“Diaspora entrepreneurs are people with a foot in two countries”

Diaspora entrepreneurs define themselves by their country of origin

Diaspora entrepreneurs have several advantages over other entrepreneurs/investors because they have political and economic connection in two or more countries. Diaspora entrepreneurs invest money, time or particular skills in their country of origin. Many diaspora entrepreneurs continue to live in the country to which they or their ancestors immigrated (the country of destination) but they define themselves by their country of origin. It implies a distinct identity related to the country of origin even though different diaspora groups may be very well integrated in the country where they have settled.

How diaspora entrepreneurship contributes to the economy

Even though very little research has been completed on how diaspora entrepreneurs contribute to the economic development of their countries of origin, through what is sometimes called diaspora direct investment (DDI), there is reason to believe that diaspora entrepreneurship has the potential to contribute to development in 4 ways:

1. Diaspora entrepreneurship fosters business development, job creation, and innovation;
2. DDI creates economic, social, and political capital through global networks;
3. Diaspora entrepreneurship taps into social capital through cultural and linguistic understanding;
4. Entrepreneurship and economic development are positively linked.

Types of support to entrepreneurs in the country of origin

Over the past decade, a number of governments and other organizations have established programs to encourage emigrants and their descendants to invest in their home countries. Initiatives range from those that are privately run and funded to those that are government-led or lodged in multilateral organizations, but most involve some sort of public-private partnership. These organizations play multiple roles and offer a variety of services to encourage and support entrepreneurship among members of diaspora groups. While some initiatives are nationally based, others are open to all individuals with an interest in contributing to the development of a particular country. While each organization and initiative has its own unique program, ways of working, and sources of funding, each also offers one or more of the following kinds of support to entrepreneurs in the country of origin:

• Networking
• Mentoring
• Training
• Investment
• Venture capital and partnership

Role country of origin and country of destination in promotion of diaspora entrepreneurship

Both the country of origin and the country of destination have roles in promoting diaspora entrepreneurship. But I think the country of origin has the most important role because that is the environment in which the entrepreneur is considering investing or setting up a business. What countries of origin can do to promote diaspora entrepreneurship are for example initiatives related to good governance. Diaspora entrepreneurs are very unlikely to invest in places where there is a high level of corruption or complicated regulations, confiscatory tax rates, and limited access to local financing. Things that are more specifically aimed at attracting diaspora entrepreneurs are clearing out complex licensing and import requirements, limitations to owning property or to registering a corporation. So some countries, like India for example, have set up investment windows specifically for members of the diaspora. These are one-stop shops where assistance and information about investing locally is given. Entrepreneurs may even have access to preferential finance or exchange rates compared to non-diaspora entrepreneurs.

Would it be logical to expect the countries of destination to help promote investing in the countries of origin by diaspora entrepreneurs?

Increasingly the countries of destination have started looking at their diaspora populations as sources of information and as partners in development policies. The title of our new book is ‘Diaspora’s’, the subtitle is ‘New partners in global development policies’. I think that’s how countries of destination and countries of origin have started to look at this group. For example the government of the United States of America (USA) through USAID in cooperation with Western Union held a competition called The African Diaspora Marketplace (ADM). USA-based members of the African diaspora presented business plans for small and medium entrepreneurs that would contribute to economic development in Sub-Saharan Africa. Applicants were required to have a partner organization in Africa to help them execute their projects, and to own at least 25 percent of the proposed company. The goal of the ADM was to spur job creation, generate income, and produce goods and services, preferably in sectors such as handicrafts, tourism and textiles by offering matching grants to African-diaspora members living in the United States.

It’s wrong to generalise when considering diaspora groups

In order to start an enterprise, entrepreneurs should have some access to financial capital. However, migrant entrepreneurs are often thought of as vulnerable and not having a large or stable economic basis. But it’s wrong to generalise when considering diaspora groups. There are some entrepreneurs who have generated a considerable amount of wealth in the country of destination. You can think here of members of the Indian, South Korean or Chinese diaspora groups who work in Silicon Valley. Those companies founded by immigrants employed 45.000 workers and generated 52 billion dollars in revenue in 2006. Famously, many Indian entrepreneurs have taken back-office functions or programming tasks back to India. They are increasingly moving elements of research & development to the countries of origin, because they can employ skilled people there more cheaply. They are linking these transnational enterprises to companies in Europe or the USA. On the other hand, there are also many small entrepreneurs who do not only lack finances but also the know-how and/or technical skills to operate anything other than a very small business. For this group there are training schemes to help them become successful if they choose to invest in their country of origin.

The entrepreneurship culture is not innate to people; we are not born with it.

There are a huge number of networking organisations, some of which are funded or supported by the country of origin, for example the African Network in Silicon Valley or the Korean IT Network (KIN). There is also a network that works with entrepreneurs in 12 developing countries that lets entrepreneurs post business plans where investors can look if they are interested in investing. But there is no pushing people into this kind of investment or any active recruitment of investors. Diaspora networks allow the entrepreneurs to reach out beyond the networks they were born into, which may be somewhat self-limiting. For example if your family or the region you were born in is poor, they might not offer the contacts that would help you to become an entrepreneur. Networking is very important for every member of a diaspora group. It exposes entrepreneurs to different views, ways of thinking and new expertise. Some countries, like China, are looking for these traits. China is trying very hard to get Chinese entrepreneurs to come back to China, permanently or temporarily, because China traditionally has not encouraged a culture of entrepreneurship. This is ironic because Chinese immigrants overseas have embraced entrepreneurship, which is why China would like them to bring back the ideas and experience which they acquired in the USA and/or Europe. Culture is a big factor in entrepreneurship, but an individual can acquire the traits and skills of an entrepreneur if he or she is inclined to do so.

By Elizabeth Winkel, EUKN