Entrepreneurship in population with immigrant origin: local and transnational ties existing in mature and innovative markets

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Entrepreneurship in population with immigrant origin: local and transnational ties existing in

mature and innovative markets.

Abstract

This paper touches upon the topic of migrant entrepreneurship and the markets where it exists. My

arguments are drawn on the basis of the embeddedness of entrepreneurship in social networks at a local

and transnational level. In a scenario where it is assumed that immigrants arrive into a host society in

search of employment, the scholarship of entrepreneurship of migrant-origin persons has several topics to

be investigated. There is published literature about ethnic entrepreneurship, immigrants’ owners in the

labour market and transnational connections with the host society. This paper attempts to contribute to

the state of art by comparing the phenomenon of nascent entrepreneurship between mature and

innovative markets, stressing the role of transnational connections and immigrants’ integration.

Immigrant entrepreneurs can be involved in very diverse initiatives in several sectors of the economy. This

situation leads to the question to be answered with this papers: which kind of migrant entrepreneurship

makes use of their connections at local, national and international levels to acquire resources and ideas for

their business? The analysis is sustained on theoretical work about the emergence of entrepreneurs

connected with the idea of embeddedness of economic activities in social relations. The case of

transnational entrepreneurship helps to geographically situate immigrant entrepreneurs, their connections

and social ties across their countries of migratory experience. The comparison of mature and innovative

markets explains differences in the profile of immigrant entrepreneurs in the process to acquire funding

and in the use of ethnic communities. The conclusion stresses the persistent disadvantages for immigrants

at the lower end of the market and the opportunities at the upper end. There is a potential to conduct

research on transnational entrepreneurship of immigrants as a possible path for integration.

Author: Juan Francisco Alvarado V. PhD Candidate in Economic Sociology

University of Milan and University of Brescia, Italy

Table of contents

Introduction ...................................................................................................... 2

A. Why is immigrant entrepreneurship important? ............................................... 3

B. Entrepreneurship: economic embeddedness in social actions ........................... 5

C. Immigrant entrepreneurship and transnational relationships ............................ 9

D. Comparison of immigrant entrepreneurs in mature and innovative markets ..... 15

E. Conclusions ....................................................................................................... 17

References ........................................................................................................ 19

Number of words: 7 200 (excluding references and abstract)

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Introduction

Entrepreneurship, in economic terms, could be assumed to be a constant state in the life of an

immigrant. This assumption is contested when looking at the life course of immigrants divided in several

stages with certain conditions, an immigrant can return or move to another destination, be an asylum

seeker or a refugee, be employed or unemployed, be an student or not and so on. The stage of

entrepreneurship can be described as a outcome of several social conditions, which requires an idea to be

developed, money to start the business, clients to sell to and many others. In this paper I will focus on the

different types of capital used by immigrants when they want to start a business: human, social and

financial. I stress the role of transnational ties as an important source of ideas and information; in addition I

take into consideration the unequal involvement of entrepreneurs in transnational activities. Finally, I

compare the conditions for immigrant entrepreneurship to operate in mature markets or in innovative

markets. To do so, I base my arguments on three main ideas: the embeddedness of immigrants in their

social networks, transnationalism as a source of resources and the diversity of capital needed to start a new

entrepreneurial idea. This paper explores the supply side of entrepreneurship but leaves open topics

related to the demands of the market and customers of immigrant entrepreneurs.

Before the explanation of those three main ideas, I explain in section A why the study of

entrepreneurship of immigrant population is relevant to our understanding of contemporary societies. I

mention five ways through which entrepreneurship is linked to integration of immigrants into the economic

life of the receiving society. Each of the sections B, C and D explains one of the three arguments, which

allow a comparison of immigrant entrepreneurs. Section B refers to the embeddedness of immigrant

entrepreneurship in the social networks to which individuals are connected. Theoretical literature suggests

that entrepreneurial activities are related to the quantity and quality of the connections present in the

network structure of each individual. Smith-Doer and Powel (2005) have noticed that the positive

contribution of networks has been prevalent, moreover the way the same networks can neutralize those

positive effects is also considered. Section C covers the effect of transnational connections on the

emergence of nascent entrepreneurs. Glick-Schiller et al (1995:p.50) emphasize that one of the three

reasons for transnational migrations is the economic deprivation in sending and receiving countries due to

the global restructure of capitalism. I explore how transnational relations can be identified in different

forms of capital needed for entrepreneurship. Next, in section D I compare the characteristics of markets

where immigrant entrepreneurship can be present. For this reason I suggest mature and innovative

markets as a framework to identify similarities and differences in human, social and financial capital of

immigrant entrepreneurs.

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In the conclusion I point out how immigrant entrepreneurs are operating in the two ideal types of

markets. The comparison is made on their level of embeddedness in their social network, on the presence

of transnational relations in their networks and on the previous labour experience. The influence of the

receiving society and the cultural background of immigrant entrepreneurs create conditions for

transnational activities (Castells, 2002;p.87). This situation draws attention to the comparison for both

types of markets, to the adequate combination of human, financial and social capital needed for the

success of entrepreneurship. The lack of one of them can lead to failure, so that an actor with the best

networking structure could still fail with no financial means or no experience in an economic sector. In case

of immigrants this is a serious matter, since resources can be limited inside immigrant communities and

survival strategies are often used, especially when focusing on irregular migration or incorporation into the

lower section of the labour market, as it will be further explained. Entrepreneurship could be a possible

successful path for economic integration but further research on the types of markets where immigrant

entrepreneurs are located could give better information on their integration processes.

