Chinese Returnee
Entrepreneurs turn Brain
Drain into Brain Circulation
MASTER THESISANDRE A. COELHO
STUDENT NUMBER: 10258116 DATE: 27-08-2015
VERSION: FINAL
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NTREPRENEURSHIP ANDI
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NIVERSITY OFA
MSTERDAM(U
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SUPERVISOR
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SVIV
INIG2. Statement of Originality
This document is written by student Andre Afonso Coelho who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Acknowledgements
My journey towards Entrepreneurship started back in October 2010, after a friend of mine invited me to join an entrepreneurship workshop at the University of Amsterdam. The workshop was not just any other workshop; it would eventually change the course of my next 2 years.
I have always been interested in the subject, however this workshop, gave me a very different view on entrepreneurship. The common belief that entrepreneurship cannot be thought, “You are either born with it or you will never become an entrepreneur”, that “urban legend”, was challenged at the workshop. The challenge was launched via the inspiring story of Tom-Tom; a story that has stayed with me ever since. A company which started by producing software applications for handheld devices, quickly seized the market opportunities of its time and changed its business model 180, jumped into a completely new Market, and became a worldwide leader in GPS devices.
I learnt two important lessons during the workshop. First - anyone can be an entrepreneur. The second - whatever you think your business will grow to become at the on-start, will probably change dramatically and you might end up doing something completely different somewhere in the future. These two lessons made me rethink everything I thought I knew about entrepreneurship.
The workshop was led by Tsvi Vinig, he inspired me to enrol myself for an UvA master’s degree in Entrepreneurship the following academic year. During the academic year, I had the opportunity to learn many new lessons from Mr. Vinig; this ultimately culminated in the elaboration of this thesis under his supervision. I would like to thank him for the inspiration he sparked that ultimately made me pursue the path of entrepreneurship.
3. Table of Contents
2. Statement of Originality ... 1 Acknowledgements ... 2 3. Table of Contents ... 3 4. Abstract ... 6 5. Introduction ... 7 5.1 Problem Definition ... 7 5.2 Research Question ... 9 5.3 Relevance ... 10 5.4 Method ... 115.5 Progress of Study - Paper Roadmap ... 11
6. Literature Review... 12
6.1 Diaspora - Introduction and Historical Context ... 12
6.2 The Effects Diasporas Have on Their Home Countries ... 15
6.2.1 The Old Paradigm – Brain Drain and the Core-Periphery Model ... 15
6.2.2 The New Paradigm – From ‘Brain-Drain’ to ‘Brain Circulation’ ... 18
6.3 The Importance Knowledge Spillover Plays in Bridging Knowledge Gaps ... 21
6.3.1 Returnee Entrepreneurs – The Integration Dilemma... 24
6.3.2 Turning Brain Drain into Brain Gain - The Case of Taiwan and Israel... 26
7. Chinese Returnee Entrepreneurs - Theoretical Context ... 28
7.1 The Chinese Diaspora - Historical Context ... 28
7.2 How China went from ‘Brain Drain’ to ‘Brain Circulation’ - Saxenian view ... 30
7.3 Knowledge Spillover and its Effects on China ... 33
7.3.1 The Importance of Guanxi – Connections in China ... 35
8.1 The Chinese Diaspora Model - Government Policy Engagement ... 38
8.2 How is China Attracting its Returnees to Come Back Home? ... 39
8.2.1 Chinese Overseas and Chinese Returnees in Numbers ... 40
8.2.2 The Chinese Innovation Zones – Science Parks ... 43
8.2.2.1 - The Zhongguancun Science Park - Case ... 44
8.3 Chinese Returnee Entrepreneurs and Entrepreneurship ... 45
8.4 What Other Factors Contribute to the Chinese Returnees Coming Back Home? ... 48
8.5 US Educated Chinese Returnee Entrepreneurs - Survey ... 49
8.6 Who Else Is Contributing to China’s Development - The Non-Entrepreneur Returnees... 53
8.7 Chinese Returnee Entrepreneurs That Support China’s Brain Circulation ... 54
9. Discussion ... 59
3.1 Tables and Figures List
Tables List
Table 1.1 - Different types of Diaspora Page 13
Table 2.1 - Chinese students sent overseas and returnees - 1978 to2013 Page 41 Table 2.2 - Chinese students sent overseas and returnees - Year by Year - 2000 to 2013 Page 42 Table 2.3 Chinese returnees since dotcom bust and financial crisis Page 43 Table 3.1 - 2003 and 2008 Estimates by PENG on Chinese returnees entrepreneurs Page 46 Table 4.1 – Kaufman Study – Chinese returnee profile Page 49 Table 4.2– Kaufman Study – Chinese returnee venture Page 50 Table 4.3 – Kaufman Study – Chinese returnee’s reasons to return Page 50 Table 4.4 – Kaufman Study – Doing Business in China Page 51 Table 4.5 – Kaufman Study – Chinese returnee’s network contacts in USA Page 52 Table 4.6 – Kaufman Study – Type of information exchanged with US networks Page 52
Figures List
4. Abstract
Globalization has exponentially increased the possibilities and opportunities available to international migrants across the world. This group of successful individuals, outside their home country, together form a global network phenomena called Diaspora. Part of this international highly skilled workforce eventually decides to follow the entrepreneurial route, back in their home country. Leveraging their knowledge, experience, and contacts acquired overseas. These returnee entrepreneurs will embrace new ventures back home that will ultimately contribute to the long term development of their home countries. China is a country which epitomizes this phenomenon. The country has been accused in repeated turns of copying products from westerns economies, but this is no longer the case - returnees are supporting China in build its own technological capabilities. This thesis intends to analyse the role of the Chinese returnee entrepreneur play in their home country. More specifically, this paper looks into how returnees contribute to reducing brain drain via knowledge spillover and how China is attracting these highly skilled migrants.
Keywords: Entrepreneurship, Chinese Returnee Entrepreneurs, Knowledge Spillovers, Brain Circulations, Brain Gain.
