Based on Research By Haiyang Li and Yan “Anthea” Zhang

In Emerging Markets, Are Locals With Experiences Abroad Better For Business?

  • People from developing countries who study and work in developed nations bring distinct strengths and weaknesses to businesses when they return home to emerging markets.
  • Overall, these “returnee” entrepreneurs under-perform in terms of firm growth and survival compared to those local entrepreneurs who haven’t worked or studied abroad.
  • But state ownership and firm age can mitigate the performance gap between the “returnee” entrepreneurs and local entrepreneurs.

In today’s world, people blessed with strong technical skills often move from developing home countries to more developed countries for study or work. Many later return home with burnished technical and business skills. But how do these skills translate when they start companies of their own at home?

Two Rice Business professors, Haiyang Li and Yan “Anthea” Zhang, collaborated with three professors in China to investigate.

To evaluate the success of companies started by locals with overseas experience, the team studied technology businesses founded between 1995 and 2003 in Zhongguancun Science Park (ZSP), China’s largest technology cluster. The team analyzed the firms’ growth in employment size, sales and profit, as well as their survival rate.

Businesses started by entrepreneurs who spent time abroad turned out to have some striking advantages – and disadvantages – compared to their homebody compatriots. In general, the returnees had higher educational levels and technical skills. For example, in the team’s sample, about 80 percent of the returnees who started new businesses had either a master’s degree or a PhD, compared to 28 percent of the non-travelers who started new companies. In these businesses, all of which are in the high tech industry, higher education levels correlated with higher levels of success.

Travel also seemed to fuel creative thinking. In ZSP, more than 57 percent of returnees held one or more patents. Because of their exposure to the high-technology markets in both developing and developed countries, the returnees could spot and exploit technological gaps. These gaps often provide opportunities for innovating and for building new companies in an emerging market.

But the advantages of education and work abroad came along with drawbacks. Like Rip Van Winkle, returnees often find that vast cultural shifts have occurred in their absence. They may no longer understand how their home country’s market works, or be stymied by an emerging market that operates differently from the developed markets to which they’ve grown accustomed.  While abroad, moreover, they may have lost chances to nurture local contacts and business connections. For a new business, a lack of local knowledge and connections can be hobbling.

There are ways to compensate. In China, the researchers found, partnering with government is especially powerful. When the government has controlling interest in a venture, the returnee owners enjoy much improved access to key resources and connections.

Partnerships between government and returnees also have a salubrious effect on a venture’s overseas business. International suppliers, customers and other potential partners often distrust government-owned companies. These stakeholders may have greater confidence in business leaders who have lived and worked in a developed market environment, and know the rules of the road. This familiarity allows returnees to collaborate more effectively with the overseas stakeholders, strengthening trust. And trust is good for business.

Along with government affiliation, a firm’s advancing age can also work in favor of returnees.  As a venture ages, it builds its own track record and business relationships. The more local relationships the venture creates, the less important its initial lack of local relationships becomes.

In China as in the United States, experience abroad seems to fuel innovation (the majority of new patents granted in the United States include a foreign-born inventor). But as in any country, business connections count. The trick for ambitious technology workers from the developing world is to amass a repertoire of overseas skills, education and cultural expertise – and persuade their own governments of its value.

Haiyang Li and Yan “Anthea” Zhang are professors of management in the Jones Graduate School of Business at Rice University.

To learn more, please see: Li, H., Zhang, Y., Li, Y., Zhou, L., & Zhang, W. (2012). Returnees versus locals: who performs better in China’s technology entrepreneurship? Strategic Entrepreneurship Journal, 6(3), 257-272.