Why Are Immigrants More Entrepreneurial?

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What do Arianna Huffington (Huffington Post), Dietrich Mateschitz (Red Bull), Elon Musk (Tesla, SpaceX), and Sergey Brin (Google) have in common? Apart from their success as entrepreneurs, they all share one distinct characteristic: extensive cross-cultural experience. Huffington grew up in Athens and studied in London before starting her career as a politician and media entrepreneur. Mateschitz spent considerable time overseas as a marketing salesman prior to founding Red Bull. Musk migrated from South Africa to the U.S. as young adult. Brin left the Soviet Union with his family after facing growing anti-Semitism and moved to the U.S., where he later cofounded Google.

Their stories are prominent examples of a widespread pattern. In the U.S., immigrants are almost twice as likely to become entrepreneurs as native-born U.S. citizens. Immigrants represent 27.5% of the countries’ entrepreneurs but only around 13% of the population. Similarly, about one-fourth of all technology and engineering companies started in the U.S. between 2006 and 2012 had at least one immigrant cofounder. And this pattern extends beyond the U.S. — data from the 2012 Global Entrepreneurship Monitor showed that the vast majority of the 69 countries surveyed reported higher entrepreneurial activity among immigrants than among natives, especially in growth-oriented ventures.

What do Arianna Huffington (Huffington Post), Dietrich Mateschitz (Red Bull), Elon Musk (Tesla, SpaceX), and Sergey Brin (Google) have in common? Apart from their success as entrepreneurs, they all share one distinct characteristic: extensive cross-cultural experience. Huffington grew up in Athens and studied in London before starting her career as a politician and media entrepreneur. Mateschitz spent considerable time overseas as a marketing salesman prior to founding Red Bull. Musk migrated from South Africa to the U.S. as young adult. Brin left the Soviet Union with his family after facing growing anti-Semitism and moved to the U.S., where he later cofounded Google.

Their stories are prominent examples of a widespread pattern. In the U.S., immigrants are almost twice as likely to become entrepreneurs as native-born U.S. citizens. Immigrants represent 27.5% of the countries’ entrepreneurs but only around 13% of the population. Similarly, about one-fourth of all technology and engineering companies started in the U.S. between 2006 and 2012 had at least one immigrant cofounder. And this pattern extends beyond the U.S. — data from the 2012 Global Entrepreneurship Monitor showed that the vast majority of the 69 countries surveyed reported higher entrepreneurial activity among immigrants than among natives, especially in growth-oriented ventures.

Research has suggested that selection and discrimination effects may be driving this phenomenon. It appears plausible that entrepreneurial individuals are more likely to migrate and that immigration policies in many countries favor highly motivated and capable individuals. Additionally, discrimination against immigrants in labor markets may exert pressure on them to seek self-employment.

In a recent study, we investigated a different explanation: Cross-cultural experiences may increase individuals’ capabilities to identify promising business ideas. By living in different cultures, they encounter new products, services, customer preferences, and communication strategies, and this exposure may allow the transfer of knowledge about customer problems or solutions from one country to another. By applying this kind of arbitrage, a temporary or permanent migrant can decide to replicate a profitable product or business model available in one country but not in another. Successful companies such as Starbucks (inspired by coffeehouses in Italy) and the German online retailer Zalando (inspired by Zappos) exemplify the potential of this strategy.

Courtsey- HBR

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