5. Introduction
5.1 Problem Definition
In the last century, globalization has opened new opportunities to millions of people that move around the world in search of new alternatives. Part of this global mobility is carried out by future entrepreneurs. Some of the migrants who study or work in a different country, will never become entrepreneurs, but some of them, one day, will become one. The latter group will probably be inspired by a mere observation of the mundane operation of local businesses in their host country. They will hinge on the knowledge and experience acquired in the host country and will either become ‘Necessity Entrepreneurs’, people that create their own job because of a lack of jobs (usually one person businesses) or they will become ‘Opportunity Entrepreneurs’, people who want to develop an idea taking advantage of market opportunities (Newland & Tanaka, 2010). The latter type of entrepreneurs are more likely to create more economic impact than the former type (Wong, Ho, & Autio, 2005; van Stel, Carre, & Thurik, 2005). They will leverage the skills acquired in the host countries and exploit economic opportunities in their home countries. This happens because the existing technological gap between host countries and home countries, uncover potential opportunities for this returnee entrepreneurs. Saxenian (2006) has described them as the ‘Argonauts’ or ‘diaspora entrepreneurs’ - a small group of individuals that have a disproportional impact in their home economy either through policy change or/and technological breakthrough. These returnees are usually opportunity driven entrepreneurs; they adopt interesting strategies for attaining success and use very well the network they have established in both home and host countries. Diaspora networks play an important role in developing and establishing a successful business, in either the host or the home country. Saxenian (2006) describes how successful entrepreneurs, who were once raised in the USA, have turned Taiwan from a small island mainly producing automotive spare parts into a global player in the semiconductor industry. There is strong evidence that this has been sparked by thousands of returnees that have made efficient use of their network back in technological centres, such as Silicon Valley, turning brain drain into Brain Circulation (Saxenian, 2006).
Other nations have been equally successful in using their returnees to become economically stronger. Countries such as Israel have a long tradition in relying on their diaspora network wherever they go. China and India are following the same path, by sending their students around the world and inviting global companies onto their territory to help them develop their local economies.
Diasporas have always been a strong economic force and accessible mobility proliferated the number of diasporas around the globe. Currently there are about 215 million first generation migrants around the globe, which represents 3% of the world’s population. If these migrants would be a nation, they would be a nation of the same size as Brazil (Economist, Nov 2011). These large groups of migrants contribute to a large outflow of technical skills from the host to the home economies, a kind of ‘travel of tacit knowledge’ (Oinas & Malecki, 2002). This is particularly true for regions such as Africa, where usually it is the most skilled part of the population which leaves to study abroad. It was believed that sending their most valuable high-educated skilled migrants would create a void in their technological advancement and this phenomenon would create a brain drain. However, the trend is reversing in the past few decades.
Traditionally diasporas were thought of as generators of remittances, but this idea is changing and many countries are taking notice of the phenomenal contributions diasporas have via the dissemination of technological advancements in the home country. A part of the diaspora members will eventually come back to their home country and positively impact their home economy, more so than if they wouldn’t have left their home country in the first place. The knowledge and experience acquired in the host countries is greater and more relevant than the knowledge they would have acquired in their home countries. Returnees have a significant positive impact on their home countries via the creation of knowledge intensive firms. These endeavours generate positive knowledge spillover effects that reduce knowledge gap between the host and the home countries and help revert the brain drain home countries experience at the beginning. Despite the negative image migration often has in the host countries, migrants tend to be hard-workers and often spark innovation. According to a study from Duke University immigrants are about one eighth of the American population and they founded 25% of the country’s IT and engineering firms (Economist, Nov 2011). Israel and
Taiwan were the first to leverage the skills of their overseas diaspora. Another country taking notice of the importance of their overseas diaspora is China.
China has engaged in sending its students abroad to learn from advanced economies. Upon their return, the country is encouraging the young graduates and professionals to apply their knowledge to develop the Chinese economy. Since 1978 until today, China has sent millions of students abroad, and a large majority of them returned and are making phenomenal contributions in all sectors of the country’s economy. Initially not so many return, but in order to maximize the full potential of their diaspora and attract their overseas highly skilled diaspora members, China has changed its policy and created incentive programs targeting returnees. China went as far as creating several technological parks fully dedicated to returnee entrepreneurs. The Chinese diaspora model has been acknowledged as very successful and returnees are shaping China's economic development.
5.2 Research Question
The impact of international diaspora networks on young companies started by returnees have been studied by numerous scholars in the past decades. Saxenian (2006) has studied the impact of new migrants on the evolution of Silicon Valley as a worldwide innovation epicentre and respectively how they have shaped the technology industry around the world. In the USA returnee entrepreneurs educated in the USA have changed the semiconductor industry in Taiwan (Saxenian, 2006); they not only changed the industry but also have lead the country to become one of the biggest technology centres in the world.
After the dotcom bubble burst in the early 2000s China too, started enjoying rapid economy growth patterns. Just like Taiwan, China undergone significant transformations in that period. Chinese returning emigrants, who once have built up the country's brain drain waves, follow Taiwan's and Israel's example of coming back to their home country to apply their knowledge and skills accumulated abroad. In order to benefit from their returnees, countries have to absorb the returnees’ knowledge and start fostering the right policies and infrastructure. China has proven that it is willing and open to absorb this knowledge that will ultimately improve the country’s technological capabilities.
This paper attempts to understand to what extent the returnee entrepreneurs, known as the 'sea turtles' (Wang, 2012), are part of this transformation and how they help shaping the innovation landscape of the modern China through knowledge spillovers. Additionally this paper aims to shed some light on some of the policies China is using to attract their returnees.
This said, this paper aim’s to understand:
How are Chinese returnee entrepreneurs knowledge spillovers effects,
turning China's brain drain into Brain circulation?
5.3 Relevance
Most of the existing research on diasporas focuses on its impact on their host country. However, less attention has been dedicated to the flipside of this traditional view. Diaspora members often leave their host countries and return to their home countries. This phenomenon has become more and more accentuated in the last few decades. Diaspora members, when returning to their home countries, contribute to the decrease of the negative effects of the 'brain-drain' they caused when they left their home country in the first place. In effect, diaspora members returning to their home countries turn the Drain' into 'Brain-Gain' and ‘Brain Circulation' (Saxenian, 2005). Modern China has undergone a huge transformation since the Second World War, and evidence suggests that the returnees had an important role in China's modern economic growth. Despite the fact that it is difficult to quantify the impact of reverse migration on the economic growth of China, there is strong research evidence of the positively correlation between the two phenomena (Saxenian, 2006; Wang, 2012).
Therefore this paper aims to contribute to the growing interest in returnee entrepreneurs, by describing the impact Chinese Returnee Entrepreneurs have on shaping China’s economy. This paper can contribute to the diaspora literature in few a ways:
- Focus on the effects returnee diaspora has on their home country, instead of the widely studied effects of diaspora on the host country
- Bring examples of how Chinese returnee entrepreneurs help China reduce their Brain Drain and turn it into Brain Circulation
- Bring to light the existing Chinese policy aiming to attract their returnees and how these policies help improving China’s technological capabilities.
5.4 Method
This paper will seek answers to the main research question mentioned above through case studies backed by theoretical review.
A theoretical review will focus on the existing body of research suggesting how diaspora entrepreneurs are turning brain drain into brain circulation, through knowledge spillovers. The theoretical review will be followed by two examples - Israel and Taiwan. The next part will focus on how Chinese returnees are influencing China’s Brain circulation through knowledge spillover, followed by a detailed description on how China’s policy is attracting returnees back to China.
Desk research will be used to analyse the existing body of research on knowledge spillover, China’s diaspora engagement model, and examples of returnees that contributed to China’s development. This paper intend to highlight the impact returnees have on their home countries and how other countries could potentially learn from the examples of China, Taiwan, and Israel on how to leverage their own diaspora networks.
5.5 Progress of Study - Paper Roadmap
The study will be structured in the following way:Chapter 6 introduces the concept of diaspora, the effects diaspora has on their home countries. In the same chapter the importance of knowledge spillovers is described; examples will portray how important the concept is in the mechanics of global
entrepreneurship. Chapter 7 introduces the history of diaspora in China, followed by the Saxenian view on China’s brain circulation and by the importance of knowledge spillovers in China. Chapter 8 will describe the effects returnees have in China development and
government engagement existing strategies to attract returnees back to the country. Lastly, Chapter 9 will cover the thesis discussion.
6. Literature Review
6.1 Diaspora - Introduction and Historical Context
The word 'Diaspora' originates from the combination of two Greek words 'διά' (dia),
which means 'between', 'through', or 'across', and 'andσπείρω' (speirō), which means 'I sow',
I scatter' making the combined word 'διασπείρω (diaspeirō)' translating into 'I scatter', 'I
spread around'.
Traditionally the word 'Diaspora' was a label mostly attached to those who lived outside their homeland because they were either forced out of their own land or they went in exile to a different country (Safran, 1991). The Jewish, the Greek, and the Armenian peoples were among the first ethnicities to form diasporas (Safran, 1991). However, over time the term diaspora has been attached to many other ethnicities that live outside their home land. Moreover, the term started to be applied to portions of populations living abroad on their own will, which were not necessarily forced out of their home countries (Siar, 2014). The broad definition of the term 'Diaspora', as it is perceived today, includes the most widely known modern forms of diaspora, including economic migrants (Siar, 2014).
Sheffer (1986) suggested the following definition for 'Diasporas': “ethnic minority groups of migrant origins residing and acting in host countries but maintaining strong sentimental and material links with their countries of origin - their homelands”. This definition contrasts with the term 'Immigrant', which describes a foreigner committed to integrating in the local society. Diasporas are formed of individuals with a double identity, one from the home country and one from the host country (Radhakrishnan, 2003); these people are often open to the perspective of returning to their home country at some point in their lives (Skeldon, 2003).
Lin (2010) suggests a split between the types of diaspora base on their technological impact for their home country. The key diaspora types are the Middleman Traders, the “Remittance” Diaspora, the “Conventional” Diaspora, and the Returnee Entrepreneur. Based on the research conducted this paper adds one more diaspora type to Lin’s (2010) split – the “Transnational” Entrepreneur. Below you can find the table describing the most relevant types of diaspora and their impact on the innovation landscape of their home countries.
Table 1.1 - Different Types of Diaspora Types of Diaspora Middleman Traders “Remittance” Diaspora “Conventional” Diaspora “Transnational” Entrepreneur Returnee Entrepreneur
Contribution International Trade Remittances Capital and Jobs
Transnational Knowledge Ventures Knowledge Ventures Home country Impact
Increase in exports Welfare and standard living conditions
Foster small business and create local jobs
Promotes “Brain Circulation” Reduce “brain drain” Technological development
Limited, takes long time to improve technological capabilities Limited, capital used to improve standard of living
Limited, capital in low tech sectors, such as local shops, restaurants, cafe’s, etc. High, ventures usually in advanced technologies High, ventures usually in advanced technologies Source: Adapted from (Lin, 2010)
The first diaspora type was involved in doing business with their home country. Its members were categorized as “middleman minority” or Traders i.e. immigrant entrepreneurs involved mainly in the trade business and the handling of negotiations (Zenner, 1991). According with historical accounts, trade diaspora members were an important and dominant force behind international trade during the 19th century (Curtin, 1984). These migrants not only traded their favourite products from their home countries, but also helped reduce the trading costs among nations, due to their personal and business contacts acquired overseas (Hutchinson, 2001). Trade has been seen as an important factor for economic growth. However, despite importing several technological capabilities via trade, developing countries usually traded goods and services that were technologically less advanced while the most of the advanced technology good and services were usually being traded between developed countries. Advanced innovation capabilities take long time to develop (Lin, 2010). This conjuncture made it difficult to close the technological gap between the developed and developing countries through trade alone.
The second type of diaspora, the “remittance” diaspora, is defined by migrants that sent remittances back to their homeland in order to support their family. This type of diaspora played and still plays a considerable role in the economic stability of many developing countries (Lin, 2010). According to the World Bank databases (World Bank, 2015), Tajikistan’s and Moldova’s remittances in 2014 amounted to nearly 50% of their country’s GDP. However despite significantly contributing to the lifestyle of the diaspora members’ families,
remittances are usually channelled towards consumption, towards small investments in livestock and land purchase (Sander, 2003), or towards micro-enterprises (Woodruff & Zenteno, 2001) and very rarely in the technological sectors of the economies (Lin, 2010). The literature tends to agree with this view, that remittances have little or no impact in building long term technological capabilities.
The third type of diaspora is described as the “Conventional” diaspora. This type of diaspora makes small investments in their homeland (Lin, 2010). At the beginning, the Chinese and Egyptian diasporas were known for their investments in their home country (Gillespie et al, 1999; Kao, 1993). These investments were traditionally directed towards the agricultural sector and supported the development of local industrial capabilities (Durand, Parado & Massey, 1996). Most of this diaspora members were not very educated and would usually return back to their home country, due to lack of career opportunities in the host countries (Guarnizo, 2003). Any large scale investment conducted by this type of diaspora were mainly focus in low tech sectors of the economy (such as the ones done by Chinese overseas in the 80’s); this choice was driven by China’s low cost of production at the time (Smart & Hsu, 2004). However this type of diaspora investment has provided no impact in the improvement of the country’s technological capabilities (Lin, 2010).
The last types are the “Translational” entrepreneurs and “Returnee” entrepreneurs. Despite being very similar, there is an important differentiating factor between then. Transnational entrepreneurs are migrants that maximise their available resources by simultaneously leveraging both the home and the host country communities (Drori, Honig & Ginsberg, 2006). Being able to understand the cultural realities from different social environments, transnational entrepreneurs usually conduct business both in the host and home country while permanently residing in the host country, thereby transnational entrepreneur (Lin, 2010; Saxenian, 2006). While returnee entrepreneurs usually return to live on a permanent basis on their home country (Lin, 2010). Both the transnational and the returnee entrepreneurs are usually opportunity driven entrepreneurs rather than necessity driven like the traditional diaspora members (Lin, 2006).
