About half of the immigrant entrepreneurs in the US initially come to this country to obtain a university degree. When they’re ready to establish a business in their host country, though, how do they choose a location for their new venture? A recent study shows that highly educated immigrant entrepreneurs are uniquely positioned to have more options about where to start a business.
David Williams, associate professor of management and entrepreneurship at the University of Tennessee, Knoxville’s Haslam College of Business and director of the college’s PhD program in strategy, entrepreneurship and organizations, along with PhD alumna Nastaran Simarasl of California State Polytechnic University and Kaveh Moghaddam of the University of Houston–Victoria, studied immigrants with at least a bachelor’s degree who intend to establish a business in their host country, and investigated how these entrepreneurs decide where to locate their start-ups.
Formal and informal sources of support
Because high-growth ventures led by immigrant entrepreneurs create new jobs and add value to local and national economies, many municipalities actively try to attract such businesses. Incentives such as mentorship programs, consultation services, and small business loans with favorable terms may attract these entrepreneurs to locations they might not have considered otherwise, but language barriers and negative attitudes toward government programs make some immigrant entrepreneurs less likely to consider this type of support.
“They may deem these services more compatible with the needs of larger than smaller businesses,” Williams explained, “and they may worry about discrimination, perceiving that agency administrators will treat immigrant business owners based on ethnic stereotypes.”
Instead, some immigrant entrepreneurs turn to ethnic enclaves—clusters of immigrants of the same ethnicity in the host country—for access to financial capital and business contacts. This social support can compensate for a location’s high cost of doing business when formal support is lacking or when entrepreneurs are disinclined to use it.
Social mobility and the cost of doing business
In the study, first-generation immigrant entrepreneurs and international students aspiring to entrepreneurship rated their likelihood of choosing hypothetical locations that had various levels of business costs, competition, government support, and ethnic and nonethnic social network support. The respondents ranked various ethnic and nonethnic financial resources to indicate the extent to which they would use each source for their start-up expenses.
Participants tended not to choose locations where costs of doing business were relatively high, but such locations became more appealing in scenarios where access to financial capital could mitigate those costs. The research team found that when immigrant entrepreneurs have limited access to government support or don’t consider it feasible, they might reap similar benefits from a supportive ethnic and/or nonethnic social network and thus choose locations where they have personal connections, even if other attributes there are unfavorable.
Although many entrepreneurs who immigrate for college initially lack a support network in the host country, over time they can expand their sphere to include classmates, alumni associations, and local communities in addition to ethnic enclaves. This social mobility increases their access to financial capital and other mainstream business resources that can compensate for a location’s high costs of doing business. The study showed that when highly educated immigrant entrepreneurs position themselves to benefit from ethnic and nonethnic social networks as well as location-specific government support, they have more business location choices than both their native-born and lower-educated immigrant peers.
“In terms of location choices, low-educated immigrants are likely to be more inclined to develop bonds inside their enclaves for finding jobs, starting their businesses, etc., where the enclave can be a conducive environment for them,” Williams said. “Highly educated immigrants can more easily break out of their enclaves because of their language skills and education.”
“Antecedents of Business Location Decisions: The Case of Aspiring Immigrant Opportunity Entrepreneurs,” published in the Journal of Small Business and Enterprise Development in August 2021, is available online.
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CONTACT:
Lindsey Owen (865-974-6375, lowen8@utk.edu)
Stacy Estep (865-974-7881, sestep3@utk.edu)