As Europe struggles to cope with its worst ever migrant crisis, U.S. presidential candidates continue to spar over immigration reform. Unfortunately, too much of the rhetoric focuses on things like benefits fraud, stealing jobs from locals and keeping immigrants out. But another side of the story told much less often is that welcoming migrants might actually be one of the most effective ways to stimulate entrepreneurship.
Tesla’s Elon Musk, WhatsApp’s Jan Koum, and Google’s Sergey Brin are prominent immigrant entrepreneurs and while they are exceptional, their path is not. A study by the Partnership for a New American Economy found that 18% of America’s largest companies were started by immigrants. A further 22% were founded by children of immigrants.
These statistics are startling, bearing in mind that America’s foreign population averaged 10.5% since 1850. It means that you are much more likely to be a successful entrepreneur if you were born abroad. To most people, this comes as a surprise. After all, immigrants often struggle with the language, have limited knowledge of local rules and regulations, and face obstacles citizens don’t. But here are five reasons why immigrants make great entrepreneurs.
Identifying new niche markets
Competing in existing markets is tough for startups. So, most successful entrepreneurs try to identify new niche markets. Immigrants are particularly adept at this.
Take Jason Njoku, a Nigerian who came to the U.K. to study. When his mother wanted to watch some movies from home, he noticed that accessing Nollywood movies online was not as straightforward as he thought. He decided to solve the problem and flew by back to Lagos to obtain an online license directly from the producers. His first step was to create a successful YouTube channel. Gaining widespread media coverage, he was then able to secure U.S. venture capital of $8 million to start his own website, iROKOtv. Toda,y Njoku is recognized as a pioneer of African tech startups. While the company hopes to serve the Nigerian market as well, the core customers are still the Nigerian diaspora, a market of at least 5 million people.
Being part of a separate community, immigrants understand potential niches which are typically under-served. Some of them eventually go mainstream. Amadeo Giannini, who was raised by Italian parents in the U.S., for example, was aware how difficult it was for immigrants to get loans, so he started the Bank of Italy, later named Bank of America. Last year the bank employed 233,000 people and had revenues of $85 billion.
Serving existing customers differently
Another option for entrepreneurs to succeed is to provide more appealing offers to existing markets and customers.
Louis Krubich, the Russian-born founder of Malka Media, a company offering video production and digital marketing, said in a recent interview that he was unfamiliar with the tone or feel of American culture in the '60s or '80s because he grew up watching Russian cartoons and TV shows. What could have been a disadvantage when discussing new projects and ideas with clients, he instead turned into an opportunity for suggesting fresh ideas and a new perspective, an attribute highly valued by his clients.
The advantage of immigrants: They often find it easier to think outside of the box.
Connecting markets
Even established companies struggle to internationalize successfully. Immigrant entrepreneurs often succeed because they leverage their ability to connect markets.
When Chris Folayan studied in the U.S., friends and relatives often asked him to bring specific products when he went home to Nigeria for a visit. He saw the business opportunity and started MallForAfrica, helping Africans to buy U.S. and U.K. products. It grew into a multi-million dollar enterprise, with more than 7 billion items for sale.
An even more extreme example is businesses operating in locations where others can’t. Hawala is an informal money transfer system often run by Somalis. It ensures that millions of remittances sent by immigrants safely reach home. No money is physically moved or exchanged, keeping transaction costs low. In some of the places where agents operate, legal enforcement is not an option. So instead they rely on trust. Settlement of debts between Hawala brokers can come at a later time and also in the form of properties, services or goods. The system only works as agents can rely on an established honor system in the Somali community.
Accessing distinct networks
Access to money and connections are crucial, possibly the most defining attribute of entrepreneurs. While most immigrants do not spring from wealthy families, they can rely on networks not accessible to outsiders. That helps them to negotiate contracts and hire loyal employees.
Particularly in the early stages, entrepreneurs have limited proof that their idea will work. Here the trust and kinship felt among immigrants can provide vital support. It is difficult to imagine for example, that Njoku would have been able to negotiate with Nollywood producers had he been an outsider. Without the contacts back home, he would not have had a product to deliver to the Nigerian diaspora.
Immigrant networks can also help entrepreneurs to find loyal employees. Initially, they might rely on family members but the advantage reaches far beyond the cliché of the small corner shop. Century Homecare LLC is a fast growing Medicare-Certified home health agency in Massachusetts, founded by James Njoroge and Julius Kihumba, both originally from Kenya. One of the biggest challenges in this industry is to find qualified nurses. Nursing is a popular profession among immigrants. It is also an industry where 40% of immigrants working at U.S. hospitals say their wages, benefits or shift assignments are worse than those given to American colleagues. Here Njoroge and Kihumba have a natural advantage, particularly in the Kenyan community. As Kihumba pointed out in an interview, they are mindful that nurses are very mobile and ready to move on if Century Homecare does not deliver its side of the bargain. This means that they invest heavily in smart technologies which make the life of nurses easier, and cover tuition fees for some. But before you can even ‘sell’ to the nurses, you need to be able to approach them -- something made easier by the fact that they are part of the same community. This advantage also translates to other immigrant groups – Spanish, Haitian and Vietnamese communities - as the company understands the special challenges faced by immigrants better than local competitors. As patients prefer caretakers who speak their language, this gives Century Homecare access to customers, others cannot reach easily.
Embracing risk
Entrepreneurial activities and migration have something in common: The outcome is uncertain. Both will try to add up potential costs and benefits, but in the end, they are prepared to make a leap of faith.
For migrants, it is reasonable to assume that they know their home country better than their potential host country. Leaving family and friends behind to seek better opportunities abroad is an indication that they are prepared to engage in activities which have the potential to improve their income, even if the outcomes are hard to predict. Empirical evidence is scarce as it is hard to control for all potential factors that motivate migrants (e.g. escaping a war). To avoid such measurement issues, David Jaeger, Thomas Dohmen, Armin Falk, David Huffman, Uwe Sunde and Holger Bonin use data from the German Socio-Economic Panel to study within-country migration. Their study shows that migrants display a higher willingness to take on risk. As moving to another country encompasses even greater unknowns, we can assume that the same (probably higher) willingness to take on risk will be displayed by immigrants.
In short, immigrants are a self-selected group of risk takers. The uncertainty associated with starting a business is less of a deterrent for them.
What that means for politicians
The big question for politicians: Can you still win elections while being pro-immigration? In America, at least, I would rely on Bill Clinton’s campaign strategist James Carville who coined the phrase, "It’s the economy, stupid." Immigrant-founded companies employ 3.6 million Americans and generate revenues of $1.7 trillion. An inspiring story worth telling.