Literature has provided multiple definitions to the term of “returnees”. Liu and his co-authors (2010) define returnees as “students, scientists, or engineers who have studied and/or
worked overseas in developed countries and then return to their native countries”. When
exposed to a transnational environment, the returnee, acts as a channel of international knowledge spillovers (Liu et al., 2010). Other scholars define them as: “scientists and
engineers, or students who have trained and studied in OECD countries, and have returned to their native countries to start up a new venture or work for a local company” (Liu, Lu,
Filatotchev, Buck & Wright, 2010). Wang (2012), defined a Chinese returnee in his book as “a
person born in China who left overseas as a student, visiting scholar, or guest researcher, for over a year, and who has returned to China to work on a permanent or long-term basis”.
Despite the slight differences in definitions, all scholars agree on the key characteristics: educated in a developed economy and returning to be professionally active in the home (usually developing) country.
6.2 The Effects Diasporas Have on Their Home Countries
Despite the extensive body of research on diaspora effects in their host countries there is very few research conducted on the effects diasporas have on their home countries. Based on research (presented below), this paper assumes that this might have happened due to the fact that home countries didn’t take into consideration the potential positive effects that their diasporas could have on their home countries, particularly in improving their technological capabilities.
6.2.1 The Old Paradigm – Brain Drain and the Core-Periphery Model
Economic development was traditionally associated with product development and technologies in the industrialized nations. Developed countries have traditionally possessed both the high-skilled labour and the R&D know-how. The manufacturing of those products, however, have been usually located in low-cost nations, which usually were known as peripheral economies, this model is known as the Core-Periphery model. It made the industrialized countries successful, while it made low-cost nations, technology followers. The model was applied by numerous multinational companies. This practice only accentuated the gap between industrialized nations and the peripheral economies (Saxenian 2005). The way the model has been implemented, left little opportunity for peripheral economies to develop
any technological capabilities. The main technological advancements were only seen at the level of production efficiency and supply chain, while the true technological capabilities came mainly from the research centres of the industrialized nations. This routine placed low-cost nations as merely “technology imitators” or followers (Saxenian, 2005).
This old paradigm created an exodus of young and educated people from developing nations, looking for better opportunities in developed countries, leaving developing countries struggling with lack of young, educated, and promising individuals to help improving home countries capabilities (Saxenian, 2005). If and when given the chance, this social layer has taken the option to study and live abroad, leaving their home countries victims to the so called 'Brain Drain' phenomenon. Todaro (1985) pointed out very clearly: “The people who migrate
legally from poorer to richer lands are the very ones that Third World countries can least afford to lose, the highly educated and skilled. Since the great majority of the migrants move on a permanent basis, this perverse brain drain not only represents a loss of valuable human resources but could also prove to be a serious constraint on the future economic progress of the Third World Nations”.
Many developing countries have been traditionally focused on attracting foreign direct investment “FDI” to improve their country's technological capabilities, rather than leveraging their own diaspora to transfer that knowledge back to their home countries (Siar, 2014). The diaspora was seen mainly as a source of remittance, not as a channel for knowledge spillovers (Siar, 2014). Because labour was considered virtually immobile, knowledge spillover was thought to be transferred primarily via trade and FDI (Liu, Lu, Filatotchev, Buck & Wright, 2010). Acs and Audretsch (2010) also suggested that knowledge spillovers within a certain proximity enables entrepreneurial opportunities. However this perspective argues that the knowledge only spillovers within a certain geographical proximity, usually far from the developing economies. Previous research was based on the assumption that knowledge flows were geographically restricted because it was assumed that labour mobility occurred only in-between nearby regions (Audretsch & Lehmann, 2005). It was also assumed that trade and FDI were the only main channels for knowledge transfer (Buckley et al., 2007). Trade and FDI have been an important factor in knowledge spillover, however the impact on local firms has been inconclusive (Aitken & Harrison, 1999). However, some scholars suggest that there is a
correlation between the growth of FDI and the increase in innovation (Wang, Zweig, & Lin, 2011).
China is a classic example of this belief. Despite being the largest receiver of FDI in the world, due to its potential and dimension (Wang, Zweig, & Lin, 2011), most of the FDI coming to China was conducted by large multinational corporations in form of locating production facilities on Chinese territory. By entering the Chinese market, foreign firms posed substantial competition to Chinese firms (Liu, Lu, Filatotchev, Buck & Wright, 2010).
When the industry is dominated by foreign firms (like it was initially in China), local firms tend to reduce their risks and investments in expensive R&D facilities by opting to copy the foreign products and technology. As a result, local enterprises reduced their efforts and ability to develop their own R&D capabilities and new technologies (Liu, Lu, Filatotchev, Buck & Wright, 2010). China’s example explains why FDI alone is not the best, but also not the only conduit for innovation and knowledge spillovers (Liu, Lu, Filatotchev, Buck & Wright, 2010).
Developing countries have faced two big challenges: how far are they from the leading edge technology centres and mature markets; and how well are they connected to the end users (Hobday, 1995). Also during this period only big firms were able to sell internationally, small firms did not have the resources to increase their footprint beyond one country or even a region (Saxenian, 2005). It was a difficult period to both partner up with a foreign party and to manage complexed business relations across different cultural teams in different locations. This was especially valid for high-tech firms because their products were constantly being improved in short product cycles (Saxenian, 2005).Usually companies in peripheral economies try to overcome these challenges through joint-ventures, overseas acquisitions, or licensing of their technology to foreigner parties. However a network of engineers with global network ties, with the knowledge of the local market and language skills in their home country is best suited to tackle these big challenges. Returnee entrepreneurs and their networks can support struggling economies with the exchange of technology knowledge, institutional know-how, potential market access to new customers and suppliers, and overcome customs barriers (Saxenian, 2005).
6.2.2 The New Paradigm – From ‘Brain-Drain’ to ‘Brain Circulation’
In the 1990’s, while most countries were still discussing the negative consequences of the brain drain, a more positive view started to emerge. Several scholars suggested that diasporas could actually help home countries by transferring knowledge and skills, not only remittances, from the host to the home countries (Siar, 2014). They argued that brain drain wasn't a disadvantage; the knowledge and skills acquired by the diaspora members in the host country, could still be harnessed by the home country (Meyer et al., 1997; Meyer and Brown, 1999; Saxenian, 2002a, 2002b; Hunger, 2004). The first way to collect the benefits of the knowledge acquired in host countries, would be via diaspora members returning home and bringing with them their knowledge and skills. The alternative way would be via diaspora members that would continue living in the host country, but which would apply and deploy their knowledge and skills through social and professional networks, which would ultimately link the diaspora with their homeland (Meyer and Brown, 1999). Vinodrai and Gertler (2006) agree with the latter approach and suggest in their research that skilled migrants should be seen as a conduit of 'knowledge circulation' and innovation. The two authors believe that diaspora members who have acquired valuable knowledge and skills could promote knowledge exchange and share their learning in ways that could ultimately contribute to home country development.
