Immigrant Entrepreneurship: A Critical Engine for Urban Economic Development

Immigrant Entrepreneurship: A Critical Engine for Urban Economic Development

Garfield Foundation Alvaro Lima, May 2011

Immigrant integration and entrepreneurship (the big picture)

Transnational entrepreneurship (keeping feet in both worlds)

Framing business development (not all are created equal)

Moving the field forward (what field?)

The three “Mental Frames” about immigration and immigrants that shape public perceptions and policies:

The “Emma Lazarus Frame”

The “Melting Pot Frame”

The “Mr. Roger’s Neighborhood Frame”

The “Emma Lazarus Frame” "Give me your tired, your poor, your huddled masses yearning to breathe free, the wretched refuse of your teeming shore. Send these, the homeless, tempest-tossed to me, I lift my lamp beside the golden door!"

Contrary to this widespread perception, neither the poorest of the poor migrate nor do they come from the poorest countries;

Contemporary immigration is driven by structural factors: scarcity of labor, low fertility, population aging, market penetration, etc...

poverty

Stagnation

Overpopulation

etc…

There is a widespread belief that migration is an autonomous process driven by poverty, economic stagnation, and overpopulation in the countries of origin unrelated to receiving countries’ foreign policies, economic needs and broader international economic conditions;

They are also penetrating the world of commerce:

own 25% of all U.S. public venture-backed companies;

47% of all private ventured-backed companies, and

more than half of all Silicon Valley startups

Immigrants are represented in low-skilled occupations as well as among scientists, doctors, engineers, accountants, nurses:

Roughly a third of all Nobel Prize winners in the U.S. have been immigrants. In1999, all U.S. winners of the Nobel Prize were immigrants (Marcelo M. Suarez-Orozco, 2002).

The “Melting Pot Frame”“We shall … assimilate and digest what we have into pure Americans, with American aspirations, and thoroughly familiar with the love of American institutions” (Senator Ellison DuRant Smith of South Carolina 1920s).

At the turn of the 20th Century, “assimilation” clearly meant conformity to Anglo-Saxon ways - a problem today given the diversity of American society and that of the immigrant groups arriving in the country (Gordon, 1964);

Over time, immigrants are expected to “assimilate” into the dominant society’s socio-cultural and economic systems while simultaneously shedding their “old” cultural practices and political loyalties (Alba, 1985);

Marcelo M. Suárez-Orozco points out that in the global era, the tenets of unilineal assimilation are no longer relevant. Today there are clear advantages to being able to operate in multiple cultural codes … to traverse cultural spaces (Marcelo M. Suarez-Orozco, 2002);

Despite the assimilation rhetoric, immigrant integration policies (education, training, placement, ESOL, health care, entrepreneurship, citizenship, etc..) are skeletal, ad hoc, and under-funded;

labor market

language acquisition

entrepreneurship

education

etc…

Faced with this situation and labor market discrimination, immigrants create self-employment opportunities;

Immigrant entrepreneurs have been found to do better economically than their waged co-ethnics even when controlling for human capital characteristics (Portes and Zhou 1999)

The “Mr. Roger’s Neighborhood Frame”

local, neighborhood, ethnic enclave

economies

“Rub-a-dub-dub … And who do you think they be? The butcher, the baker, and the candlestick-maker…” (English language nursery rhyme).

Immigrant entrepreneurship conjures up images of small, informal, and family-owned businesses even though contemporary entrepreneurial activities among immigrants are increasingly heterogeneous in scale, range, and levels of formality (Portes, Hailer, & Guarnizo, 2002; Wadhwa, Saxenian, Rissing, & Gereffi, 2007);

The focus on neighborhood-based and local economic development creates barriers for immigrants to join the circles of global trade and leverage their networks across national borders.

The literature on ethnic entrepreneurship and enclaves assumes that these entrepreneurs conduct businesses, hire workers and have customers all based on their ethnic backgrounds;

Ethnic pathways are only one of the many pathways of incorporation migrants establish (Werbner, 1999);

The ethnic focus, a result of the demands of the Civil Rights Movement, shifts the analytical attention to racial and ethnic relations. And in the process, what is distinctive about immigrants was lost:

“immigrants experienced another life in another country where they maintain a whole host of social and economic resources, while they will live out a whole host of experiences in the new society (Portes et. al. 2001).

A new frame “Keeping Feet in Both Worlds”“…the many social connections and organizations that tie migrants and non-migrants to one another create a border-spanning arena that enables migrants, if they choose, to remain active in both worlds…”

Immigrant transnationalism refers to the regular engagement in economic, political and socio-cultural activities spanning national borders;

Transnational entrepreneurs have played an important role in facilitating international trade, investment, and “diaspora tourism;”

There is a remarkable disparity between the dynamism of transnational enterprises and governmental misunderstanding or ignorance of the phenomenon;

Transnational entrepreneurs are a heterogeneous group coming from many countries, crossing ethnic, immigrant, and minority boundaries, and possessing different motivations and experiences:

The current market capitalization of publicly traded immigrant-founded venture-backed companies in the United States exceeds $500 billion, adding significant value to the American economy.

