Returnee entrepreneurs, Entrepreneurial Mobility and emerging markets

1. Returnee entrepreneurs, Entrepreneurial Mobility and emerging markets Mike Wright Centre for Management Buy-out Research Imperial College Business School & University of Ghent mike.wright@imperial.ac.uk

2. 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?

3. 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

4. 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

5. 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.

6. 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...

7. 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?

8. 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)

9. 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).

10. 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

11. 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)

12. 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)

13. 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)

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

15. 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)?

16. 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).

17. Resource Orchestration, Returnee Entrepreneurs & Context

18. 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?

19. 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?

20. 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 knowledgetransfer due to embeddednessin 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.

21. 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

22. 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

23. 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

24. What are the Implications? • Reverse knowledge spillovers and host countries • Spillovers involve coststo the west from returnees leaving host to return home to exploit acquired knowledge and networks • BUT may be reverse knowledge spilloverbenefits 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

25. 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).

26. 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?

27. 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

29. Thank You! Questions?