Levitt (1998) was the first to suggest that knowledge spillover can be considered a form of remittance; she called the process of transferring “ideas, behaviours, identities, and social capital from receiving to sending countries” - ‘Social Remittance’. Social capital is seen as an important element of the diaspora, because research has suggested that social networks encourage people to collaborate with one another and engage in knowledge transfer (Siar, 2014). Other research suggest that social networks help acquire important resources such as financial, human, and informational capital (Sorenson, 2005).
There are other scholars who agree that diaspora members contribute to the brain gain of their home countries. Castles and Miller (2009) for instance, argue that highly skilled individuals who pursue employment outside their home country are not necessarily detrimental to the local economy. The two authors believe that the key reasons why individuals leave their home countries are the following: the inability to find significant career development opportunities and poor life quality standards. According to Castles and Miller
(2009) compensation discrepancies across borders is not necessarily the strongest force driving young professionals with high potential to leave their home countries. Moreover the authors believe that providing education to individuals in order to enable them to pursue careers abroad can be seen as a good strategy. The benefits lie in the fact that the home country gains two viable options: the remittance inflows in the short run and the possibility to attract highly skilled, experienced co-nationals capable to transfer knowledge from the host to their home country at any point in the future (Castles & Miller, 2009).
According to Saxenian (2005), several US-educated engineers in Silicon Valley are making significant changes in their home country. They do so by using their skills and connections to improve the current economic landscape in their homeland as well as set their home countries onto a different economic development path (Saxenian, 2005).
Post Second Word War macroeconomic changes have profoundly changed the core-periphery model; trade and FDI no longer were the primary promoters of innovation and economic development. A series of key factors such as the liberalization of global markets, increase in the mobility of the highly skilled labour force, the increase in the amount of available information, the decentralization of production centres, and the advancement in communication technologies provided a window of opportunity for peripheral economies. Regions that did not benefit from the post-war economic boom, having fewer centrally driven economic programs, were encouraging entrepreneurial activity more actively. These regions represented an ideal place to locate entrepreneurial centres based on a “trial and error” approach (Saxenian 2005). The developing economies implemented significant policy changes and opened their gates to welcome global firms. However, Saxenian (2005) suggests that the network the highly skilled migrants had with their home countries combined with the working experience in Silicon Valley were key factors in revitalizing the economies of developing countries.
Steadily decreasing cost of international communication facilitates the exchange of information between nations and firms. This information exchange systems enable an ever increasing amount and flow of knowledge. The decentralization of production sites coupled with the decrease in transportation costs made it possible for small firms to expand internationally. This conjuncture enables Silicon Valley start-ups to sometimes become global
firms from day one. Many of these start-ups, outsource production, develop software, or market their goods and services abroad (Saxenian, 2005). However, information exchange alone, cannot guarantee an optimal collaboration between countries and institutions. Successful partnerships in-between nations depend on social context, culture, language, and many others. Fostering genuine understanding and accountability between the parties involved, especially where speed and responsiveness are important, requires that all parties master the nuances of social context, culture, and language (Saxenian, 2005).
The best suited to thrive in this environment are the first generation immigrants. They possess language and cultural knowledge of both the host and the home countries.This first generation of returnees have created institutions and social links that enable even small firms to find business partners in different parts of the world. This has opened doors to new markets, technical skills, and even capital to many more players in the market (Saxenian, 2005). Together with their technical skills and market knowledge, this immigrants become a very important resource for companies that have expanded into new countries (Saxenian, 2005). Due to their contacts and technical know-how these migrants could easily identify new business opportunities, raise start-up capital, establish new partnerships, and apply their management skills to build sustainable firms. In addition, the flow of information and communication between the diaspora and the home county are making it easier to acquire skills, capital, and further collaboration (Saxenian, 2005).
The USA is one of the most attractive host countries for young promising professionals from developing countries. The most accentuated migration pattern of the last part of the 21st century delineates the region of Silicon Valley as being the most attractive destination for highly skilled immigrants (Saxenian, 2005). Due to the rapid growth, the region has absorbed a large number of professionals from all different corners of the world. This resulted in an astonishing cultural and ethnical diversity in Silicon Valley; by 2000 over half of the scientific community in Silicon Valley was born outside the USA (Saxenian, 2005).
All these returnees will play different roles. Some will establish their own business in their home countries; this particular sub-group is composed of returnee entrepreneurs. Another sub-group of returnees will transfer their acquired knowledge to their home country financial institutions, or might encourage their Silicon Valley network to channel venture capital
investments into their home country. Yet another sub-group might act as policy advisors in their home country (Saxenian, 2005).
As more and more members of this professional workforce with a state-of-art technology background return to their home country, either on a permanent or temporary basis, these returnees have the potential to promote entrepreneurship and foster economic growth in their home country. The returnees’ long term success in their home country is dependent on multiple factors such as: the professional network built in the host country, the relationships in their home country, as well as the home country’s business, legal, and technical communities (Saxenian, 2005).
6.3 The Importance Knowledge Spillover Plays in Bridging Knowledge Gaps
Mobility across different countries has been acknowledged as an important catalyser of knowledge flow across regions, especially since the skilled labour travel across the world has been facilitated (Oettl & Agrawal, 2008). This is an important factor in reversing the “Brain-Drain”, suffered usually by developing economies. In this way, returnees that have previously studied and worked in developed economies will return and apply their knowledge back in their home country, usually developing economies (Saxenian, 2005). Evidence can be found in the literature, that returnee entrepreneurs play an important part in their home country especially in the development of high-tech industries (Kenney, Breznitz, & Murphree, 2012). Other studies have also found positive correlation between returnee entrepreneurs and growth in innovation among other elements (Filatotchev et al., 2009). Returnee entrepreneurs bridge the knowledge gap between developed and developing economies because they both increase knowledge flow across regions and are an important source of knowledge for local firms at home (Lin, Lu, Liu, & Zhang 2014).By starting these new entrepreneurial ventures, entrepreneurs usually are the agent of knowledge spillover, but sometimes their ventures do not usually fully explore this new knowledge, which generates further opportunities for other new firms, within national borders through continuous knowledge spillover to exploit these unexplored entrepreneurial opportunities (Acs, Braunerhjelm, Audretsch & Carlsson, 2009). Skilled talent is moving more
and more across different and far distant regions, which enable them to expand the effects of knowledge spillovers to further distances than ever before (Lin, Lu, Liu, & Zhang 2014). According to Drori, Honig & Wright, (2009) and Ellis (2011), human mobility has enabled the connection between distant regions and it's an important agent to unlock new international entrepreneurial opportunities and a generator of transnational entrepreneurship. Other scholars such Lin, Lu, Liu, and Zhang (2014) also agree with the previous statement and go further in considering international knowledge flow a source of entrepreneurship. They acknowledge that existing technological differences between host and home countries are among the key reasons for returnees to decide to become entrepreneurs upon their return home. Furthermore, returnees upon their return act as instrument for technical knowledge dissipation from host countries to home countries (Levin & Barnard, 2013; Oettl & Agrawal, 2008). These global migrants have the ability to travel across nation and are in a privileged position to explore and discover transnational opportunities by bringing technology knowhow across regions (Lin, Lu, Liu, & Zhang 2014).