About 50% of Indian and Chinese entrepreneurs in Silicon Valley “have set up subsidiaries, joint ventures, subcontracting, or other operations in their native countries” (Saxenian, Mtoyama, & Quan, 2002:37);

For instance, 39% of the 289 companies located at the Hsinchu science-based industrial park near Taipei were started by U.S.-educated Taiwanese engineers with professional experience in Silicon Valley. Seventy of the firms maintain offices in Silicon Valley to obtain workers, technology, capital, and business opportunities;

Likewise, India’s technology-oriented diaspora stand behind much of the FDI in the country’s emerging technology hubs of Bangalore and Hyderabad;

About 60% of Hispanic immigrant entrepreneurs in the U.S. are transnational (Portes, Haller, & Guarnizo, 2002);

Migrant-founded venture-backed public companies today employ an estimated 220,000 people in the United States and over 400,000 people globally.

Preliminary research suggests 4 distinct types of immigrant transnational enterprises (Landolt et. al. 1999):

Circuit firms - involved in the transfer of goods and remittances across countries ranging from an array of informal international couriers to large formal firms;

Cultural enterprises - rely on their daily contacts with the home country and depend on the desire of immigrants to acquire and consume cultural goods from their country such as shows, CDs, newspapers, videos, etc.;

Ethnic Enterprises - are small retail firms catering to the immigrant community which depend on a steady supply of imported goods, such as foodstuffs and clothing from the home country;

Return migrant enterprises - are firms established by returnees that rely on their contacts in the United States. They include restaurants, video stores, auto sales and repairs, office supplies, etc.;

Transnational entrepreneurs do better economically than their waged co-ethnics and pure local immigrant entrepreneurs (Portes and Zhou 1999; Logan, Alba, and McNulty 1994; Wilson and Martin 1982):

Activities Linking Immigrants to Their Home Countries by Type of Economic Adaptation

Activity

Employee/ Wage Worker

%

Ethnic Entrepreneur

%

Transnational Entrepreneur

%

Imports Goods from Abroad 8.2 9.9 31.9 Exports Goods 6.5 8.9 18.1

Invests in Business in Home Country 5.9 11.7 26.4

Invests in Real Estate in Home Country 20.7 28.2 41.9

Has Been an International Courier 10.1 8.3 23.6

Hires at Least One Employee in Home Country 0 30.8 42.2

Frequency of Business Travel Abroad:

At least twice per year 7.1 17.3 28.4 Six times or more per year 0.9 6.1 14.6 Source: CIEP, 1998

Source: The Comparative Immigrant Entrepreneurship Project (CIEP); Center for Migration and Development (CMD); Princeton University.

Ethnic Entrepreneur (% )

Transnational Entrepreneur (% )

Some Implications of Transnational Entrepreneurship:

Transnational entrepreneurship is a promising form of integration;

Transnational integration and transnational entrepreneurship are highly relevant to modern workings of global and gateway cities;

Transnational integrations and transnational entrepreneurship provide opportunities for business, social entrepreneurs, and governments;

Transnationalism has broad implications for notions of community, and economic development;

To take advantages of the transnational phenomenon, concepts such as “local development,” “local community” and “social capital” must be redefined as space of flows (relationships) instead of just geographic places;

Finally, the model presented can be generalized to include ethnic and non-ethnic forms of social settlement and connections spanning multiple borders.

BENEFITS• Independence• Limited liability

(easy to exit)• Ability to gain

more than wage

CHALLENGES/ LIMITATIONS

• Volatility/high failure rate

• Limitations to profit

• Limited capacity

BENEFITS• Improved stability• Higher profit• Improved customer

reach


• Increased competitive threat

• More difficult to exit

• Higher managerial involvement needs

• Limited capacity

BENEFITS• Lower failure rate• Steady profit• Further customer

reach• Scale economies


• Management delegation

• Attracting skilled managers

• Growing IT/ computer needs

Domestic & Wage Labor

Self-employed

SmallEmployer

GrowthBusiness

ENABLERS• Build reputation

and steady client base

• More capital - fixed costs

• Get licenses/ permits

ENABLERS• Expand client

base• Expand org.

structure• Get mgmt.

training• Get loans

variable costs fixed coststechnical skills managerial skillsincome target return on capital

entry points

ENABLERS• Easy to start

– easy to reach customers

– little skill training

– low capital requirements

• Fast breakeven

progression


TRANSPORTATION

BEAUTY/GROOMING

CLEANING SERVICES

EATING PLACES

RETAIL

• Taxi/Limo driver• Delivery (food,

other)

