Brain drain hits US as immigrants head home to start businesses
In 1980, immigrant entrepreneur Vivek Wadhwa came to the United States and stayed, starting two companies that created more than 1,000 American jobs. Now an academic, Wadhwa sees first hand that today’s immigrants are not following his lead.
Every year he asks foreign students in his classes at Duke University how many intend to stay permanently in the United States. “It used to be that everyone raised their hand,” Wadhwa says. “Now they look at you funny. They say, ‘What does that mean?’”
For a majority of highly skilled immigrants who want to start companies, the promised land is no longer the United States, writes Wadhwa and four co-authors in a recent report from the Kauffman Foundation, a Kansas City, Mo based non-profit that supports research on entrepreneurship.
In The Grass Is Indeed Greener in India and China for Returnee Entrepreneurs, the researchers surveyed 153 professionals who returned from the US to India or China to start a business.
They found that 72 per cent of Indians and 81 per cent of Chinese said the opportunities to start a company in their home countries “were better or much better” than in the United States.
Some say the flow of immigrants back home is a “brain drain” for the US that calls for an immigration policy overhaul. Sending would-be entrepreneurs packing robs the United States of new companies, new jobs and long-term economic growth, they argue.
Others say the pull is as strong as the push: that as economies blossom in China and India, the opportunities sprouting on native turf are simply too tempting to resist. Some experts maintain that returning immigrants don’t actually spell a net loss for the United States anyway. They see the flow as more of a “brain circulation” that benefits economies on both sides of the sea.
Wadhwa, a senior research associate at Harvard Law School and director of research at Duke’s Centre for Entrepreneurship and Research Commercialisation, falls on the “brain drain” end of the spectrum.
“It’s not a brain drain; it’s a brain haemorrhage,” he insists. He sees the flow as a policy problem, the result of a visa system that broke down after 9/11 and the dot-com bust, stymying more than half a million skilled immigrants.
Would-be entrepreneurs now wait years in “green card limbo,” stuck in jobs tied to H-1B visas that allow neither transfer nor promotion, Wadhwa notes. “Not only can you not start a company, but you are stagnant in your career.”
It’s a world away from three decades ago, when Wadhwa immigrated from India. “It took me 18 months to get a green card,” he recalls. He started his first company 15 years later — and wasn’t alone.
In fact, one out of every four technology and engineering companies launched between 1995 and 2005 had at least one immigrant founder, Wadhwa discovered in a nationwide survey of more than 2,000 companies in 2007. In Silicon Valley, the number was 52 per cent.
Immigrants would continue to start companies in the US if given a better chance, Wadhwa argues.
He believes the StartUp Visa Act, a proposal in Congress that would give visas to immigrants who have enough venture capital backing to start a business, would “unleash a flood of entrepreneurship.”
It could create “tens of thousands [of jobs] in the short term, hundreds of thousands in the long term.”
Although less than 10 per cent of respondents in the Kauffman report said visas played a “very important” role in their decision to return home, and more than 80 per cent claimed visa issues were “not” or “not at all” important, Wadhwa is skeptical about those responses.
“People are saying they are going back because of economic opportunities, but the truth is that we’re not giving them a chance to grow deep roots.”
One of Wadhwa’s co-authors, AnnaLee Saxenian, a dean and professor in the School of Information at the University of California, Berkley, sees a number of reasons for immigrants to go back.
“I believe that Chinese and Indians are returning primarily because of the new economic and professional opportunities in their home countries,” she says. “However, the challenges of getting visas, the suspicion of foreigners in the US since 9/11 and the severity of the economic downturn have all served as ‘push’ factors as well.”
Wharton management professor Ethan Mollick believes an immigrant’s decision to return home is more complex than a green card. “It’s a little unfair to [characterise it as] a decision between pure policies,” says Mollick.

Economic opportunities
Returnees consider not only their country’s economic development, labour costs, financing, infrastructure and regulations, but also social support systems, quality of life, family connections and a myriad of other factors when deciding where to go, he says.
Sixty per cent of Indians and 90 per cent of Chinese in the Kauffman report cited economic opportunity in their home countries as a “very important factor” in their decision to return.
Family ties were considered very important for 76 per cent of Indians and 51 per cent of Chinese. And more than 60 per cent of Indians and 51 per cent of Chinese said they were motivated by the idea of contributing to their home country’s economic growth.
Although the United States is “still better than anywhere else in the world by far” in terms of venture capital and business networks for startups, the rest of the world is also becoming more competitive, Mollick points out.
“Everyone now realises that startups are one of the most important keys to economic growth,” he says, noting that 62.5 per cent of new jobs in the US come from companies less than five years old.
Support networks for entrepreneurs are also starting to move overseas, points out Gavin Cassar, a Wharton accounting professor and an editor at the Journal of Business Venturing.
Historically, the US has been a magnet for talent, in part because it has a structure for successful startups — complete with lawyers, accountants, venture capitalists, angel investors and a regulatory framework that helps deals get done.
Another possible “pull factor” for immigrants: Partnering with venture capitalists of their own ethnicity than those with complementary professional expertise, according to new research from Wharton management professor David Hsu.
“We like to deal with people much like ourselves,” says Hsu. Hsu looked at a number of factors, including gender and alma mater.
“It turns out that there’s a lot based on: ‘Are we both Indian’ or ‘Are we both Chinese.’” In the Kauffman report, 19 per cent of Chinese companies and five per cent of Indian companies obtained venture capital.
Most of the companies (73 per cent of Chinese and 86 per cent of Indian) were funded by personal savings.

Knowledge exchanges
Hsu says he is “hesitant to make a strong statement” about the policy implications of the Kauffman report because it’s not certain that returnees who start businesses back home would have been able to bring the same amount of value to the US market. He points to Charles Zhang, founder of Sohu.com, as an example.
One of China’s first returnee entrepreneurs who came back after getting a PhD from Boston’s MIT, Zhang established the Chinese language search engine and portal in the early 1990s when China’s Internet landscape was just emerging.
The company now employs thousands and brought in record revenues of $174.4 million in the first quarter of 2011, according to the company’s unaudited first quarter results. “It’s not clear that there would have been the same value created if he had started it here,” says Hsu. Similar sites in the United States were already well established when Zhang went back to China to start his venture — and some Silicon Valley startups later imploded after the dot-com bubble burst.
“You can’t just look at any performance metric on one side and say, on a one-to-one basis, (that) we’ve lost that. There’s a completely different set of circumstances.”
Knowledge flows
Even if immigrants do return to their home countries, the United States may benefit from the long distance relationship, according to research on networks and alliances by Wharton management professor Lori Rosenkopf.
Through the analysis of patent citations, Rosenkopf has studied how knowledge flows between firms when engineers move from one to another. The assumption used to be that if an engineer left a firm, all of his talent and knowledge went with him to the new company.
But the person doesn’t really take away all of his brainpower, Rosenkopf found.
“He goes to the new place and maintains his social connections with the old firm, and in doing so creates an exchange,” she says.
Noticing that engineers at both firms often cited work by their old colleagues in patent applications, Rosenkopf concluded that engineers in a sense continued to work together, and both firms benefited.
She also found that the further the move, the greater the exchange.
“When people move further to different regions, the effect of learning is actually greater,” she notes.
Although Rosenkopf has not studied the knowledge flow of immigrants, her research on networks and alliances indicates that a move of immigrants back home could result in an increasing exchange between countries.  

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