Land of Opportunity: In the U.S., Immigrants and Entrepreneurs Are Increasingly the Same

As an immigrant and entrepreneur, Vivek Wadhwa knows a lot of people like himself in the high-tech world of business. “If you work in technology, you see many Indian and Chinese faces,” he says.


 


But when he set out to quantify the involvement of skilled immigrants in the fields of technology and engineering in the United States, even Wadhwa was surprised by what he found. “What started in Silicon Valley has become a nationwide phenomenon,” he notes.


 


A new study by Wadhwa, an executive in residence at Duke University’s Pratt School of Engineering, and a team of researchers found that one in four technology and engineering companies founded in the U.S. between 1995 and 2005 had at least one founder who was foreign-born. Many of them were from India. Nationwide, immigrant-founded companies generated $52 billion in sales in 2005 and employed 450,000 people. Non-citizen immigrants living in the U.S. also are increasingly being named as inventors or co-inventors on patents, the study found.


 


“This research shows that immigrants have become a significant driving force in the creation of new businesses and intellectual property in the U.S. — and that their contributions have increased over the past decade,” the researchers concluded in a recent study titled, “America’s New Immigrant Entrepreneurs.”


 


Wadhwa, who came to this country from India in 1980 and founded two software companies before detouring into academics, began looking at the issue of skilled immigrants as part of a broader interest in globalization and U.S. competitiveness. “Everyone says the U.S. is losing its edge,” he says. “We were trying to study the advantages the U.S. has … and skilled immigrants are one of those advantages. There is something unique to the U.S. to be able to bring in the world’s best and brightest.”


 


Still, “no one had quantified the contribution of these immigrants,” notes Wadhwa, who is also a columnist for BusinessWeek online. “Everyone focuses on illegal immigrants. But no one is looking at legal immigrants, people who come in the front door and do things the right way and contribute to America’s competitiveness.”


 


The Duke study follows up on an earlier one done in 1999 that examined the economic contribution of skilled immigrants in California. AnnaLee Saxenian, dean of UC Berkeley’s School of Information, found that Chinese and Indian technologists and engineers were playing a huge role in the high-tech boom going on in Silicon Valley, heading up 24% of the tech companies started there from 1980 to 1998.


 


For this latest study, Wadhwa and Saxenian teamed up to take a look at immigrant entrepreneurs nationally. Their research team used Dun & Bradstreet’s Million Dollar Database to identify technology and engineering companies founded in the U.S. from 1995 to 2005, and then placed phone calls to ask whether any of the company’s key founders were immigrants to the U.S. If the answer was yes, the researchers asked where that person was born.


 


Of the 2,054 companies nationwide who responded, 25.3% reported that at least one of their founders was an immigrant — roughly the same level found in Silicon Valley in the previous study. “We were stunned by the numbers,” said Wadhwa. (As a reference point, the researchers cited 2003 U.S. census data showing that 11.7% of the U.S. population was foreign-born.)


 


The study also found that:


 


·         Indians were the most dominant ethnic group, heading up 26% of the companies that were founded by immigrants.


·         California led the way with immigrant entrepreneurs. There, 39% of tech companies were immigrant-founded. New Jersey was close behind, with 38%, and Georgia and Massachusetts also had a healthy number of tech companies founded by immigrants. Immigrant-founded companies were much less common in Washington, North Carolina and Texas.


·         Chinese (either mainland or born in Taiwan) were most likely to set up their companies in California. Nearly half of the companies founded by mainland Chinese and 81% of companies headed by Taiwan-born immigrants were in California. Indian-founded companies were well represented in both California and New Jersey, while British entrepreneurs favored California and Georgia.


·         The immigrant mix differed from state to state. In Florida, 35% of immigrant-founded companies were started by people from Cuba, Columbia, Brazil, Venezuela or Guatemala. In Massachusetts, Israelis were the biggest founding group, accounting for 17% of immigrant-founded startups. In New Jersey, Indians headed 47% of the new companies started by immigrants. The researchers suggested that the ethnic clustering of start-up companies reflected the tendency of immigrants to form social and business networks.


·         Immigrants were most likely to start companies in the semiconductor, computer, communications and software field. They were least likely to start companies in defense/aerospace and environmental industries.


