Widening the Family Circle : Spin-Offs in the Japanese Service Sector

In many western countries, companies often spin-offdivisions that have created problems for the parent company, and consequently,the success of these spin-offs is low. Japanese companies, on the other hand,use this process to enhance the survival of the family of companies bydiversifying and creating value. Assessing the performance of these Japanese subsidiaries in relation to theparent company is the focus of this study. Data used in the analysis werecollected from 48 parent companies in the service sector and their 91subsidiaries. The two-sample sign test was used to compare theparent-subsidiary performance. With respect to sales growth, the subsidiaries grew significantly faster atone and three years after they were listed on a major Japanese stock index thandid the parent company. At the five-year mark, the growth is only marginallyfaster. In evaluating the profit growth, the results show that there is not anoverall difference in the performance between the parent and the subsidiary isspun off into an industry different than the parent, the subsidiary appears tooutperform the parent. The results of this analysis indicate that management in Japanese parentcompanies focus on the best use of assets and competencies for the evolution ofthe entire family of companies as opposed to focusing solely on the growth ofthe parent company, as happens in many western companies. (SRD)