Hoping to Create Your Own Silicon Valley? Don’t Count On Returnee Entrepreneurs

Developing nations have historically been concerned about a “brain drain”: the idea that the nation’s best talent was immigrating to a developed country with more opportunities, in particular the United States. Since the 1990s, the concept has shifted into a more positive perception: that of a “brain gain”, where, after having worked and studied abroad, emigrants return and transfer their knowledge, practices, and networks to their home nation. Some scholars have argued that this brain gain has been an important factor in forming successful information and communications technology (ICT) industries in Taiwan, China, and India. This in turn has induced policymakers in developing countries to introduce policies encouraging their best talent to go to the US to be educated and gain work experience, and then to return home to jump start their home nation’s ICT industries. But before developing nations implement these policies as standard practice; they may want to reconsider the evidence.

In the 2012 paper “Coming back home after the sun rises: Returnee entrepreneurship in high tech industries,” Martin Kenney, Dan Breznitz, and Michael Murphree argue that while returnees did play an important role in ICT industries’ growth, they were not critical in the initial formation of these successful industries in Taiwan, China, or India. Instead, the authors find that most returnee entrepreneurs did not return until after local entrepreneurs, multinational companies (MNCs), and public policies had already transformed the local business environment and laid the groundwork for the ICT industry. They then contributed to the subsequent expansion phase.

The authors conduct case studies of China, Taiwan, and India, three countries whose ICT sectors emerged in the 1980s and 1990s, to identify at what phase, where, and how important returnees were for jumpstarting ICT entrepreneurship. These three countries were chosen because they are recognized as emerging technological powers and their success in this industry differentiates them from other developing nations. Kenney, Breznitz, and Murphree consult extensive secondary sources and analyze an original dataset that tracks career patterns of the founders of the major ICT firms in each nation. The dataset only includes those firms that were established at the beginning of the industry, those that arguably played a role in its creation. The authors collected data on each firm’s year of establishment, headquarters’ city, and whether its founder(s) had worked or been educated in the United States.

The authors found that very few early entrepreneurs in the ICT industry in any of the three countries had overseas experience in the United States. In all three countries, and particularly in Taiwan and China, governments actively encouraged local partnerships and business relationships with MNCs to ensure technology transfer and learning instead of expending effort attracting returnees.

In Taiwan, the government actively encouraged local firms to become part of global supply chains, primarily through the creation of ITRI, a state-led public research institute that played a vital role in encouraging the development of the high-tech industry. The Chinese government sought to strengthen local firms through policies such as tax exemptions and through setting standards for the ICT industry. India made general efforts to deregulate the economy, loosen tariff restrictions, and otherwise help founders to avoid excessive bureaucracy. Only once these local industries had been established and had experienced success did these governments encourage expatriates to return.

An important policy implication of these results is that rather than expending resources encouraging promising entrepreneurs to be educated abroad, governments in developing countries should invest in incentives for local entrepreneurs to build the business environment. Only once this environment is established will returnee entrepreneurs return and flesh out the industry.

Feature Photo: cc/(Daniela Hartmann)