The knowledge gap between developed and developing economies is spread across different sectors. The knowledge acquired by returnees in developed countries, is able to reduce a few, but not all, of these sectors (Baker, Gedajlovic & Lubatkin, 2005). The links to geographically remote areas provide a fertile environment for transferring new knowledge and open opportunities for developing entrepreneurship in this areas (Bae, Wezel & Koo, 2011). Entrepreneurs that acquire advanced knowledge in developed countries and are able to transfer their knowledge to remote areas, are able to reduce existing knowledge gaps and earn economic profits with it (Lin, Lu, Liu, & Zhang 2014). There are also examples in the literature related to spin-off from universities and incumbent firms has provided evidence from the importance of entrepreneurial pursuits in commercializing knowledge coming from universities (Agarwal et al., 2004;Audretsche & Lehmaan, 2005).
Returnees with advanced technology know-how are better equipped to exploit entrepreneurial opportunities. They are also better positioned to reduce the knowledge gap more effectively than the returnees with no advanced technology know-how (Lin, Lu, Liu, & Zhang 2014). Returnees with the knowledge of advanced technology acquired in developed economies have the opportunity to transfer this technology to home countries by
entrepreneurial firms. Not only help to reduce current the technology knowledge gaps between host and home countries but also promotes entrepreneurship by doing it through new firm formation (Lin, Lu, Liu, & Zhang 2014). Although as previously argued, returnees with advanced technology are in better position to explore entrepreneurial opportunities by bridging the existing knowledge gap between developed and developing economies. However it has been noted that these entrepreneurs might bring two distinct types of technology: cutting edge technology or technology that are new to their home country but not necessarily new to the host country (Zweig, Chung & Vanhonacker, 2006). Returnees who are able to bring cutting edge technology might have the chance to establish technology leadership by bridging a bigger knowledge gap. The returnees which bring existing technology that is new in the home country and not necessary in the host country, will bridge a substantially smaller knowledge gap (Liu et al., 2010a). Others scholar also agree with this view; Nerkar & Shane (2007), argue that knowledge flow transfers related to cutting edge technology that are new for the home countries have larger entrepreneurial opportunities. Mainly because usually cutting edge technology provides a bigger financial incentive for the entrepreneur, especially if the entrepreneur is able to secure the first mover advantage (Nerkar & Shane, 2007). Another important factor to note is that entrepreneurs that transfer cutting-edge technology to their home country are able to market their product not just in their home country but also internationally (Lin, Lu, Liu, & Zhang 2014).
Despite some of the research pointing to the positive effects knowledge spillover has on the home countries, there are several scholars who disagree. Some argue that the positive effect are too optimistic and that there is very little evidence of the benefits of knowledge spillover (Lowell and Gerova, 2004; Lucas, 2004; Parthasarathi, 2006). For example, Parthasarathi (2006) argues the positive effects of knowledge gain through brain circulation compared with the loss of knowledge from immigration, are still substantially less simply because not every country has benefited extensively from their returnees. Lucas (2004) argues that the Philippines, Vietnam and Albania have not benefited from their returnees.
Hunger (2004) on the other hand argues that the Philippines and Mexico might face trouble to achieve any form of brain gain, due to the current economic difficulties and political stability faced in both countries. However Meyer and Brown (1999) argue in their research
that certain countries were more successful than other in attracting their diaspora back home and benefited from their knowledge and skill. Examples such as Singapore, Korea, India, and China were able to absorb and use the skills of their diaspora because they had the right policies and the governmental institutions in place (Meyer and Brown, 1999). In Parthasarathi’s (2006) view, this has been described as “absorptive capacity” and it is a “necessary condition for significant reverse migration”. Dawson (2008) also agrees with this view, by suggesting that South Korea and Taiwan “diaspora” success has been driven by the fact the countries were well prepared to receive and utilize the skills of their scientists and engineers returnees. Home countries have an important responsibility to engage with their diaspora, this engagement is crucial in attracting them to come back home. The capacity to absorb the returnees’ knowledge is an important element that home countries need to develop, along with infrastructure, strong institutions, education, and innovation among others. Alternatively, home countries might lose the opportunity to leverage their returnees’ knowledge and skills upon their return (Siar, 2014). Despite the mixed opinions regarding the effectiveness of knowledge spillover, there are empirical studies that suggest that the knowledge spillover is a complex phenomenon, but it works under the right circumstances (Siar, 2014).
6.3.1 Returnee Entrepreneurs – The Integration Dilemma
Despite the advantages that returnees might have from their international endeavours, they face certain difficulties upon returning home. Differences in formal and informal institutions between home and host countries, could affect their ability to obtain local resources (such as licenses, permits, governmental grants) which are necessary to materialize their entrepreneurial opportunities (Lin, Lu, Liu, & Zhang 2014). It’s important to note that returnees’ decision to start a business back home is conditioned by “back-home” policy support and cross-cultural adjustment. (Lin, Lu, Liu, & Zhang 2014). These challenges have also been covered byother scholars, who argue that despite their ability to identify cross-border opportunities, the returnees’ lack of knowledge of regulations, infrastructure differences between the host and the home country, and the readjustment to the home country culture
could pose significant risks to the acquisition of complementary assets crucial to make the returnees’ ventures successful (Cuervo-Cazurra & Un, 2004). Compared to the host countries, infrastructure and other necessary resources to develop their own business are usually scarce in home countries (Robson, Akuetteh, Westhead, & Wright, 2012). However governmental policy support targeting returnees specifically could reduce the inadequacy of formal institutions and help the returnee achieve the potential of their business opportunity (Lin, Lu, Liu, & Zhang 2014).Another difficulty faced by many returnee entrepreneurs is funding; since they spent many years abroad, returnees are often not up-to-date with the local Chinese business environment, which increases the difficulty of securing funds from local Chinese banks (Wang, Zweig & Lin, 2011).
