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

The role of Bangalore's returnees

Migration of highly skilled Indian: Case studies of IT and health professionals, STI Working Paper 2004/6, Binod Khadria

Currently, there is a sense that foreign investment into R&D in India is closely linked to Indians who were educated and/or worked abroad and are returning home (returnees). Key positions are often filled with returnees or expatriates, and many team leaders and individual investigators are also returnees. Understanding the importance and role of returnees is essential to assessing the growth potential of India as a destination for R&D investment.

Unfortunately, research on this phenomenon is sparse. One of the few sources I have found is Binod Khadria's recent case study IT professionals for the OECD Directorate for Science, Technology and Industry.

The study is based on 45 interviews with IT professionals (only 4 of whom have PhDs) who returned to India after a stint abroad. Unfortunately, that rules out statistical significance in the study. Also, no mention is made of respondents' current occupation. Nevertheless the case study points to some useful ideas.

To me, one of the most interesting aspects of the study was the fact that over a third of respondents had stayed in their host country for less than 2 years. Also, almost half of the respondents said that their employer was the motivating factor for their trip abroad. Although Khadria doesn't provide cross-tables, I expect that these two categories are highly correlated. Khadria does mention that "projects" are an important factor in out-migration.

The question is whether someone who was sent by an India-based employer to the US on a limited project is a returnee in the same sense as someone who emigrated to the US and worked or completed their studies there independently. I would expect that the two experiences were quite different, and that the second group had greater exposure to US culture and networks. Upon their return they might play similar roles in terms of "socializing" their colleagues into global business practices, but their role in providing access to US/global clients, professional networks etc. would probably be much more limited.

On the other hand, these categories may just be an artefact of different generations' experiences. 20 years ago, most emigrants would have left India to settle elsewhere for good. Today, there are more opportunities for people to move in and out of the country, pursuing more fluid careers (a point made by Rupa Chanda).

More results

Difficulties/problems after returning from abroad: culture of professionalism

When asked about the difficulties and problems in adjusting to the present working conditions in Bangalore, as many as 32 respondents explicitly exressed that they did not face any major hurdle in adjusting to their present working organisational climate. The background of respondents and their earlier exposure to India and its culture helped them a lot in adjusting back in Bangalore after their return from abroad. [...] 13 respondents mentioned some problems [...] The major adjustment problems faced by them were caused due to the lethargic administrative procedures, inefficient handling of the day-to-day professional concerns, relatively unhealthy business ethics, poor research facilities (especially in academics) and poor work culture.

Value of overseas experience: socialization, absorptive capacity, prestige

When reacting to the question, 'which of the following do you consider the most important to your current work/business in Bangalore', thirty-seven respondents accepted that the 'knowledge and skills gained overseas through higher education and on-the-job training' is highly useful for their current jobs in Bangalore. Two-thirds of the respondents expressed that the opportunity to work abroad helped equip themselves with the recent and most appropriate technologies. Only nine respondents recognised the 'role of professional networks established overseas' in their current jobs in Bangalore. The asserted that these networks helped them in providing information on several professional issues like technology, management, outsourcing, etc. Only three respondents recognised the importance of '(financial) capital accumulated overseas' in their current occupation in Bangalore.

All the respondents except one acknoledged the 'contribution of skills, experience, knowledge and ideas' which they have gained while working abroad, in their present employment/business in Bangalore. A majority of them have elaborated that their experience helps them a lot while interacting with the clients, technological innovations and coping with the rapid technological changes, improving management practices, and, above all, confidence building. Respondents from the academic world considered that it is the exposure to different work cultures and a sound academic base, which is of paramount importance and very useful in their current positions. [...] it has been expressed by almost all the respondents that their experiences abroad are well recognised and valued by their employers and by their colleagues as well. The receive more attention from their superiors and colleagues, who 'listen to them carefully on important matters'.

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.

Get on the bandwagon

For a while now, stories have been popping up, not just about outsourcing jobs to India, but also about a fledgling migration from the United States to India. At first it seemed that this was a phenomenon of Indians (or people of Indian origin) heading back home as the business climate improved. Now others are jumping on the bandwagon as well - to work in a booming economy, or to study it.

According to Saritha Rai's article in today's NYTimes academics are lining up to study the process of service outsourcing in India. Researchers interview managers of Infosys and Wipro while students request internship placements in Bangalore or Hyderabad.

Brain Drain from Europe

Europe and the challenge of the brain drain, IPTS Report, vol. 29, Sami Mahroum, 1998

The brain drain is often treated as a problem of developing countries. This article looks at the migration of highly skilled scientist from Europe to the United States. There is a case that developing countries may gain a net profit from the brain drain thanks to income from remittances. More recently, brain circulation has been discovered as an important source of investment and development.

These patterns don't hold for Europe, however. Remittances aren't a relevant source of income, and - most markedly in the case of the UK - scientists who move to the United States tend to stay there. It has become ever more difficult for Europe to establish and maintain centers of excellence in cutting-edge research. Just a few months ago, the Swiss pharmaceutical Novartis, decided to headquarter all R&D in the Boston area. In terms of retaining star scientists, Europe may actually end up doing worse than, say India, Brazil or China, since few new opportunities are opening up to attract talent back. The article cites Switzerland as an exception to the rule. Yet, as the Novartis example shows, Switzerland may succeed in attracting foreign scientists, but faces similar problems as the rest of Europe in repatriating its own scientists and in retaining research leadership.

Since working with star scientists is crucial to commercial success, especially in the biotech industry (Zucker, Darby, Brewer, 1994), the brain drain of top scientists places Europe at an immediate disadvantage.