A. Why is Immigrant Entrepreneurship important?

This section of the paper will mention three reasons why the study of immigrant entrepreneurship -

IE- is important for the understanding of society. IE is referred to the economic activity, however certain

comparisons have been extended to political activism, social proactivity and cultural initiatives. A common

belief is that entrepreneurship involves only individual risk, or that the focus is to find costumers, or that

the activity will bring a large profit. But before challenging these common beliefs, I will present a definition

of what can be considered entrepreneurship.

For this definition, I base the debate on Aldrich (2005) and Burt, (2000) because of their importance

to converge economic and sociological literature. Both authors have published fruitful literature reviews of

theoretical statements and research based on empirical evidence. Table 1 shows the definition of each

author on the first two columns; the added third column takes the elements of both definitions and applies

it to the case of immigrant entrepreneurs. The advancement of their definition is the focus on the activity,

not on individuals. In like manner, an activity is performed by actors inserted in social roles. To achieve a

business start-up, the resources converging for such activity come from three kinds of capital: financial

capital, human capital and social capital1. The first two can be owned by individuals and therefore subject

to personal transactions. In a unique way, social capital exists only when a relationship exists, therefore

both or more parties own the social capital and cannot transfer it to others. This paper gives a larger

1 Some authors have used cultural capital as an extra item, or mention cultural capital instead of social capital. I explain later that

social capital covers the exchange of norms, traditions and beliefs which are normally referred to cultural capital. For this paper I chose to continue with the framework proposed by these authors for their importance in the scholarship of entrepreneurship.

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importance to the social capital found inside a relationship; because people with specific human and

financial resources are inquired to create and maintain those relevant connections (Burt, 2000:p.284).

Based on Aldrich (2005), he defines entrepreneurs as the activity which creates a new

organization2, but there are two more aspects to explain entrepreneurship. One aspect referring to

innovation is applied when comparing mature and innovative markets, since the introduction of new

technologies have radically accelerated the innovation and replication of products. Another aspect includes

the opportunity structure for the new firms, which changes according to the location. The entrepreneurial

project in a certain location has to adapt when expanding: what is new in one place may be a replication

from another.

Table 1: Definitions of Entrepreneurship and application to Immigrants

Aldrich (2005) Burt (2000)

Nascent Entrepreneur Entrepreneur Immigrant Entrepreneur

Person who initiates serious activities intended to culminate

in a business start-up

Tertius Gaudens: who profits from a relationship between two other actors

Immigrant with particular relationships who initiate activities intended to start their own business

After the definition of and immigrant entrepreneur, I use its element to present five main

explanations why IE is related to economic integration. First, the activity3 of entrepreneurship implies an

action performed by certain individuals and linked to other people within a structure. Those links are used

not only for exchange and transactions, but additionally as emotional, legal and cultural support to the new

business start-up. Burt (2000) affirms that “certain players are connected to certain other, trust certain

other, are obligated to support certain other, and are dependent on exchange with certain others”(p.280).

The main challenge is to identify formal and informal practices to integrate immigrants into the economic

life. The emergence of entrepreneurs has two complex situations difficult to measure (Aldrich, 2005:p.467):

a) the connections of entrepreneurs created in uncertainty can only be described after the action has been

conducted; and, b) the acknowledgement by the social environment of the existence of those connections,

and that social scientist are able to identify them.

Second, the activity of entrepreneurship is a stage which can repeat or never happen. The activity

to create a new organisation carries within the reproduction of social inequalities, hierarchies, traditions

and so on. The efforts needed by an entrepreneur could be redistributed to the rest of the society, could be

2 For a detailed debate on the possible definitions, Aldrich (2005) establishes the potentialities and limitations of each of the

proposed definitions. His critics for the non-chosen ones highlights the difficulty to measure entrepreneurship, since it can include economic indicators as well as psychological traits passing through recognition of status. His choice is shared by a mainstream of scholars on immigrant entrepreneurship who stress the social impact of creating new organisations in the receiving society. 3

Aldrich stressed Schumpeter’s approach of locating entrepreneurship by activity and not by individuals, in its own social and

historical context. Focus on activity shifts the scope of entrepreneurial activity to a social action which can be described as a behaviour to open new markets, to launch new production methods and to create new goods. (2005:p.455)

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accumulated or could be wasted. For immigrant entrepreneurs, Aldrich found that among co-ethnics the

tendency to join together is a common practice which reproduces the barriers to form mixed teams

(2005:p.461). Depending on the level of integration, immigrant entrepreneurship could challenge the social

order or it could help to reproduce it (Aldrich, 2005:p.451).

Third, entrepreneurship can be used to determine the opportunities that a certain social structure

provide for the flow of ideas, resources and information. Start a new venture means that the entrepreneur

know who is most likely to know the kind of person needed (Burt, 2000:p.287). The description of the

structure of a society can give hints to find those people in the positions required. A close society with less

social mobility and a rigid stratification match with a dense, redundant networks where individuals could

have similar attitudes and behaviours. On the other side of the coin, societies where mobility is favoured

and connection among groups is encouraged could trigger paths for mutual exchange of resources. The

limit is that even in the most open societies, individuals will tend to spend time in similar circles,

frequenting similar places and interacting with similar others (Burt, 2000:p.285).

Fourth, status of entrepreneurs is twofold: it could trigger upward mobility inside the mainstream

for natives and it can distance the individuals from compact immigrant communities. People who engage in

entrepreneurship forges new identities as business owners, giving them a new occupational status among

the immigrant community (Aldrich, 2005:p.468). Identity could act as a catalyser to achieve integration of

entrepreneurs and their families.