Social norms and culture between the home and the host country are often significantly different. After being away from home for extended periods of time, returnees often need to readjust to their home culture in order to understand and easier navigate the current social norms and informal institutions (Black & Gregersen, 1992). Upon their return, returnees might still act in accordance with the norms of the host country, which might trigger a “reverse cultural shock” and a period of readjusting to their home culture (Gaw, 2000). Cassarino (2004) furthermore expands on how this difficulties could affect the returnees’ integration in the social and professional contexts. Considering the weight that social norms and culture have on the way business is conducted and the importance they have in obtaining social acceptance (Bruton et al., 2010), the speed at which the returnees will re-adapt to their local culture it correlated with the ability to access and obtain complementary resources for their new venture (Lin, Lu, Liu & Zhang, 2014). The better understanding of local social norms and culture returnees possess, particularly in regions with high uncertainty and information asymmetry, the easier they will obtain complementary assets and resources (DiMaggio & Powell, 2000; Spence, 1976). This will be particularly important for entrepreneurs in the technology areas, since new technologies, usually developed in host countries, when being transferred to emerging economies, will face a high level of uncertainty and their success will depend vastly on the returnee’s ability to acquire local resources and cultural legitimacy (Lin, Lu, Liu & Zhang, 2014). Returnee entrepreneurs, particularly in the field of technology, facing difficulties to readjust to their local culture, will have difficulties in commercializing their
products in the local market; this might stop many new returnee entrepreneurs from starting their venture in their home country in first place (Zott and Huy, 2007). That’s one of the reasons why returnee entrepreneurs focus primarily on re-adapting to the informal institutions in order to obtain the necessary cultural legitimacy to acquire complementary assets (Lin, Lu, Liu & Zhang, 2014). Usually high-tech technologies require specialized complementary assets, and according with existing research trust and reliability are crucial in obtaining these assets (Katsikeas, Skarmeas & Bello, 2009). Therefore, in order to obtain specialized complementary assets, returnees starting technology companies usually rely more on culture legitimacy by building up trust (Lin, Lu, Liu & Zhang, 2014).
6.3.2 Turning Brain Drain into Brain Gain - The Case of Taiwan and Israel
The spread of the venture capital (VC) investing in the 80’s has provided new opportunities for many returnees. The spread of the VCs was initiated by the returnees themselves which were eager to establish a more early-stage high-risk investment culture in their home country, similar to the ones they have been used too in Silicon Valley. The first countries to experience this phenomenon were Taiwan and Israel. These two countries were not typical VC investment destinations. The lack of VC investments was primarily driven by either a lack of knowledge of the local market and institutions or by the unwillingness to invest in peripheral portfolios. However, the returnee entrepreneurs provided the necessary leverage in terms of cultural and business knowledge and skills necessary to expand investment flows to the returnee home countries. Not only capital was transferred from Silicon Valley, as mentioned previously, technical and business skills were transferred as well. Equally important, the returnees were bringing the business acumen which they'd acquired in the US and were ready to apply in their own home market by leveraging their existing network back in Silicon Valley as well as their contacts in their home country (Saxenian, 2005). This phenomena has enabled Taiwan and Israel to become the first largest venture capitalist centres outside United States. Meanwhile, Israel has been recognized as an established global software centre. Taiwan has become known worldwide as a focal point of the personal computer and integrated circuit industries. Renowned companies such as Acer, in the PCcomponents, and TSMC, in the semiconductor industries, serve as examples of the economic advancements this regions have undergone (Saxenian 2005).
Building on the example of Taiwan and Israel, Chinese returnees have also started to shape their home country institutions and economics by influencing policy and transferring know-how and technology. Global markets’ liberalization has been key in the economic development of China, however the elimination of trade barriers with lighter bureaucracy on its own, does not create the institutional and social context or the knowledge necessary to create entrepreneurial activity in global industries (Saxenian, 2005). However, unlike the success stories of Taiwan and Israel, the complexity of the home country economy represents a barrier for the Chinese returnees. Nonetheless the impact of the Chinese returnees in the long run will be greater than in the cases of Taiwan and Israel (Saxenian 2005).
7. Chinese Returnee Entrepreneurs - Theoretical Context
7.1 The Chinese Diaspora - Historical Context
The history of the Chinese diaspora is an ancient and long one, there is evidence of returnees that predate the seventh century. Going back in time to the Tang Dynasty, a much respected monk with the name of Xuan Zhuang, has travelled to India to learn more about Buddhism. It is believed that Mr. Zhuang has been credited for being the first Chinese to translate Buddhist texts from Sanskrit to Chinese; this has resulted in a spread of Buddhism in China. Some believe he might have been the very first Chinese returnee (Wang, 2012). Even the Chinese ancient diaspora, was engaged in a two-way knowledge exchange. Other nations, such as the Japanese, the Koreans, and the Persians among many, would come to China to learn more about maths, military and Chinese scientific achievements and Chinese would go to other nations learn from them (Wang, 2012). Between 1000BC and 1500BC China was one of the most developed countries of the era. The agricultural and the industrial advancements, the commercial abilities, the cultural achievements, the richness of the country, along with the living standard of Chinese at the time, were far more superior to any European city (Fairbank and Goldman, 2006).
Up until the industrial revolution China has been one of the most developed nations, with about a third of the world output in 1800. Several factor such as the missing of the industrial revolution and the opium wars along with the civil war that has diminished the power of Qing Dynasty, have helped isolate China from the rest of world, leading to a severe economic decline (Wang, 2012). However, China’s leadership, realized that in order to stop the economic decline, it had to learn from other nations technological capabilities and so it started to send out students abroad to acquire more western knowledge (Wang, 2012). Given this process started decades ago, the Chinese diaspora can be split into five distinct generations.
The 1st generation, happened between 1872 and 1900 and has been described by Wang (2012) as the ‘Leaning from the west’ generation. In 1847 China sent the first student to ever study in the western world, to Yale University. Follow that the government has developed a 15-year plan to send batches of students to American universities, which after years of
studying, successfully enrolled in prestigious US universities, such as Harvard, Yale, Columbia and MIT. Some of this students were sent to study military warfare, more specific naval studies. One of these students has been responsible for bringing several westerns books to China, among them, the Darwin's books. During this generation it was believed to be sent around 200 students. Despite the small number of students this returnees have helped developed the country, and some of them have become very important figures in China (Wang, 2012).
The 2nd generation is known as “Ending the feudal past”, between 1900-1927, this generation has predominantly studied in Japan, Europe, Russia and was behind the creation of a new cultural movement in China, the end of feudalism and imperialist ruling that lasted for 200 years. There were also eight returnees within the founding members of the Chinese Communist Party, among them Deng Xiaoping, that would later become China leader between 1978 and 1992. He had spent five years studying overseas in France, which provided him with the open-mind that would made him a visionary leader that would open up China to the world, leading China to a new economic era (Wang, 2012).
