There have been a lot of discussion on recent Trump’s immigration ban and how it negatively affects the entry of high-potential immigrant entrepreneurs. We read here and there that immigrant entrepreneurs contribute to the economy but what are exactly their contribution? More importantly, how different are immigrant from native born entrepreneurs in undertaking new ventures?
In this article, we look at entrepreneurship research papers and several facts to answer these questions.
Immigrant entrepreneurs are among the founders of high-tech companies. A recent article suggests that, immigrants or children of immigrants created around 40 percent of companies on the US Fortune 500 list.
Companies like eBay, Google, Tesla, Pfizer and many more are in the list. According to Hart and Acs, in a paper published in 2011, About 16 percent of the American companies mention at least one immigrant entrepreneur among their founding teams. Comparing this group with those that were founded by native-born entrepreneurs, this study found that the two groups of firms are similar with respect to economic and technological performance. In addition, Immigrant-founded firms are more likely to report that they maintain a strategic relationship with a foreign firm (often to be a company from their country of origin).
However, why are fast growing high-tech companies important for an economy? Society benefits from productivity growth in the case of process innovation and from greater variety and choice in the case of product innovation. Fast growing companies often hire many people so we now know that the majority of created jobs in recent years come from Gazelles (companies that rapidly grow) rather than large corporations.
About the age of these companies, unlike general belief that young small firms create most of the jobs, recent findings suggest that age distribution is wider than is commonly believed, including older firms that take off on a new trajectory.
High-tech start-ups are founded by individuals who are able to discover and exploit entrepreneurial opportunities. Entrepreneurship studies suggest that the foreign born have both advantages and disadvantages with respect to the native born in high-tech entrepreneurship. Those who go abroad for education or employment, for instance, have, at least, recognized opportunities for personal achievement outside the borders of their native country.
According to National Science Board, the foreign born, in the US, are disproportionately represented in science and engineering (S&E) disciplines in higher education and in S&E occupations in the U.S. workforce. Foreign students formed 25% of all S&E graduate students in 2005, with the highest concentrations in engineering fields (45%) as well as computer sciences (43%).
Some theorists, such as Richard Florida, suggest that immigrant high-tech entrepreneurs recognize different types of opportunities compared with their native-born counterparts. An obvious example would be when immigrants realize potential markets or supply chain relationships in their native lands that are not perceptible to those who lack such a background.
Regarding opportunity exploitation, immigrants hold some advantages. Immigrant entrepreneurs may have less to lose if they opt for entrepreneurship than the native born, particularly if discrimination blocks their path toward promotion within existing businesses. In addition, other immigrants are more likely to help the immigrant entrepreneur to exploit the opportunity as they have a sense of community.
Nevertheless, immigrant entrepreneurs face obstacles in recognizing high-tech opportunities that do not challenge most natives. Language barriers, for example, may hinder opportunity recognition. Language proficiency in general has been found to be one of the most important determinant of immigrant success in the labor market.
Foreign-born experts may also be more inclined to pursue technical career ladders and thus less likely to enter the management track within existing businesses. This career path leads to less experience with the market and customer feedback. In addition, immigrant entrepreneurs have more limited native born entrepreneurial networks and venture capitalists’ contacts than non-immigrant entrepreneurs. This makes it subsequently more difficult for immigrant entrepreneurs to exploit business opportunities.
In sum, for immigrant entrepreneurs, it is easier to discover business opportunities and more difficult to exploit them compared to native born entrepreneurs. In fact, it is crucial for entrepreneurs to draw not only on their own resources but also resources of colleagues, friends and the society. These resources include money, talent, contacts, and knowledge. Some key networks in the high-tech industry in the US, particularly those that provide access to venture capital, are in hands of a closed circle sometimes names as “old-boys clubs”. This does not help immigrant entrepreneurs to finance their high-potential ideas to attract much appreciated resources.