• Manicurist• Hair Stylist

• Janitor• Cleaning person or

House cleaner• Maid/hospitality

• Cook• Waiter• Caterer

• Cashier• Salesperson• Stock manager

• Taxi/Limo driver• Delivery (food,

other)

• Leased seat in hair salon

• House calls

• Solo operator (janitor, cleaning person)

• Solo franchise

• Take-out stand• Burrito cart

• Door-to-door sales• Third-party

marketing franchise

• 1-3 limos• Multiple (leased)

medallions• 1-3 delivery cars

• Nail Salon• Beauty Salon

• Local contractor• Dry-cleaning

storefront• Small cleaning

business

• Restaurant (with eat-in, take-out, delivery)

• Small catering service

• Small franchise• Small store• Third-party mktg.

• Multiple cars (3+)• Multiple services

(delivery services, or limo services)

• Chain of nail/beauty salons

• Multiple services

• Regional contractors (commercial, residential)

• Multiple services

• Multiple restaurants

• Multiple services (catering, delivery)

• Food services

• Retail chain

GrowthBusiness

SmallEmployer

Self-Employed

Wage Labor (Employee)


(1) from business inception until 1999

Source: ICIC Boston & BCG

1

4

4

3

2

4.5

9

6

8

7

5.5

5

8

0.5

3

0 2 4 6 8 10 12 14

Your Limo

First Choice Limo

Brighton Limo

Primetime Express

Majestic Cleaning

Banshee

Mass Paint & Cleaning

Nartoone Security

Bob the Chef's

City Fresh Foods

Merengue

Tacos El Charro

Years

Tra

ns

po

rta

tio

nB

uil

din

g

Ma

inte

na

nc

eR

es

tau

ran

ts/

Ca

teri

ng

Self-Employed Small Employer Growth Business

New restaurant


7

4

9

5

Self-employment, Small Businesses, and Growth Businesses – How do they differ?

Ownership Structure1. Single owner or not incorporated 2. Independently or family owned3. Limited liability & more complex legal structure

Employment & Revenue Size & Capital Structure1. 1-2 people & < 10K & < $100K2. < 500 people & < $20M …3. > 500 people …

Financial Structure & Ability to Leverage1. Simple cash flow & no ability to leverage2. Bank financing3. External financing, investors, VC, investment banks

Management Structure1. Hands-on worker & control everything2. Management across all functions3. Professional management, board, investors

Skill Sets1. Finding & servicing customers2. Detailed understanding of industry3. Financial and organizational skills

Employment Size & Structure

Technology, Production & Markets1. Low to no technology2. Single technology, production & markets3. Multiple products, technology & markets

Success • Make enough individual income & control lifestyle• Salary & Profits & Value of Company• IPO/share price



Unfortunately, the business development “field” remains fragmented, undisciplined, slow, and financially inefficient (a collection of programs sometimes working against each other)

Foster communities of practice (learning networks) among individuals and organizations that can voluntarily develop, adopt and rapidly spread new tools and practices. (Think LEED green building standards)

The “field’s” aversion to failure creates barriers to innovation, performance improvements, financial sustainability, and scalability

Build a culture of rapid learning from failure, and reward social entrepreneurs who make the hard decision to stop investing in one idea and move on to another

The “field” confuses money with the skills needed to innovate at scale (more money is better than less)

Innovators benefit from “smart money.” That is, investment capital that comes with other useful resources, such as management expertise; sector experience; access to management talent; networks into customers and suppliers; and connections with other investors;

Traditionally, philanthropy has behaved more like banking than venture capital investing

Foundations have to move from “grant-making” to “innovation investing” which requires a combination of high tolerance for risk; strong business discipline; high levels of flexibility in the “means” as opposed to the “ends;”; comfort with conflict and ambiguity; and a willingness to be deeply involved in the selection of the management team and the program design

Research, guided by theory and practice, is needed to better understand diverse business forms and how to support them so that they can:

innovate accelerate entrepreneurship grow create employment spark economic development provide an important strategy for self-employment create a vital entry point in the economy for immigrants and low income populations maintain of existing physical infrastructurecreate “social capital” in communities that need to build “strong ties,” particularly among immigrant communitiessupply needed goods and services

This situation is in sharp contrast to the robust innovation infrastructure that hasbeen developed to support process, product, and business design innovation inthe private sector:

The system for identifying, screening, developing, prototyping and launching (commercializing) private market innovations is well developed and well financed

Rewards for success are competitive and the field attracts some of the best human talent in the market place

Systems for due diligence and screening have been well honed over many years of trial and error

Commercialization enterprises have relationships with many different sources of capital to match the stages of development of an innovation

A robust set of different business designs for innovation commercialization is constantly evolving

Immigrant Entrepreneurship: A Critical Engine for Urban Economic Development

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