RETURNEE ENTREPRENEURS, ENTREPRENEURIAL MOBILITY AND

EMERGING MARKETS

Mike WrightCentre for Management Buy-out Research

Imperial College Business School&

University of Ghentmike.wright@imperial.ac.uk

Introduction

• Interest in entrepreneurship in emerging economies• Focus on start-ups by locals• Entrepreneurship in privatized firms

• Challenge:• How to develop entrepreneurship in

entrepreneurship deficit context suffering ‘brain drain’

• Resolution by ‘brain circulation’ fills knowledge gap but has implications for West

Let a 1000 Start-ups Bloom?

Workers of the World Start-up?

International Entrepreneurial Mobility• Returnee entrepreneurs

• Scientists & engineers returning to start new venture in home countries, after several years of business experience and/or education in OECD (Wright et al., 2008). • 5,000 returnees set up 2,000 new high-tech firms in Zhongguancun Science Park (ZSP) by 2007.

• Transnational entrepreneurs span home & host countries

Returnees as bringers of commercial and technical human capital

• Yanhong Li• Founded Baidu, the largest Chinese search engine in 2000

• Had studied and worked in the US

Returnees as bridges between China and elsewhere

• Jichang Guang• Set up STARTECH in 2002, a

returnee from US• Utilizes global networks to bring US

market & Chinese talented scientists together

• Regular contact with US/OECD countries by maintaining business links and attending international events organised by professional associations abroad.

Returnees as providers of technology spillovers to local firms

• John Deng • Set up Vimicro Corporation in 1999• PhD degree in electronics engineering &

computer science from Berkeley.• Built on this to standardize Chinese

internet and mobile multimedia communications via its VXP platform.

• Established industrial standard for PC graphic input applications in China.

• Strategic relationships with China Telecom, China Netcom, China Mobile...

Agenda• What do we know about returnee entrepreneurs?

• What don’t we know?

• What do we need to know?

• What are the implications for home and host countries?

• What are the research challenges?

What do we know?• Early studies

• Mainly case studies

• Indian returnees have significantly contributed to the development of the Indian IT industry (Saxenian, 2002)

• Movement of transnational scientists and engineers substantially contributed to technological development of South Korea, Taiwan and mainland China (Saxenian, 2006)

What do we know?• Characteristics and performance

• Returnees possess valuable:• (tacit) commercial and technical knowledge from developed

markets that non-returnees in emerging economies find difficult to access

• Specific social capital facilitating access to further technological knowledge, trading partners, etc. when they return home

• These unique characteristics are reflected in return firm performance in exporting, innovation and employment growth.

• (Dai & Liu, 2009; Filatotchev et al., 2009; Liu et al., 2010a).

What do we know?

• Innovation, location choice and performance

• Cross-sectional survey of 353 returnees & 358 local firms in Beijing Zhongguancun Science Park (ZSP)

• Returnees seek asset complementarity in location choice depending on nature of their knowledge• Returnees bringing academic knowledge [patents] locate

in non-university SPs and achieve higher growth than those locating on university SPs

• Returnees with previous firm ownership abroad locate on university SPs and perform better than locating on non-university SPs

What do we know?• Knowledge spillovers 1

• Cross-section survey of 353 returnees & 358 local firms in ZSP

• Returnee firms more innovative than local counterparts.

• Indirect spillover effect on non-returnee innovation • Non-returnees reporting regular interaction with returnees• # returnees in an industry/total industry employees [intensity]

• Technology gap increases effect of returnee spillovers• Cultural similarity enables returnees overcome cognitive barriers to

knowledge transfer resulting from technology gap • (Liu, Wright, Filatotchev, Dai and Lu, 2011)

What do we know?• Knowledge spillovers 2

• Panel data for 1,318 high-tech firms in Beijing Zhongguancun Science Park (ZSP)

• Returnees create significant spillover effect promoting innovation in other local firms• Returnee spillovers = Returnee density = total number of

returnees in a specific industry to total employees in same industry

• (Filatotchev, Liu, Lu and Wright, 2011)

What do we know?• Knowledge spillovers 2

• Returnee spillovers increased by non-returnee firm’s absorptive capacity through employee skills• Skill intensity: ratio of scientists and engineers to the

total number of employees in the firm

• (Filatotchev, Liu, Lu and Wright, 2011)

IndependentVariables

Patents per employee 

New product sales/total sales

 Returnee density   0.073***     0.474†  

MNC R&D   0.0001     0.016  

Skill intensity 

  0.008***     0.102*  

Returnee density ×Skill intensity

  0.360***     5.627**  

Controls for export intensity, imported

technology, inhouse R&D, ind

R&D intensity, size, age, Ownership

  Sig.     Largely sig  

Industry dummies   Yes     Yes  Adjusted R2   0.157     0.209  

Observations   3872     3872  

GMM Estimations of Effects of Knowledge Spillovers from Returnees on Innovation Intensity of Non-returnees

What We Don’t Know

• HOW do returnees coordinate the resources they need to exploit their opportunities when they return home

• Emerging Markets are heterogeneous:

• HOW do the heterogeneous contexts in which returnees operate affect these processes (Zahra and Wright, 2011)?

