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| 02/03/2015
From the Market to Partners: the Challenges for the Immigrant Entrepreneur

From the Market to Partners: the Challenges for the Immigrant Entrepreneur

THE PHENOMENON OF STARTUPS BEYOND BORDERS IS ON THE RISE. IT ALL STARTS WITH AN OPPORTUNITY THAT ONE DECIDES TO GRASP. BUT THE REASONS IN THE CHOICE OF COUNTRY OF DESTINATION ARE VARIOUS AND NOT LINKED TO THE BUSINESS

Based on anecdotal evidence, immigrant entrepreneurship is on the rise. More and more individuals, also among the most educated, decide to start up a business in a country where they were not born; Italians decide to venture out in high growth countries in Asia and South America or decide to explore opportunities and leverage their talent in countries with more developed start-up eco-systems like the US, UK and lately Berlin/Germany. Also some foreigners decide to set-up their company in Italy where they are close to world class suppliers in certain industries.
 
In true entrepreneurial spirit, the plunge decision for most immigrant entrepreneurs is linked to an opportunity, typically a market opportunity that is bigger in the foreign country than in the home territory. These market opportunities exist for two different reasons. The differences in industry lifecycles and economic development across territories are the first reason; in growth economies like India, China and Brazil, certain market segments are in their embryonic stages, while being mature in Italy. This is true for example for certain food&beverage segments like wine & artisan ice-cream, but also for sectors like solar/PV energy where developments in Europe and the US anticipated events in Asia and South America with almost a decade. The differences in demand conditions, preferences and demographics are the second reason. Even without considering industry lifecycle and economic development, differences in demographics and demand conditions simply make certain geographical markets larger than others. The per capita consumption of organic food is three times bigger in Germany than in the UK, Norwegian women spend more than twice the EU average on shoes every year, and the “market” for VC investments in startups in the US is five times bigger than in Europe. So if you happen to be a start-up entrepreneur looking for VC investments and your market is global, as an European why not be opportunistic and settle in the US?
 
Another reason for starting up abroad can be access to specific resources. There are unique clusters of excellence around the world that attract start-ups because they offer an eco-system of employees, partners, suppliers, distributors and customers that can increase the chances of start-up success. Being close to the eyewear cluster in the north-eastern part of Italy, being close to European VC investors in Berlin, or taking advantage of Danish government funds for Life Science start-ups are examples.
 
Last, but not least, personal considerations can play an important role in becoming an immigrant entrepreneur. Being close to significant others can often be a deciding factor, not only for country of business, but for taking up an entrepreneurial lifestyle in the first place, because it might be the best (or only) career opportunity.
 
All start-ups and early stage entrepreneurial ventures are dependent on good partnerships. A special challenge for immigrant entrepreneurs is to select and solidify these partnerships. Language and cultural differences can make selection difficult, but also differences in industry structures and ways of doing business can increase the difficulties. For entrepreneurs trying to take advantage of market opportunities in growth economies access to qualified and motivated employees and collaborators is also often cited as a challenge. Another challenge is understanding foreign bureaucracy and the local regulatory environment.
 
A trusted local equity partner will mitigate a lot of the specific challenges that immigrant entrepreneurs are facing, but identifying such a profile after having made the plunge decision is difficult and risky. It is therefore a good idea to make the start-up decision dependent on having the team in place.
 
Failure risk is best mitigated through smart team and partnership decisions, but financial risk needs to be managed separately. Entrepreneurial financial risk management principles are valid for all types of entrepreneurship and include “common sense” principles such as not investing more money than you are willing to loose; experimenting with low cost / low investment solutions before scaling up; converting as many fixed cost / up front investments into variable costs in the start-up phase; co-financing development with partners and customers; selling before producing.
 
Immigrant entrepreneurship is rich on opportunities, but also brings with it special challenges and risks that needs to be managed. Risk can be managed by following some simple risk mitigation principles, but success depends on factors such as business acumen, entrepreneurial leadership, strategic flexibility and perseverance.  Success for the immigrant entrepreneur is not only success for the person and her/his team, but also spills over to the foreign country in which the economic activity is created. We are unlikely to see another country experience an immigrant entrepreneurial economic revolution like the one America lived in the mid 19th century, but for both country and entrepreneur, less than that can still be good.
 
Barbara Orlando
Universita' Bocconi
Phone +39-02.5836.2330
Mobile +39-335.123.1716
E-mail barbara.orlando@unibocconi.it
https://www.press.unibocconi.eu
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