Fifth, legitimacy of a new immigrant business is connected to the integration into the accepted

behaviour of a certain country. Starting from the different cultural practices between immigrants and

natives, what could be acceptable for one group might not be so for the other. Immigrant entrepreneurs

could skip tight regulations of the host society when focusing on the ethnic demand just as well as they

could stick strongly to practices of natives attempting to blend into the mainstream receiving society.

B. Entrepreneurship: economic embeddedness in social actions

I have presented the definition of entrepreneurship and its importance in integration, this section B

will explain the theoretical basis to understand entrepreneurship as an embedded activity in social

interaction. The interaction of entrepreneurs with their surrounding social environment allows a diversity

of resources and information to pass by social, political and cultural ties. That environment encompass also

natives and discards the situation where embeddedness have been used to describe only co-ethnics and

their characteristics (Kloosterman et al, 2010:p.8). The first part of this section follows a discussion about

embeddedness in the economic and sociological literature: how much can economic activities be explained

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by the social aspects of the actors involved. The second part discusses the role of social networks for

entrepreneurial activities: the individual use of a set of connections with the purpose of starting economic

activities

B.1 The question of embeddedness and entrepreneurs: what does it refer to?

The idea of a single individual with exceptional personal qualities leaves aside the complexity of

relationships needed to perform such activity. The notion of embeddedness explains that exchange is

performed by actors who are "entangled with the concerns of friendship, status, and reputation" (Smith-

Doerr and Powell, 2005:p.385). The importance of embeddedness in economic relations gained much

importance with Granovetter. He described embeddedness where the "behaviour and institutions to be

analyzed are so constrained by ongoing social relations that to construct them as independent is a grievous

misunderstanding" (1985; p.482). Social context influences the independent decisions and behaviours of

actors (p.487), while in reciprocity those actions generate trust and prevent malfeasance for the members

of the network (p.490). For that reason, entrepreneurship as an embedded economic behaviour in a social

structure will be explained using four aspects.

The first aspect of the role of embeddedness is the assessment of actions. An economic analysis of

the decisions made by entrepreneurs could be erroneously considered as non-rational and non-profitable.

A seemingly non-rational behaviour -in economic terms- can be an strategic action upon closer look from its

embeddedness in the social context: "if we note that it aims not only at economic goals but also at

sociability, approval, status, and power" (Granovetter, 1985;p.506). Embedded actions and choices made

by entrepreneurs are better understood -or predicted- when the research takes into account the social

environment. Multiple interactions could "promote trust or generate malfeasance" inside the structural

framework (Granovetter, 1985;p.490), could create channels of transmission of information, and, promote

forms of joint problem-solving (Carruthers and Babb, 2012;p.73).

A second aspect is that entrepreneurship cannot be considered solely from the point of view of the

individual attributes but as a set of characteristics resulting from the social structure (Carruthers and Babb,

2012:p.73). Personal traits of entrepreneurs cannot be understood separately from the social relation that

obliges sides to agree on terms, to pay back or to sign contracts. There is a non-random functioning of that

network structure: the selection of trading partners and the economic behaviour cannot be attributed to

chance but instead to a careful selection based on social relationships (Carruthers and Babb, 2012;p.82 &

Granovetter, 1985;p.486).

The third aspect is the role of personal connections that influence entrepreneurial activity of

individuals. Entrepreneurs rely much on personal contacts, since it is information received from the kind of

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network in which they are embedded (Carruthers and Babb, 2012). As Granovetter (1985; p.490) explains,

there are several reasons why personal informants are useful: 1) it is cheap; 2) one trusts one's own

information best - its richer, more detailed, and known to be accurate; 3) individuals with whom one has a

continuing relation have an economic motivation to be trustworthy for future transactions; and 4) starting

with economic motives, trust and abstention from opportunism are overlaid in time. Additionally, actors

are also embedded in relationships with their business partners or employees. Economic actors as firms

and organisations are traditionally considered as unitary forms, hindering the functioning of networks

inside the organisation: the internal connections could have an impact on the economic performance of a

new business (Smith-Doerr and Powell, 2005; p.385).

The fourth and final aspect is the negative effects of embedded relationships, such as (Granovetter,

1985; 491-2): a) the trust engendered by personal relations, by its very existence, provides opportunity for

malfeasance; 2) force and fraud are most efficiently pursued by teams, whose structure requires a level of

internal trust; and 3) the expansion of disorder and malfeasance depends on the structure of networks.

B.2. Social Networks in Economic Activities: prisms and pipes of the market

Economic activities make use of social networks to access resources. Open paths to resources could

favour and trigger entrepreneurship: with innovation of new products or with replication of existing ones.

