Special issue on Diaspora Investment and Entrepreneurship: The Role of People, their Movements, and Capital in the International Economy

A special issue of the Journal of International Management that I helped guest edit was just published: Diaspora Investment and Entrepreneurship: The Role of People, their Movements, and Capital in the International Economy.

From the introduction:

Significant scholarly attention in international business has been paid to cross-border movements of financial capital through foreign direct investment, portfolio investment, and international entrepreneurship. The transnational flows of people and the different types of capital that they possess have received lesser attention. Communication and transportation innovations associated with globalization now enable migrants to stay in contact with and visit their countries of origin more easily and cheaply than ever before. This has given rise to the phenomenon of “diasporas” — groups of emigrants who leave their countries of origin for a prolonged period of time but still demonstrate a strong link with their migration history and a sense of co-ethnicity with others of a similar background.
Diasporans often invest in their home countries through direct and portfolio investments or through the establishment of new ventures in their homelands. Diaspora capital – human, social, and financial – may be a useful development resource for migration-sending countries, many of which are among the most capital needy in the world. With the help of the Chinese diaspora, China has won the race to become the world's factory. In a similar vein, with the help of the Indian diaspora, India could become the world's technology lab. Capital from diaspora investment and entrepreneurship has also played an important role in industrialized countries, such as Israel, Ireland, and Italy, furthering economic growth and innovation.

And here are the main articles:

The Evolving Diaspora of Talent: A Perspective on Trends and Implications for Sourcing Science and Engineering Work, Arie Y. Lewin, Xing Zhong

Embedded Diasporas: Shaping the Geopolitical Landscape, Deborah E. de Lange

Diaspora Concentration and the Venture Investment Impact of Remittances, Paul M. Vaaler

To share or not to share: The role of affect in knowledge sharing by individuals in a diaspora, Helena Barnard, Catherine Pendock

Counterfeit Smuggling: Rethinking Paradigms of Diaspora Investment and Trade Facilitation, Kate Gillespie, J. Brad McBride

The Boundary Spanning Effects of the Muslim Diaspora on the Internationalization Processes of Firms from Organization of Islamic Conference Countries, Andreas Schotter, Dina Abdelzaher

Argonauts, ethnic scientific communities

AnnaLee Saxenian, The New Argonauts, Harvard University Press, 2006
William Kerr, Ethnic Scientific Communities and International Technology Diffusion, HBS Working Paper 06-022, 2006
Ajay Agrawal, Devesh Kapur, John McHale, Defying Distance: Examining the Influence of the Diaspora on Scientific Knowledge Flows, Working Paper 2004

Entrepreneurial networks carry regional advantage across distance

AnnaLee Saxenian has long been a follower of localized firm and professional networks in the hi-tech industry, highlighting their superiority over corporate hierarchies in her book "Regional Advantage." More recently, in "The New Argonauts," she has turned to ethnic professional networks in Silicon Valley, especially in the Indian, Chinese and Israeli communities. These networks, originally founded for social purposes, evolved to become professional networks for advice, capital and know-how for immigrant entrepreneurs. As immigrant entrepreneurs in Silicon Valley identified business opportunities in their home countries, the networks extended to support these new ventures. They also tied into their home-countries' networks through alumni associations and family ties.

Thus, organizations that were once highly localized began to reach across continents - and their benefits with them. Access to tacit knowledge (technical and managerial), a common understanding of entrepreneurship, shared language and culture have all been considered factors that are bound by geography and contribute to the success of regional economies. Now, they are transcending vast distances thanks to the kinds of networks described by Saxenian. New "Argonauts" (people who work in two or more regions, shuttling back and forth several times per month) literally carry market and technological knowledge, contacts, business models and capital around the world.

As a result:
Silicon Valley, once the uncontested technology leader, is now integrated into a dynamic network of specialized and complementary regional economies.
These new technology regions are not replicas of Silicon Valley, nor are they becoming new Silicon Valleys [...] Even as the returnees seek to use their experience in Silicon Valley to reshape these institutions, distinctive regional and national histories ensure that the identities and technology trajectories of these regions are unlikely to converge.

Some quantitative evidence

Ajay Agrawal, Devesh Kapur and John McHale analyzed patent citations within the Indian diaspora. They found that co-ethnicity increases the likelihood of knowledge flows. Diaspora membership is also found to substitute for co-location as a conduit for knowledge flows.

In a similar study, William Kerr has found quantitative evidence for the power of ethnic networks in a patent citation study. By linking patent data with an ethnic name-database, he was able to analyze ethnic scientific communities in the United States and the communities' home countries. He found that ethnic communities contribute significantly to technology adoption within the first five years of a new technology being developed.

Kerr also found tangible benefits for the home countries using a factor productivity approach: Greater integration with the US technology frontier contributed to an increase in manufacturing output in these countries. In more advanced economies the effect was due to productivity increases; in less advanced countries, productivity increases combined with a reallocation of labor from agriculture to manufacturing.

SME data

Another roundup: global SME data sources (with a focus on Asia).

General SME statistics
Google: "Google Directory- Sciences > Social Sciences > Economics > Indicators and Statistics > Official statistics > Asia." (Links to national statistical databases.)
Inforum: "Econdata."
ILO: “Key Indicators of the Labour Market (KILM) Programme.”
Inomics: "EconDirectory."
OECD: "SMEs and entrepreneurship."

Surveys
World Bank. "Doing business: benchmarking business regulations."
World Bank. "Enterprise surveys: what businesses say." (Contains some data sorted by firm size.)
World Bank. (2000). "World Business Environment Survey (WBES) 2000."
World Bank and European Bank for Reconstruction and Development. "The Business Environment and Enterprise Performance Survey (BEEPS)."

SMEs in Asia and in developing countries
APEC. "Small and medium enterprises working group."
ASEAN. "Economic integration: SMEs (links)."
DDCN. "Davidson Datacenter Network." (Focus on CIS)
UNIDO (2001). Development of clusters and networks of SMEs: The UNIDO programme. Vienna, United Nations Industrial Development Organization.
Ceglie, G. and M. Dini (1999). SME cluster and network development in developing countries: The experience of UNIDO. PSD Technical Working Paper, United Nations Industrial Development Organization.

Other useful links
AdmiNet. “Small and medium enterprises.”
UNCTAD. "StDev at UNCTAD (United Nations Conference on Trade and Development - Science & Technology for Development Network)."
World Bank. “Data and Research.”
World Bank. "World Development Indicators." (Contains some data sorted by firm size.)

Saxenian on Bangalore, 5 years ago

Back to India: Indian software engineers are returning with enthusiasm and etrepreneurial know-how, Saxenian, WSJ January 24, 2000

The Bangalore boom: From brain drain to brain circulation? Saxenian. In Bridging the digital divide: Lessons from India, Kenniston and Kumar (eds.), 2000, National Institute of Advanced Studies, Bangalore.

Bangalore: The Silicon Valley of Asia? Saxenian, Conference on Indian economic prospects: Advancing policy reform, Center for Research on Economic Development and Policy Reform, Stanford, May 2000

In 1999 and 2000 AnnaLee Saxenian wrote a series of papers and articles (1, 2, 3) about Bangalore's prospects of becoming the Asia's "Silicon Valley." She drew heavily on her research of Taiwan and the Hsin-Chu hardware cluster in the analysis. Reading these pieces is an interesting look back in time - and useful for putting the current hype in perspective.

At the time India seemed successful in - but limited to - its role as a source of cheap, reliable and routing software coding. To her surprise, Saxenian found that increasing numbers Indian entrepreneurs in Silicon Valley were starting businesses in Bangalore and elsewhere in India. Given the importance of Taiwanese Silicon Valley entrepreneurs for Hsin-Chu's success, she saw this as a hopeful sign for Bangalore. Returnees were bringing angel/venture capital, business models and knowledge of (U.S.) customers with them, along with a willingness to take risks. The government of Karnataka seemed intent on supporting the growing IT industry. All this contributed to a new-found hope in India's IT potential.

However, there were enormous obstacles still to overcome. The bureaucracy and red tape were overwhelming despite the goverment's efforts to help - or at least stay out of the way. Physical infrastructure remained a huge problem. Many Silicon Valley Indians stayed in Bangalore long enough to set up their companies facilities, but then moved back to the U.S. As a result, there was no group comparable to the 'argonauts' (Taiwanese who shuttled between Hsin-Chu and the Valley several times a month) that Saxenian considered crucial Hsin-Chu's success. In addition, many of these new facilities felt more like Silicon Valley outposts than like Bangalorean service centers; most of the people linking India and Silicon Valley were a part of large, international firms, rather than independent entrepreneurs. This severely limited the potential for knowledge spill-overs, both technical and organizational. In 2000, the software industry was still dominated by the "big three" Indian firms (Infosys, Wipro, TCS) and smaller, specialized firms had yet to develop in significant numbers, heavily skewing the size distribution of firms. So, while the anchor firms (both Indian and foreign) were well-developed, the mix of large and small firms typical of successful clusters hadn't emerged.

In the end, Saxenian felt that the ingredients for Bangalore's success were not yet in place, but that the potential was increasing. It would need to develop quickly since Bangalore was already experiencing wage inflation and could no longer compete solely on cost. Competitive pressures were forcing it to move up the value-chain.

In short, there is a small but growing technical community linking India and Silicon Valley - one that could play an important role in upgrading the Indian software industry in the future.

In Saxenian's opinion, Bangalore's best bet was to focus on the domestic market - as a driver for innovation, entrepreneurship, market scale, and knowledge networks. The industry would thus develop a broader base as various firms specialized in different niches. It would also grow enough to allow more specialization (another important factor in cluster development).

Finally, Saxenian pointed out that IT was a success story that should inspire other industries - it would never be able to serve as India's main development strategy.

Many of these points remain valid today, even though there have been some important changes. The emergence of various speicalized, smaller firms (e.g. in biotech and bio-informatics) has gone some way towards balancing the mix of firm-sizes and introducing variety. Bangalore's success in attracting R&D labs and R&D outsourcing is letting it move up the value chain and increase the scope of technological expertise. The amount of venture capital is also growing rapidly and set to increase even more.