·         While immigrants are making their mark all over the country, Silicon Valley remains a hotbed of entrepreneurship. Just over 52% of start-up companies there had immigrant founders, with the highest proportion from India, followed by China and Taiwan. By comparison, just under 19% of startups in Research Triangle Park, N.C., another high-tech center in the country, had an immigrant founder.


 


The Duke researchers also measured the contribution of immigrants to “intellectual property,” using patent data from the World Intellectual Property Organization (WIPO). Immigrant non-citizens in the U.S. were either named as the inventor or co-inventor in 24.2% of patent applications filed in 2006, the study found. That’s a significant increase from 1998, when non-citizen immigrants accounted for 7.3% of patent applications.


 


The study found that the largest number of applicants were Chinese (either from the mainland or Taiwan), followed by Indians, Canadians and British. As for types of patents, the immigrants filed more theoretical, computational and practical patents than mechanical, structural or traditional engineering patents.


 


New Immigration Policy?


Wadhwa and his research team are now doing a follow-up study of 125 of the immigrant company founders to understand more about their backgrounds. He says that preliminary results show that 70% of the founders have a master’s degree or Phd, with the majority of them trained in math, science, engineering or a related field. Preliminary results also show that more than half of the immigrant founders, 55%, came to the U.S. as students and stayed on.


 


Wadhwa suggests that the country’s immigration policies need to better accommodate people who want to come to this country and become permanent residents. “How can you argue with half a million jobs and $52 billion in revenue?” he asks, referring to the study’s findings. Current U.S. immigration policy, he adds, allows for 140,000 employment-based visas for workers and their families each year — not enough, he says, for the U.S. to stay competitive in the global market. “What this study shows is we are able to bring the best and the brightest from all over the world to give us the edge. So the point it, let’s do more of it.”


 


Sashi Reddi is typical of the type of immigrant Wadhwa is talking about. Reddi, who came to the U.S. from India nearly 20 years ago to study first at New York University and then at Wharton, now heads two companies. AppLabs Technologies, a software testing and development company with headquarters in Philadelphia, is worth $200 million and employs 100 people in the U.S., 300 in the U.K. and 1,250 in India. His other venture, FxLabs, involves the development and design of video games. The company is worth $15 million and has six employees at its Seattle location and 125 employees in India.


 


According to Reddi, the U.S. is an ideal environment for entrepreneurs to get launched, whether they are native born or newly arrived. “It was easy for a person like myself, with good ideas, to find funding and grow the companies for myself and my employees,” he says. Also, by locating his businesses both in the U.S. and India, “I’m able to bridge what’s positive in the U.S. and what’s positive in India.”


 


David Hsu, a Wharton management professor with research interests in technological innovation and venture capital, says it’s not surprising that immigrant entrepreneurs are well represented in the high-tech industry. It stands to reason that people who take the initiative to come to this country are highly motivated, he notes, adding that there are well-organized networks in the Indian, Chinese and other ethnic communities that can help get the immigrant entrepreneur started. “It’s not just the high-tech industry. There are many ethnically-composed industries. Think of the motel business for Indians” and “laundry services, corner stores and nail salons” for various Asian groups.


 


Immigrant entrepreneurs may be especially attractive to investors if they bring certain advantages to the business equation, Hsu says. For instance, there may be a chance for enhanced revenues because the immigrant’s ties to the homeland afford a “pathway to lucrative, larger markets.” On the cost side, the immigrant may have access to lower-cost workers, supplies and manufacturing facilities in the home country.


 


According to Wharton management professor Marshall Meyer, the Duke study on immigrant entrepreneurs confirms what has traditionally been the experience of immigrants in this country — newcomers seek work where the opportunities and needs are. “It’s always been that way. Go back 100 years to the waves of immigrants hitting Ellis Island before World War I,” he says. It’s not that Chinese or Indians have a particular propensity for technology compared to Americans, but rather that “the opportunities today happen to be in high tech.” At the same time, the U.S. is an attractive place for entrepreneurs to start a business because “it is easier to get capital in the U.S. than anywhere else in the world.”



Meyer says the country’s immigration policies need to reflect the value that new arrivals can bring. “When we get fuzzy about immigration, we hurt our economy. We’ve got to find ways to keep our economy dynamic. If we chop off the supply of these people, it’s going to hurt.”

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