Similarly, with close and redundant networks, only those entrepreneurs with better connections have a

striking advantage over the rest (Smith-Doerr and Powell, 2005:p.393). There is traditional view of

networks seen as conduits (pipes) where information, goods, services and payments can be exchanged in

the market. In this line, Granovetter (1973;p.1366-7) states that networks' diversity can be positive and

innovative due to the possibility of exchanging new information through weak ties4 connecting other

groups. In similar manner, Burt (2004;p.353) explained the advantages of structural holes5 in the

architecture of the network and the importance of the position of bridges. Later, Podolny introduces the

function of prisms: "the presence (or absence) of a tie between two market actors is an informational cue

on which others rely to make inferences about the underlying quality of one or both market actors”

(2011;p.34). Entrepreneurs, in particular immigrants, "often rely on networks to start business; especially in

ethnic communities, connections provide start-ups with both social and financial capital” (Aldrich and

4 To understand weak ties, Granovetter explain the strength: "the strength of a tie is a (probably linear) combination of the amount

of time, the emotional intensity, the intimacy (mutual confiding), and the reciprocal service which characterize the tie." (Granovetter 1973;p.1361) Weak ties are usually illustrated with acquaintances meanwhile strong ties with family and friends. 5 Structural holes refer to the relationships between members of groups. There is a notion of homogeneity within the group in

comparison to heterogeneity between diverse groups: "behaviour, opinion, and information, broadly conceived, are more homogeneous within than between groups. People focus on activities inside their own group, which creates holes in the information flow between groups, or more simply, structural holes." (Burt 2004:p.353) The connections between structural holes are labelled as bridges.

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Waldinger in Smith-Doerr and Powell, 2005:p.389). This section explains four ideas related to the

advantage and limitations of the use of social networks by entrepreneurs.

Size is a mixed blessing: increasing the network size without considering diversity can cripple the

network in significant ways. What matters is the number of non-redundant contacts since they provide

with information and opportunities in advantage to redundant contacts (Burt, 2000:p.290). Granovetter

(2005; p.35) explains how the "interpenetration of economic and non-economic action affects the cost and

the available techniques for economic activity". All those connections are kept by individuals

(entrepreneurs or not) for non-economic reasons, whether for political relations or for kinship. The results

is a unique size of the structure with the potential to be used according to a range of needs. When one

person is rich in structural holes, the diversity of the transmission can be higher than those with redundant

networks (Podolny, 2011; p.34).

Position in the social structure can make a difference in entrepreneurship. Position can grant access

to others who transmit key elements to be used in a new business. An entrepreneur has an advantage

compared to other when he/she connects to weak ties, acts as broker and locates nearby structural holes.

Weak ties (Granovetter 1973, 2005) have the ability to serve as fast-pipes where information from far

sources -or groups- could reach only certain individuals in less time than other channels. A division of

networks in friends and acquaintances -strong and weak ties- is a simplification of reality to exemplify this

argument: "acquaintances know people that we do not and thus, receive more novel information; moving

in different circles from ours, they connect us to a wider world"(Granovetter, 2005;p.34). Burt (2004; p.355)

gives bridges and brokers different purposes: to create awareness and interest among groups, to transfer

best practices, to compare groups apparently unrelated and to attempt a fusion. In an scenario where

people focus on activities inside relatively homogeneous groups, Structural holes connect information from

heterogeneous groups (Burt, 2004:p.353 & 2000:p.291). Granovetter (2005:p.35) comments that the

importance of structural holes "is not the quality of any particular tie but rather the way different parts of

networks are bridged."

Face-to-face interaction is needed for the maintenance of networks. I use three cases of

interactions to illustrate the case of entrepreneurship6 (Granovetter, 2005; .33). First, the capacity of

entrepreneurs to identify people in their range who can be useful or unhelpful to their business idea.

Sources are more credible when face-to-face interaction exists instead of impersonal contact. Second, for

any attempt to start a new business, there are people surrounding the potential entrepreneurs who give

rewards or punishments, magnified in smaller circles of people. Third, entrepreneurs tend to act according

6 Perhaps a new category of present-non present relationship could be included with the introduction of technology by social

networking applications. The possibility to interact 'personally' with someone in the virtual reality could have a similar effect of the face-to-face relationship, or vary in different degrees. Lately, media has publicized the case of people being hired, fired, harassed, isolated or rewarded just in base of their comments in digital social networks.

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to the “right thing to do”, even if there are greater rewards to do otherwise. Trust could be a powerful ally

when arranging the first steps into forming a company, and at the same time, as it was discussed

previously, could be a source of malfeasance7.

Finally, social networks play a role in the reputation of entrepreneurs. Networks, as prisms, can

reflect signs to other entrepreneurs in the market about their quality and strength. Uncertainty in the

market uses those signs to know more about the market opportunities and the set of resource allocation.

Podolny8 (2011;p.37) explains the advantage of high status positions to access resources where markets

have low levels of uncertainty and where producers know each other. On the contrary, positions nearby

structural holes are an advantage in markets with high levels of uncertainty. He stresses that the prismatic

approach focuses on how networks reduce uncertainty.

C. Entrepreneurship and transnational relations

The previous explanation of the role of networks and of economic embeddedness will now be

translated to the field of transnational relations. Under the scenario of globalisation, the network structure

of many individuals has included connections to people in other countries. Individuals creates relationships

while being tourists, studying or working abroad. It can be logically understood that entrepreneurs

encompass a pool of connections available for non-economic reasons such as: family, friends, colleagues,

members of associations, sports fan club, etc. Nascent entrepreneurs could use those transnational

relations for certain activities to initiate a business. The first part of this section explains the connections

between immigrant entrepreneurship and transnational relations meanwhile the second part focuses on

transnationalism from below as a strategy of immigrants to integrate into the economic sphere of the

receiving country.

