Immigrant Entrepreneurs in Knowledge Intensive Industries Are They Different from Native Germans

1
Immigrant Entrepreneurs in Knowledge Intensive
Industries Are They Different from Native
Germans?

• Dr. Elisabeth Müller
• Centre for European Economic Research (ZEW),
  Mannheim, Germany, mueller_at_zew.de
• World Social Science Forum Bergen, Norway
• May 11, 2009

2
Motivation

• Population with immigration background
  constitutes important share of overall population
  in Germany (18)
• For economic growth Germany depends on innovation
  and therefore on good use of human capital
• Activities of young, innovative companies
  recognized as important contribution to economic
  growth
• Aging of the population may lead to lack of
  entrepreneurs and inventors, immigrant population
  has younger age structure
• So far no knowledge about activities of
  immigrants as entrepreneurs in knowledge
  intensive industries

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History of immigration

• In 1950 only 500,000 foreigners in Germany
• Labour shortages starting in the mid 1950s
• Bilateral recruitment agreements with Italy
  (1955), Spain (1960), Greece (1960), Turkey
  (1961), Portugal (1964) and Yugoslavia (1968) led
  to first immigration wave
• Workers mostly thought for low-skilled jobs in
  the industrial sector
• In 1973 around 4 million guest workers in
  Germany
• Orginally thought that workers would return home,
  no integration effort
• Second immigration wave in the 1990s, 4.5
  million ethnic Germans from Eastern Europe and
  the former Soviet Union arrived

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This study

• Focus on immigrants from the first wave. The
  immigrants from the recruitment countries form a
  quite homogenous group with respect to
• Time of arrival
• First experience in Germany in dependent
  employment
• Education level
• Information on size of this group, education
  level and company ownership from national
  statistics
• Information on size of founded companies, company
  survival and patenting activity taken from data
  of Germanys largest credit rating agency
  (Creditreform)

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Focus on migration background

• Migration background more relevant than
  nationality
• Social background important for behaviour as
  entrepreneur
• Discrimination relates more to ethnicity than to
  nationality
• Population with immigration background includes
  population with
• foreign nationality
• German nationality but birth outside Germany
• no own immigration experience but parents or
  grandparents born outside Germany

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Most important ethnic groups (2005)

• Total population in Germany 82 million
• With immigration background 14.8 million
• With immigration background from
• Recruitment countries 46.7
• Turkey 23.6
• Ex-Yugoslavia 10.3
• Italy 6.6
• Greece 3.5
• Spain 1.4
• Portugal 1.3
• Eastern Europe and the former Soviet Union 17.5
• Other countries 35.8

Source National Statistical Office (2007)
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Comparison of education levels
Source German National Statistical Office
(2007) Recruitment countries include Turkey,
Italy, Greece and Ex-Yugoslavia.
8
Entrepreneurial activity

• Immigrants from recruitment countries have on
  average a lower propensity to found a company
• Industry distribution of private companies
  according to migration background of owner

Source Calculation by German National
Statistical Office (2005) Recruitment countries
include Turkey, Italy, Greece Ex-Yugoslavia,
Spain and Portugal.
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Data for own analysis

• Company data from the credit rating agency
  Creditreform
• Patent information from the European Patent
  Office
• Focus on companies in knowledge intensive
  industries (manufacturing and services)
• Companies founded since 1998 (size and survival)
  or since 1990 (patenting)
• Maximum founding size is 50 employees
• Companies in 100 ownership by other companies
  excluded, at least one person required as owner

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Identification of immigrant background

• No large scale direct information on nationality
  or immigration background of owners available
• Identification of immigrant background from
  former recruitment countries according to first
  and last name of the owners
• for Turkey e.g. Semir Yüzgülen, Aslan Erol
• for Italy e.g. Luciano Bertani, Giovanni Federico
• for Germany e.g. Peter Laube, Uwe Hohloch
• Coding done by Axciom, a market research company
• Immigrant background of 94 of company owners
  could be identified
• Coding wrong in less than 5 of cases according
  to data provider

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Some descriptive statistics
Note Based on companies with earliest founding
year 1998. Number of observations is 554,880. The
number of employees does not include the owners.
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Founding size (average no of employees)
? Immigrant companies in manufacturing have
smaller founding sizes ? Manufacturing has higher
investment requirements, possible indication of
lack of access to financial resources
Note Based on companies with earliest founding
year 1998.
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Company survival

• Influence of background of owners on company
  survival estimated with Cox regression model
• Other controls include company size, founding
  period, legal form, region (Eastern Germany),
  technology area
• Companies with only immigrant owners or with
  immigrant and German owners have shorter survival
  times
• Only exception is companies with immigrant and
  German owners in the manufacturing sector, no
  difference to category of only German owners
• ? Immigrants may take risk of founding more
  easily but may be less rigorous in their business
  planning
• ? Immigrants start companies at a younger age,
  less experience at time of founding

14
Patenting activity

• Influence of background of owners on probability
  of patent application estimated with Probit model
• Same controls as for survival analysis
• Patent application as outcome indicator for
  success with own RD, information on RD
  expenditure as input factor not available
• No difference in probability of patenting once
  company size is controlled for
• ? Immigrants are as successful with own
  inventions as Germans if they work with the same
  resources

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Conclusions

• Economic growth in Germany would benefit from
  higher entrepreneurial activity in knowledge
  intensive industries
• Immigrants from former recruitment countries less
  likely to found a company in knowledge intensive
  industries than Germans
• First step would be to improve the school and
  university education of this group
• Access to financial resources could be a further
  limiting factor
• Immigrants as successful as Germans if they work
  with the same resources

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• Thank you very much for your attention!

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Backup slides

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Related literature

• Researchers with exceptional contributions to
  science conducted in the US are disproportionally
  often foreign-born (Stephan and Levin, 2001)
• One quarter of CEOs of Silicon Valley companies
  are headed either by Indian or Chinese CEOs
  (Saxenian, 1999)
• Indian and Chinese inventors make a large and
  growing contribution to the overall patenting
  activity in the US (Kerr, 2007)
• US has tradition of high-skilled immigration. So
  far no study looking at immigrant groups with a
  more disadvantaged background

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Strengths and weaknesses of name coding

• Strengths
• Ethnic origin important even if German
  nationality acquired, more comprehensive view on
  migration
• No large scale information on nationality of
  entrepreneurs available
• Weaknesses
• