A path to value creation for foreign entrepreneurs

Abstract

Research summary: Firms founded by foreign entrepreneurs constitute an influential and growing part of the world economy. Yet, the existing research has given little consideration to the strategies of foreign entrepreneurs beyond their decisions to start a firm. In this article, we address this gap by examining how foreign entrepreneurs may bring value to their firms as firm managers. We argue that foreign owner‐managers may benefit their firms by having access to home‐country resources. We demonstrate that, compared to hired local managers, foreign owner‐managers reduce firms' operating costs by disproportionately hiring home‐country labor when this labor is more cost‐efficient. This effect is larger for labor‐intensive industries and for entrepreneurs from less wealthy countries. Managerial summary: Foreign entrepreneurs represent an important part of the world economy. Yet, we know little of how foreign entrepreneurs manage their firms. In this article, we examine whether foreign entrepreneurs and domestic managers hire different employees. We find that when foreign entrepreneurs manage their firms personally, they hire a larger number of foreign workers, and such workers are cheaper and more productive than the local labor. Conversely, domestic managers tend to hire local employees, despite their higher relative wages. Foreign owner‐managers are particularly valuable in labor‐intensive industries and when their home‐country labor is inexpensive. Copyright © 2015 John Wiley & Sons, Ltd.

Do Foreign Entrepreneurs Benefit Their Firms as Managers?

“…Our findings suggest that foreign owner-managers are able to reduce operating costs in their firms. Our further empirical evidence is consistent with the notion that foreign owner-managers may be able to reduce costs through eliminating the principal-agent problem (e.g., Anderson and Reeb, 2003;Villalonga and Amit, 2006), accessing beneficial foreign and ethnic resources (e.g., Kulchina, 2016b;Portes et al, 2002), and having better management skills inherited from their home countries (e.g., Nachum, 2003). Prior studies provide evidence of the principal-agent problems in different countries.…”

“…We have also argued that foreign ownermanagers may reduce operating costs by having access to cost-efficient resources in their home countries or in the local ethnic communities. In line with prior work (e.g., Kulchina, 2016b), in our empirical test, we specifically focus on one resource-foreign labor. We expect that the ability to engage cost-efficient foreign resources would be more valuable when local competition for resources is high and less valuable when local competition is low.…”

“…Firms with foreign owner-managers seem to be more likely to have such an advantage. For example, Kulchina (2016b) demonstrates that compared to local managers, foreign entrepreneur-managers have more direct access to foreign labor, and this labor is often less expensive than local employees. The quotation below, taken from an interview with entrepreneurs, provides further anecdotal evidence.…”

“…We examine the effect of foreign owner-managers on firm performance using a dataset of foreign startups in Russia from 1997 to 2008. The data come from the Ruslana database-a part of the Amadeus database by Bureau van Dijk, which has been intensively used in the academic research (e.g., Bloom, Kretschmer, and Van Reenen, 2011;Kulchina, 2016b). The data are assembled from the annual reports that firms file to Russian government agencies.…”

When do return migrants become entrepreneurs? The role of global social networks and institutional distance

“…Finally, my study complements research in strategy on immigrant entrepreneurs. Recent work has shown that local ties factor into the choices of immigrant firm owners (Hernandez, 2014; Kulchina, 2016; Li, Hernandez, & Gwon, 2019), but has not addressed how migrants' global ties shape their tendency to become founders.…”