Following the advice of Portes et al (1999:p.219), I intend to answer the following three questions

to justify the study of IE as a transnational case: Does translational entrepreneurship of immigrants involve

a significant proportion of persons? Are those activities stable persistent over time? Are those activities

already labelled? A raise of entrepreneurial activities at transnational levels is the argument to answer

positively the first question: connections to the sending society facilitate transnational connections for

immigrant entrepreneurs. The Graphic 1 presents the data for 2014 from the Global Entrepreneurship

7 In the field of behavioural sciences, researchers design experiments to measure the effect of trust and malfeasance in the

interaction between pairs or in groups. Their results are used to model possible networks of interaction and simulate the contagious of trust in a given group. 8 Podolny (2011:p.36-38) explains how different markets of diverse sectors could fall into high or low uncertainly. Market firms can

use those networks to take advantage of the scenarios presented with the following uncertainties: - Egocentric uncertainty: uncertainty that the producer has regarding market opportunities and the set of resource allocation

decisions that will best enable the producer to realize those opportunities. - Altercentric uncertainty: uncertainty that a consumer or potential partners have about the quality of goods or services that the

producer presents to them in the market.

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Monitor – GEM showing the orientation of early-stage entrepreneurs for their activity9. I use GEM’s

international orientation as a proxy of transnational relations. Out of the 7 countries with a higher value of

30% of entrepreneurs oriented to the international market there are 4 EU-countries: Luxembourg, Croatia,

Belgium, Slovenia plus Switzerland. There is an increasing trend over the past years to orient the new firms

to international arenas, as a consequence there would be an expected increase of commercial ties at a

transnational level. The phenomenon of immigrants creating new firms is somehow approached with

statistics on self-employment10 showing that people with immigrant origin are more likely to be self-

employed than natives (OECD, 2013: p.30). Both sources of data go along with the idea that businesses

would be centralized in global cities as suggested by Sassen (Glick-Schiller et al,1995:p.50). However, new

centres of entrepreneurship are being born in small urban locations due to the technological facilities to

connect with global markets and the financial world.

Graphic 1: International Orientation early-stage Entrepreneurial Activity

(Percentage of entrepreneurs oriented to an international market). Source: http://www.gemconsortium.org/data/key-indicators. Access May 2015

The positive answer on the second question is also based on data drawn from GEM. Graphic 2

shows the indicator of the total early-stage entrepreneurial activity and the new business ownership rate.

The Global South has a higher rate of birth of new business, this situation opens the opportunity to test if

transnational entrepreneurs could be located in larger proportion in those countries. The migratory

experience of entrepreneurs would facilitate the use of transnational ties. On the Graphic 3, with data from

2010 to 2014 where each line stands for each of the 69 countries, it is noticeable that the average

9 The webpage of GEM offers the possibility for an interactive version of this graphic with the introduction of new data over the

past years. Also other kinds of graphics for other indicators and only particular countries can be created. 10

Self-employment is not the same as entrepreneurship. Unfortunately the available statistical data from the ELFS and other

sources assumes self-employed as the closest indicator. The reports of OECD(2013:p.48) explains the difference on the available data from different sources describing that self-employed does not include nascent entrepreneurs or owner of larger firms; or that in some countries the self-employment category can refer to people -bogus self-employed- who work independently for one single employer as a form to avoid bureaucratic procedures or costs associated with employment.

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percentage of entrepreneurs in those countries concentrates between 7% to 13% of a population of 18-65

years old, both males and females. This information supports the claim that transnational entrepreneurship

has remained stable over the past years.

Graphic 2: New Business Ownership Rate (Percentage who are currently own manager of a new

business for more than three months but not more of 42 months).

Source: http://www.gemconsortium.org/data/key-

indicators. Access May 2015

Graphic 3: Total Early Stage Entrepreneurial activity TEA (Percentage of 18-64 who are nascent entrepreneurs or

owner-manager of a new business).

Source: http://www.gemconsortium.org/data/key-indicators. Access May 2015

Answering the third question, the term of transnational entrepreneurs was used already. Portes et

al (1999) applied the term of transnational entrepreneur to those who “mobilize contact across borders in

search of suppliers, capital and markets” (p.221). But Drori et al (2009:p.1001) gives a large and

encompassing definition:

“Transnational entrepreneurs are individuals that migrate from one country to another,

concurrently maintaining business related linkages with their former country of origin, and currently

adopted countries and communities. By travelling both physically and virtually, transnational entrepreneurs

simultaneously engage in two or more socially embedded environments, allowing them to maintain critical

global relations that enhance their ability for creatively, dynamically, and logistically maximize their

resource base”

From that definition of transnational entrepreneurship there are two elements to comment. The

first element is the identification of those linkages used for economic purposes. The starting point is the

geographical observation of the networks of immigrants: their relatives, friends and acquaintances. Those

networks could be repeated over time, be constant, cross borders and involve both countries (Glick Schiller

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et al. 1992a; Basch et al. 1994 in Glick Schiller et al, 1995:48). This situation can be clearly exemplified with

borderland populations, whose friends and family are located on both sides of the borders, their political

ties connect them to one country meanwhile taxation might correspond to the other.

As the second element, the simultaneous engagement to both sending and receiving countries

could be driven by their integration level. Immigrant entrepreneurs also face the situation of being “here

and there, keeping in touch with and trying to remain true to the people and places that they have left

behind, while simultaneously shifting loyalties and allegiances to the place where they actually live”

(Waldinger, 2011:p.10). Glick Schiller et al (1995) state that transnationalism is a response when

incorporation of immigrants has been incomplete (p.52). On a divergent position, Portes et al (1999)

suggest that transnationalism is a situation happening concurrently with immigrants being assimilated into

the mainstream society. From the economic perspective of the activity of entrepreneurs, transnationalism

could be helpful for both cases of immigrants. Transnational ties could bring resources not found in the

receiving society when immigrants’ integration has been incomplete, and those same ties could bring

innovative ideas when assimilation occurs.