What We Need to KnowResource Orchestration

• Strategic entrepreneurship emphasizes accessing resources & capabilities to support opportunity-seeking behaviour (Ireland et al., 2003).

• Recent attention to understanding processes of where resources come from & how assembled including transfer across national boundaries (Barney, Ketchen & Wright, 2011; Meyer, Wright & Pruthi, 2009).• Need to select & structure requisite resources and capabilities• Need to know how to accumulate, bundle and leverage these

resources to generate competitive advantage and sustainable returns (Rasmussen, Mosey & Wright, 2011).

Resource Orchestration, Returnee Entrepreneurs & Context

What do we need to know about context?• Institutional

• Differences in areas with similar culture & legal institutions, between emerging economies (Hoskisson, Eden, Lau & Wright, 2000)

• Institutional environment of western country where returnees studied/worked may differ from home country.

• Liability of foreignness when return home and are not familiar with the new institutional context

• Questions: • a) How does resource orchestration for returnees vary between emerging

and developed institutional contexts? • b) What is the influence of institutional source of returnee’s experience

abroad on nature of their ventures and resource orchestration?

What do we need to know about context?

• Temporal

• Firm over time• Prior experience/education in developed economy provide

knowledge/capabilities to develop ventures beyond initial phase

• Individuals over time• The cognitive micro-processes of returnees help link opportunity

identification in home emerging economies to assemble resources• May vary over development phases• Returnees whose initial ventures fail may return to host if they attribute failure

to a hostile home environment not to their own actions.

• As ventures develop, need to build teams• What is the optimum combination of returnees and locals?

• Countries’ notions of time• Differences in time orientation between host and home country

• Urgent vs lax?

What do we need to know about context?

• Social

• Education/business experience in host provides social capital to access diverse sources of knowledge when become a returnee • Specific knowledge from networks abroad provides information not

available internally in EEs • Enables knowledge transfer due to embeddedness in both environments

• Spillovers from work/study at MNCs/universities at home/host • Relationships that provide social capital, partners, technical knowledge

• Downside: Exiting home network means no roots in domestic political system • Returnees need to rebuild this capital or seek substitutes • Family? Teams of local managers with the requisite social capital.

What do we need to know about context?• Spatial

• Home location choice driven by need to access spatially distributed complementary human, social & financial resources • Science park vs non-science park; region

• Depends on founder’s human and social capital• experiences gained abroad and global networks developed• practical business skills and knowledge vs academic skills

• Transnational returnees located in host and home may have different asset complementarities than simple returnees

What are the Implications?

• Fine-grained support

• Policy makers and managers of science parks in emerging markets need to be aware of the heterogeneity of returnee entrepreneurs and develop fine-grained support• Support may need to involve help to bridge between returnees and

science parks to obtain the best match

What are the Implications?• Incentives

• Provide incentives to encourage returnees in order to obtain effective technology catch up and spillovers for local firms• This complements incentives for foreign firms

• Incentives for local firms to seek out and develop links with returnees

What are the Implications?

• Reverse knowledge spillovers and host countries

• Spillovers involve costs to the west from returnees leaving host to return home to exploit acquired knowledge and networks• BUT may be reverse knowledge spillover benefits to

MNCs and universities

• Originating firms and universities in host• exploit links with new firms in emerging markets

founded by returnees to advance own innovation and performance, often through inter-personal links

What are the Implications?• Reverse knowledge spillovers and host countries

• Emerging economies through returnees may become hotbeds of technological innovation and new business models

• Important role of MNCs foreign subsidiaries as channel for obtaining local know-how and technology in host countries• Local spillovers to these from returnees• Transferred back to parent MNC in host country

• Develop policy in West to encourage global collaborations in innovation and technology with returnees (Technology Strategy Board, 2008).

What are the Research Challenges?

• Who are the returnees? How to gain access?• Websites?

• What are the different modes of returnee entrepreneurship?

• Entrepreneurial returnee teams? [composition and emergence]

• How is innovation in developed country MNCs/universities associated with networks with returnees in emerging economies? How to access multi-level, multi-country data?

What are the Research Challenges?

• Limitations of both surveys and archival datasets

• Access for surveys• Need multi-level data and analysis to provide more complete

picture of how returnee entrepreneurs interact with multi-level factors that change over time, especially institutional aspects• Qualitative theory building needed

• Scope of datasets – limited to Science Parks?• Interaction between contextual factors

Thank You!

Questions?