The 3rd generation is known as: ‘Founding the people’s republic’, between 1927 and 1949, this generation of returnees also studied in US and Europe and upon their return become important scientists, politicians, professors, artists. Some of this returnees were involved in important projects at the time, such as, the development of satellites and nuclear technology (Wang, 2012).
The 4rd generation is known as: ‘Building the new China’, between 1949 and 1965, this generation were comprised of students sent to Russia and eastern blocks, which the communist China has sent to help rebuild the country after the civil war. During this period China has sent around 18.000 students (Wang, 2012).
Between 1965 and 1978, during the Cultural Revolution no students were sent abroad, in fact educated people have been either punished or criticized during this period (Wang, 2012).
The 5th generation is known as: ‘Opening up and Globalizing China’, between 1978 and the present, Under the leadership of Deng Xiaoping, the government has created incentives and programs, as part of a grand strategy to send Chinese students abroad, particularly in
areas of science and technology (Wang, Zweig, & Lin, 2011). China has sent more students overseas than any other country before (Wang, 2012). China have sent millions of students to over 108 different countries since 1978, and received over one and half million students in China (Wang, 2012). Historically the first returnees have been more involved in politics, economics as part of an attempt for China to modernize itself, there were mainly scholars, scientists and elite linked to the political spectrum and not necessary entrepreneurs (Wang, Zweig, & Lin, 2011). Today, however most returnees are engaged in areas of the so called new economy, such as IT, media, biotech (Wang, Zweig, & Lin, 2011). This last generation have been responsible to make China more global and heavily involved in modernizing China (Wang, 2012).
7.2 How China went from ‘Brain Drain’ to ‘Brain Circulation’ - Saxenian view
With China’s open door policy, brain drain became a serious issue. In the 80’s and 90’s, most of the students and researchers that received scholarships to study abroad, stayed overseas. It was estimated that 30% of the students with computer science degrees coming from the most prestigious universities in China during the 90’s went to study abroad and very few returned (Saxenian, 2003).All these regions, China, Israel and Taiwan, are building their own centres of entrepreneurship, with connections to Silicon Valley, benefiting from direct market access and knowledge exchange. Despite being well developed in Israel and Taiwan, due in part to an early start, it is still being developed in China, although there has already been early entrepreneurial success. Just like their counterparts, China also has a large technologically skilled workforce willing to work hard in Silicon Valley, while these US educated migrants did not return in the 80’s or 90’s to China, like they did to Taiwan and Israel (Saxenian, 2005).However the recession of the dotcom boom in the US, provided an increase in cross-regional entrepreneurship activity between US and China, where Chinese returnee entrepreneurs pursued the strategy of developing products and goods to serve their local market, which contrast for example with Indian returnees that decided to focus on software development and outsourcing centres for foreign firms (Saxenian, 2005). Investors in the Chinese economy might have enjoyed relatively low operating costs that China offered,
despite the continuous increase in salaries, new producers still continue to seek cluster around the centres of technology in China, rather than looking for lower cost locations, despite the salaries of engineers ranked among the highest in China. Just like in the past Silicon Valley in US, has demonstrated that economies can still grow after the low cost salary advantage disappears, however this only possible as long as entrepreneurs and investors continuously collaborate to improve local capabilities and innovate in order to keep their regional advantage (Saxenian, 2005). Despite the vast contribution the international community networks have in technology exchange and entrepreneurship growth in the country, one should take note on the importance of the role the diaspora has in China. Diaspora in the broader sense, including the traditional remittances, investments, policy input, can have an impact on the broader economy in several ways. However some scholars such as Saxenian argue that in a very limited way.
Cross-regional entrepreneurs on the other hand, are usually a small group of highly educated engineers, top of their class, coming from a Chinese middle class in China, with no connection to the traditional economic or political elite of China. Those individuals whose potential contribution to the economic growth of China can be “disproportionately significant” as Saxenian described (Saxenian 2005). Returnee entrepreneurs despite their knowledge of Silicon Valley, upon their returns they tend not to replicate Silicon Valley in their home countries, which in part is due to the greater variety of cultures, political systems, economies, which offers ample diversified opportunities. In the future, we will more likely see emerging economies with Silicon Valley combined with local elements, then the attempt of perfect copy of Silicon Valley. What returnees are attempting to bring to their own country, apart from the knowledge and networks, it’s the unique important Silicon Valley culture of venture capital attitude towards risk, merit-based career progress, corporate transparency, to places like China where traditionally the economy relies on multiple elite privilege, corruption and governmental control. They attempt to bring to China the mentality of team based firms with low hierarchy, horizontal information flow which is usually dominated by the family-own-business and SOE’s (State own enterprises) (Saxenian, 2005).The type of institutions inherent to Silicon Valley based on mature capital markets, property rights, regulatory watchdog, infrastructure, usually are lacking in places like China (Sternberg & Muller, 2005) and
peripheral economies in a broader sense. Despite this challenges, technology based entrepreneurship is a growing in peripheral regions, returnees have been developing creative ways to deal with all this issues. As an example, Chinese returnee entrepreneurs have been learning how to negotiate the difficult and often complex rules regarding private companies.
Returnee entrepreneurs are not just benefiting from their US networks, often they also choose to establish a subsidiary or headquarters in Silicon Valley, which will enable them to seek funding from venture capitalists, a greater pool of labour skills, along with all the services available in the US (Saxenian, 2005). Shanghai returnees, for example, will tend to locate their knowledge creation in more advanced innovation hubs abroad and commercialize in Shanghai (Sternberg & Muller, 2005). It was stated that there are evidence that returnees have help reverse brain drain in Shanghai, in particularly (Sternberg & Muller, 2005). Returnee entrepreneurs usually do not compete directly with established firms, instead they try to identify niche products in their home countries that build on the technology and knowledge from the established firms. An example are the Israeli entrepreneurs that rely on the knowledge of their nation military, they have expanded the innovation into internet security and telecommunication areas, instead of competing directly with the military research centres (Saxenian, 2005). Another example are the Chinese returnee entrepreneurs in Shanghai, whose vast majority start-up companies to launch products not only new to their home market, but to the world too (Sternberg & Muller, 2005). Returnees are among the best individuals to identify the potential niche markets in their home countries, connect with global markets, and find local labour skills, while working together with policymakers in suitable strategies and policies to support their country growth (Saxenian, 2005).
On another front, returnee entrepreneurs and their communities have been lobbying and supporting national governments on legal reforms, new regulations or capital markets reforms. Also working with regional governments on infrastructure improvements, such as universities, research centres and setting up platforms of information exchange for local producers. The outcomes of all this initiatives will be different from region to region, however is clear that most of this regions despite using the principles and culture of entrepreneurship used Silicon Valley, they are not trying to copy Silicon Valley institutions precisely. Among the most successful regions that attempted in the past to use the same underlying principles of