Transnational Entrepreneurship from below

Since this paper is looking at the economic activity of entrepreneurship, the necessary forms of

capital can be described from a transnational approach. Portes et al (1999) explains that transnationalism

can be expressed in different levels, by classifying transnational activities in a high or low level of

institutionalisation: transnationalism from above when it is created by multinational corporations or

nation-states, and transnationalism from below when created by individual immigrants and their

communities (Portes et al, 1999:p.221). The study of entrepreneurs can be located at both sides of the

scale; however, the study from below offers more opportunities to unravel missing aspects of the daily-life

practice of transnational immigrants. Table 2 shows an extract of the types of transnationalism identified in

the economic sector with relevant examples.

Since the focus is on nascent entrepreneurs implying new initiatives, hence the high level of

institutionalization of economic transnationalism will not be considered further in this paper. Nascent

entrepreneurs are located mostly in the low level of institutionalization: the study of new organisations,

small firms and with few founding members. Practices of the high level are introduced into small immigrant

businesses since the introduction of technology: communication and transportation are more accessible to

a larger number of people in the world. To travel abroad is not equivalent anymore to the loss of contact

with the family and friends at home thanks to the use of digital channels of communication (Waldinger,

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2011:p.6)11. Keeping this in mind, I will explain how the three forms of capital needed for entrepreneurship

can be applied to transnational immigrants.

Table 2: Extract from “Transnationalism and its types” (Portes et al, 1999:p.222) showing the level of institutionalization (raws) and economic sector (column)

Human Capital can be measured by the education and personal skills of the entrepreneur.

Creativity, expertise, knowledge, habits, physical abilities and more could be included as human capital. My

choice is labour skills as one of the indicators, based on the idea that entrepreneurs would use the past

labour experience to gain expertise to be invested in the new business. IE as a stage means that individuals

have gone through phases of being employed and most likely will employ other people. The process of

labour integration for immigrants in the receiving countries is far from being equal: wages are lower and

temporality is shorter. “Different groups of employers in the First World have required and benefited from

the presence of immigrant workers, but the latter also learn to adapt to their new conditions” (Portes et al,

1999:p.228). Transnational relations could be activated to reduce unfavourable conditions such as: the non-

recognition of experience and qualifications, the delay to receive legal papers to works, the trap of certain

low-paid niches of market and the obstacles to access welfare benefits. People from the home country

could constantly be a source of help for documentation needed, or a source of information to find a new

job, or emotional support to cope with extreme situations. Despite of the disadvantageous conditions,

migrants can enjoy certain benefits they did not have previously in their own country such as social security

by unemployment or better quality public medical coverage. (Miguélez et al, 2011). Caparros and Navarro

(2010) explain differences: migrants have higher labour participation and unemployment than natives but

that gap shrinks when migrants have stayed longer than five years. This period of labour adjustment is

11

The development of digital reality, where digital social networks are used to maintain kinship and friendship relations across the

globe, strengths the function of weak ties and promoting the transfer of information through strong ties. The study of Big Data is a current trend in social research and marketing strategies. Digital Ethnography (or cyber or online ethnography)conduct research on the digital behaviour of individuals and the meaning of their actions. Complementarily, social network analysis is applied largely to understand the behaviour of digital social networks.

[14]

needed to create networks of labour support, experience in the field and adjustment of education

credentials. Ballarino and Panichella (2013) show that the ethnic penalty in Europe for male immigrants

persist and only in few cases of Spain and Italy reduces over time as the immigrants settle. They also found

evidence that second generations have same labour market performance as natives, meaning that their

past labour experience as a component of human capital can be similar to natives.

Financial capital is the second form of capital. It is mentioned by Aldrich (2005) that a strong

business project would have a high propensity to stay away from financial commitments with banks, since

that situation could restrain the ability to take decisions. Instead the seed capital might come instead from

venture capitalist, who seek for nascent companies with potential to make a change in their economic

sector. The highest rates of existing informal investors, as labelled by GEM, are located in the Americas and

in Africa, while advanced economies have higher scores on the access to financial capital for small and

medium businesses. Another source of financial capital are business angels, who “do not only help to fund

new business but also provides expert advice and assistance to nascent entrepreneurs during the founding

process” (Aldrich, 2005:p.462). Those business angels or venture capitalists are less subject to border

controls when the free movement of capital is encouraged; for example inside the EU-countries. If people

are willing to borrow money for other’s small business, transnational transfers or crowd-funding initiatives

are increasingly gaining importance. It is also worth mentioning that the case of one single entrepreneur is

rare while the trend is to find two or three people involved in the project and funding it themselves

(Aldrich, 2005:p.461-2). When people trust each other, their savings and personal assets could be more

important to start the business than borrowing from a bank. A last source of financial capital is

transnational remittances which follow paths where trust and strong ties are established. Remittances are

only one of the various transnational relations that connect immigrants with their community of origin

(Waldinger, 2011:p.10). Remittances have different uses where they are sent:12 from covering daily

expenses to buy land or property or start a new business. Besides the economical aspect, remittances can

also be “balanced against the social and psychological costs that occur when migration splits families apart”

(Waldinger, 2011:p.9).

Last, Social Capital refers to the existence of relations among individuals crossing country borders.

