. Vera-Cruz, “Spillovers from MNCs through worker mobility and technological and managerial capabilities of SMEs in Mexico,” Innovation: Management, Policy and Practice, vol. 7, no. 2 and 3, pp. 274-297.
8 Everett M. Rogers, Shiro Takegami and Jing Yin, “Lessons learned about technology transfer,” vol. 21, no. 4, pp. 253-261.
9 Elisa Giuliani, Carlo Pietrobelli and Roberta Rabelloti, “Upgrading in Global Value Chains: Lessons from Latin American Clusters,” World Development, vol. 33, no. 4, pp. 549-573, United Kingdon, 2005; Koster Sierdjan, “Spinoff firms and individual Startups. Are they really different?” presented at the 44 th European Regional Science Association Congress, Porto, Portugal, 2004; and Philip Cooke, “Regional innovation systems, clusters, and the knowledge economy,” Industrial and Corporate Change, vol. 10, no. 4, pp. 945-974.
10 Maciel García, Jaime Olea, and Óscar Contreras, op. cit., and Koster Sierdjan, op. cit.
11 Elisa Giuliani, Carlo Pietrobelli and Roberta Rabelloti, op. cit.; Morten Berg Jensen, Björn Johnson, Edward Lorenz and Bengt Åke Lundvall. “Forms of knowledge and modes of innovation,” Research Policy, no. 36, pp. 680–693, 2007; Federica Saliola and Antonello Zanfei, “Multinational firms, global value chains and the organization of knowledge transfer,” Research Policy, no. 38, pp. 369–381, 2009, and UNCTAD, World Investment Report 2015: Reforming International Investment Governance, pp. 253, Genova, 2015.
12 Maciel García, Jaime Olea and Óscar Contreras, op. cit. Full-time professor and researcher at the Business Administration School, CETYS University, Tijuana Campus.
13 Maciel García Fuentes, Empresas tecnológicas en Tijuana y Juárez: Entre las Cadenas Globales de Valor y los Sistemas Regionales de Innovación (19942017), doctoral thesis in Social Science with Specialization in Regional Studies, El Colegio de la Frontera Norte, Mexico, 2018, and Secretariat of Economy, “Inversión extranjera directa en México y en el mundo. Carpeta de Información Estadística,” Mexico: DGIE, p. 32, 2018, Retrieved on May 8 th , 2019:
14 Oscar Contreras, Jorge Carrillo and Maciel García, “Empresas locales en cadenas globales de valor: un estudio de caso en la industria automotriz mexicana,” in Demian Panigo et al. (Coords.), La encrucijada del autopartismo en América Latina, 1ra. Ed. CONICET-APEL, Buenos Aires, Argentina, 2017.
15 Guido Buenstorf, “Opportunity Spinoffs and necessity Spinoffs,” Max Planck Institute of Economics, Papers on economics and evolution, no. 718, pp. 1-31, and Steven Klepper and Sally Sleeper, “Entry by Spinoffs,” Management Science, vol. 51, no. 8, pp. 1291-1306, 2005.
16 Els Van de Velde, Bart Clarysse, Mike Wright and Johan Bruneel, op. cit.
17 Maciel García, Jaime Olea and Óscar Contreras, op. cit.
19 Óscar Contreras, et al., “Formación y escalamiento de Pymes mexicanas intensivas en conocimiento en la región fronteriza de México y Estados Unidos,” Tijuana: El Colegio de la Frontera Norte, Mexico: Consejo Nacional de Ciencia y Tecnología, Proyecto no. 1442, 1st edition, 2019.
20 For an exhaustive review of the data and indicators presented here, see Óscar Contreras, et al., op. cit.
*Full-time professor and researcher at the Business Administration School, CETYS University, Tijuana Campus.