Why do Indian immigrants succeed as entrepreneurs in US?

As Indian media goes in frenzy over Satya Nadella’s appointment as MS chief (though he doesn’t seem to care much), this is an interesting paper.

Though paper looks at reasons for success of Indian immigrants in business, I guess broadly it shd apply to other areas as well. It also says the immigrants are not as successful in UK and Canada:

Indian immigrants in the United States and other wealthy countries are successful in entrepreneurship. Using Census data from the three largest developed countries receiving Indian immigrants in the world — the United States, United Kingdom and Canada — we examine the performance of Indian entrepreneurs and explanations for their success. We find that business income of Indian entrepreneurs in the United States is substantially higher than the national average and is higher than any other immigrant group. Approximately half of the average difference in income between Indian entrepreneurs and the national average is explained by their high levels of education while industry differences explain an additional 10 percent.

In Canada, Indian entrepreneurs have average earnings slightly below the national average but they are more likely to hire employees, as are their counterparts in the United States and United Kingdom. The Indian educational advantage is smaller in Canada and the United Kingdom contributing less to their entrepreneurial success.

Why should there be differences? The authors look at immigration policies. It seems based on immigration policies, Canada should be getting the brightest. However, perhaps because of a more egalitarian culture in Canada, may be Indians prefer US where the system rewards highly to those with capabilities.

This has brain drain implications which looks at the issue narrowly:

Indian entrepreneurs contribute substantially to their host economies. Indian firms hire 610 thousand employees and have total sales of $88 billion in the United States alone (U.S. Census Bureau 2007). In Canada, and especially in the United Kingdom, Indian entrepreneurs are more likely to hire employees. From India’s perspective, these findings have implications for “brain drain.” Although concerns over “brain drain” usual focus on the loss of highly educated workers in professional occupations, the loss of entrepreneurial talent is also important. The loss of Indian entrepreneurial talent to developed countries such as the United States, Canada and United Kingdom may have severe consequences for aggregate income, the creation of wealth, and employment. In addition to examining the potential 25 benefits of Indian entrepreneurs in the host country, as is done here, more research is needed to explore the potential costs to India.

Census data, while rich along many dimensions, limit our efforts to pursue additional avenues of research including the selection of Indian immigrants to host countries and the selection into entrepreneurship. It is likely that the returns to education are much larger for entrepreneurs in the countries we study than in India, which causes them to emigrate. Van der Sluis, van Praag, and Vijverberg (2005) conduct a meta-analytical empirical review and note that the return to schooling in terms of enterprise income in developing economies is actually comparable to that of industrial countries. But they also note that educated people prefer wage employment to nonfarm entrepreneurship, an effect that is stronger in economies where agriculture is dominant and literacy rates are lower. Nearly two-thirds of the Indian labor force is in agriculture and only around 60% of its population is literate.29 Therefore, it is likely that educated Indians who want to become entrepreneurs are more likely to start their enterprises in the wealthy countries rather than at home.

More research needed to identify choices facing an entrepreneur:

The challenge in identifying who chooses to become an entrepreneur is finding an identifying restriction – a variable that affects the entrepreneurship choice, but not earnings and such an instrument has yet to be identified and employed in empirical work. Finally, immigration differences appear unable to explain all the differences in the strong performance of Indian entrepreneurs in the U.S. relative to Canada and the U.K. In addition to immigration policies, credit and labor markets, among other institutional features are likely to matter. To incorporate these considerations we would need a structured framework that simultaneously examines the decision to become an entrepreneur as opposed to a worker and  the choice of a national location. Our systematic exploration of Indian entrepreneurs in varied developed countries places us in a good position to pursue these issues in future work.

Interesting bit.

One may ask what would Satya have done if he was in India? First Post has a nice take..

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2 Responses to “Why do Indian immigrants succeed as entrepreneurs in US?”

  1. Loknath Says:

    “One may ask what would Satya have done if he was in India?”

    On an average the productivity (=tons of useful output for mankind) generated by Indians in America, UK, Canada, NZ, Oz) is much higher vis a vis the Indians in India. This is probably because India has too many distractions and basic survival problems for anyone to be productive. Secondly merit alone had not been the basis of reward in Indian culture. This means becoming an entrepreneur is probably “hard on the heart” for many reasonably good people. If Satya were to live in India, he may not have caught up with times. The best case I see for him is probably a vice president/CEO of delivery in some IT firm or may be owning his firm offering IT/Business consulting services … nothing as innovative or cutting edge..

  2. maheep Says:

    Reblogged this on DEMONstrate and commented:
    Good read… Esp after new microsoft ceo

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