Waldinger explains how the relationships can be based on ideas, norms, expectations, skills and contacts

(2011:p.9). Particular situations in the life course of transnational entrepreneurs shape linkages with people

who later could be a source for ideas, information and knowledge. Otavalo traders around the world are a

case of nomadic transnational entrepreneurs based on commerce of handicrafts, linking workers at their

12

To illustrate with one case: There was a peak of remittances flow to Ecuador in the past decade, of which over 17% of remittances were spent towards luxury goods and services consumption while around 60% used for basic needs (basic services, communications, medicines, clothing), only 2% for education, 4% to buy properties, 8% separated in saving accounts and only 8% used as investment in productive business (Acosta, 2005:p.23).

[15]

community of origin, with merchant in different cities and other Otavalo traders in the same routes.

Chinese quarters outside China are a case of transnational entrepreneurs who provide a wide range of

services, initially meant for their own ethnic group but later expanded. For those two examples, the social

capital shared among the same ethnic group helped to reduce the cost and risk for migration (Massey et al;

1994:p.1495). The effect is that entrepreneurial ideas can take advantage of two –or more- languages,

homes and in general a double life. The greater access to communication technology for an immigrant

group, the greater the frequency and scope of enterprises at transnational level (Portes et al (1999:p.224).

D. Comparison of immigrant entrepreneurship in mature and innovative markets

The structure of markets is not homogeneous across all countries, neither is the presence of

immigrant entrepreneurs. That is why I will introduce the notions of mature and innovative markets for IE

and then analyze its differences and similarities. A classification of IE is suggested by Kloosterman et al

(2010) when they propose the framework of mix-embeddedness for the study of formal and informal

activities of immigrant entrepreneurs. What they describe as a lower end of the market would correspond

to immigrant mature markets, then the innovative market can to correspond to the upper end. Mature

markets are inside established industries which are only minimally, if at all, different from existing

organizations in the population (Aldrich, 2005:p.469). Applying this definition to immigration, then mature

markets are those where other immigrants have already started their business. For example, the care

service by Filipino domestic workers in Italy, or the food sector with Turkish Döner Kebab shops in

Germany, or the communications sector with Latin-American locutorios in Spain. Those businesses

exploited services, restaurants and communication as the niche of their market, took over the ideas of

business owned by natives or in their home country, restructured and expanded them. Nascent

entrepreneurs would copy the previous initiatives and add few or no changes to the practice of the

business. Innovative markets are those where new products and new markets are created, lately those

initiatives have been named start-ups13. The key characteristic of innovative markets are creativity,

originality and the use of digital technology in the production process of goods or services. These types of

businesses base their profit in the innovative changes of products or in the creation of a new market with

new products. Hunt (2011) demonstrates that high-educated immigrants in the US have higher rates of

publishing scientific paper and patent inventions, and therefore contribute larger to American firms,

universities and hospitals.

13

Start-ups in economic literature is commonly used to label any business initiative which is only at the beginning of its life. In more recent magazines it has been applied to only technological start-ups such as Apple, Google, Yahoo. Later it remained to be associated to the use of technology despite of the sector of the economy where it can be started. I prefer to call them innovative markets based on the ideas of Florida (2003)

[16]

Between the two above mentioned markets, there is no clear-cut boundary. There are mature

market initiatives using technological tools in their publicity, management or delivery of products. There

are innovative markets which could be new ideas for a certain country but in reality they are replication of

something already existing in some other country. However, the strength of these ideal types is the

possibility to compare human, social and financial capital: the level of status and innovation of the

entrepreneur embedded in the native or immigrant community, the personal characteristics such as

experience and motivation; and, the possible investment of capital.

Human Capital can be compared at the level of education and qualifications. Aldrich (2005:p.469)

affirms that new firms which potentially open new niches or even entirely new industries is very small.

Mature markets, as explained by Klosterman et al (2010) have a high component of low educated

immigrants and low skills for the case of the Netherlands. Rath (2005) shows the demand side of

entrepreneurship in the tourist industry where the human capital can be either low or high, depending on

the service offered. Innovative markets, on the contrary, make use of technology to boost the creation of

new markets, new products, new services or new experiences. Initiatives using skilled software programs

are performed by highly-skilled immigrants (Hunt, 2013), such as the developing industry of apps and

media contents14. Personal characteristics of entrepreneurs when facing a mature market or an innovative

market will aim at different outcomes. In the first case replication of already established and successful

role-models is encouraged as a path to success, in the second case the creation of new markets for

consumers is the goal.

Concerning the financial capital, GEM provides data that the amount of people around the world

who have lent money for entrepreneurial activities range from 0,17% to 25%. Aldrich (2005) states that

informal investors are more important than venture capital. Mature markets are considered to rely on

small investments, loans from ethnic communities or shop-owners associations (Kloosterman, 2010). In the

case of innovative markets, the use of transnational ties based on digital linkages of acquaintances and

strangers could be a major tool to gather capital for business strategies. . The transnational linkages can be

observable in initiatives like crowd-funding where friends, acquaintances and strangers could donate for a

particular project. For both markets the use of financial capital from their first costumers also makes a

difference: mature markets tend to be associated to slow growth, high competition and restricted number

of costumer; meanwhile innovative markets tend to be associated to high growth, less competitors and

large potential customers.

14

Initiatives lead and run by people with immigrant background which are popular and based on internet are: InterNations,

Migreat, Google, The Huffington Post, PayPal, WhatsApp, Buzzfeed and more. The possibility to be hired in the same company but in different location can be seen within Microsoft and Nokia where migration of IT employees is encouraged.

[17]

Social capital is related to the capacity of immigrants to maintain their connections and use them

for business purposes. The instrumental use of networks improves effectiveness and efficiency in mature

and innovative markets. When entrepreneurs are nearby structural holes, then the innovative market could

be more likely established, when they are densely connected to the migrant community then a mature

market position would suit better. The networks of immigrant entrepreneurs for each market will show a

divergent path on the number of non-redundant contacts, including contact with institutions. Klosterman

et al (2010) found that IE is “started with –in principle, but not exclusively- relatively small outlays of capital

and limited educational qualifications” (p.4). This situation applies better to mature markets with a double

role of ethnic communities: providing necessary resources to new firms and having a demand for products

of ethnic origin. For innovative markets, the example in Silicon Valley is notable on how transnational and

local networks facilitated the attraction of Asian professional for the development of technology (Aldrich

2005:p.460). The density of the immigrant community could be a serious factor to consider, since mature

markets would be encouraged to be replicated as role-models of previous immigrant entrepreneurs. On the

contrary, innovative markets would be more disconnected from immigrant communities but closer to a

cooperative game with natives and other ethnic groups.

E. Conclusions

This paper sought after the explanation of the phenomenon of nascent entrepreneurship from the

type of capital used by immigrants when they want to start a business: human, social and financial.

Differences have been found in existing literature, stressing the unequal positions of immigrants in all

aspects. Some conditions of the receiving society can attenuate that negative economic situation, for

example the institutional recognition of the skills of newcomers, or the legal protection for nascent

businesses, or the access to seed funding. This paper contributes to existing research on the search for

opportunities of immigrant groups to access adequate economic conditions to be entrepreneurs.

Transnational activities are one of the strategies to cope with ideas, resources and information needed by

immigrants in the receiving country. This paper explained how immigrant entrepreneurship has been

described at a local and transnational level; and which are the main advantages and disadvantages in each

form of capital needed for a new business. In the following table 3, similarities and differences on the

necessary conditions for immigrant entrepreneurship are presented (Aldrich, 2005).

Table 3: Similarities for mature and innovative markets of immigrant entrepreneurs and contrast with the generalisations for a common population

Definitions Generalisations for a common

population Case of Immigrant Entrepreneurs

Previous work experience and its effects on

Generates opportunities Ethnic gap which can be reduced

over time

[18]

entrepreneurs provides relevant experiences

Experience in sectors where immigrant population integrates

(Segmented assimilation)

creates transferable knowledge Immigrants are excluded from the

mainstream labour market

social networks

diverse networks create favourable social locations for entrepreneurship

formation of teams with natives or other immigrants vs. redundant information in closed circles of

immigrants

brokers can bridge structural holes for entrepreneurs

transnational ties to access resources

financial resources

most firms begin small, without outside funds

Accumulation of capital from the home-country or from the family

venture capital funding is rare event Few linkages to people as venture

capitalist

founding team compositions high level of homophily by sex,

ethnicity and occupation

Depends on the strength of each ethnic communities and the

linkages to other groups

Source: Aldrich (2005) plus the inclusion of the third column

Table 3 shows how differences for native and immigrant entrepreneurs matter in very crucial

aspects. The persistent disadvantages of immigrant population suggest the replication of entrepreneurial

activities in the same markets where they are employed, over-populating existing mature markets.

Transnational relations can be used to alleviate the persistent disadvantage of immigrants by supporting

the exchange of ideas, resources and information. Although the conditions do not seem favourable, the

role of immigrant entrepreneurs in innovative markets could trigger better conditions for economic

integration. Successful new firms will have a domino-effect which could induce other immigrants to

replicate existing initiatives. Successful entrepreneurs who accumulate capital to expand their business and

their own welfare could produce a spill-over effect beyond the closest ties, local or transnational. As a

limitation, higher number of attempts to succeed in innovative markets could also empty the sources of

financial and social capital due to the number of failures. An advantage to access different network would

consist in forming mixed teams –natives and immigrants- because “people develop relations with people

like themselves. Therefore, how a player is connected in the social structure indicates the volume of

resources held by the player and the volume to which the player is connected” (Burt, 2000:p.286).

More findings on the activity of immigrant entrepreneurship need to be considered to evaluate

economic. Integration, according to Carrera (2005:p.1), is be considered as equal rights and obligation to

immigrants, which results in facilitating equality of treatment and full access to economic, social, political

and cultural rights and duties. Immigrant entrepreneurship in similar conditions to native one means that

the human, social and financial capital of both groups is similar, that their possibility to use them is equal

and that the outcomes compete in similar markets conditions.

[19]

There are still many questions to be solved, either by the existing research or with the help of new

collection of data. To answer those questions a description of networks is needed, as well as the

understanding of their origin and possible future: "wherever networks play a role in the economy, whether

at the individual or the corporate level, it becomes important to understand where such networks come

from. What patters do they follow? how do network links form? how are they sustained over time?"

(Carruthers and Babb, 2012:p.74) One question is which kind of connections are more important for

nascent entrepreneurs? And which to maintain over longer periods of time? An instrumental approach is to

select primary and secondary contacts, identify them and preserve them (Burt, 2000:p.292-95). Another

question is how to complement the personal characteristics of an potential immigrant entrepreneurs with

the social and financial capital needed. A last question is to identify the possible resources which can be

provided by an ethnic community and to identify the access of immigrant to resources in their receiving

society. If entrepreneurs are located nearby structural holes or if entrepreneurs are located in the core of

the network can explain a variation in the use of resources that pass through them.

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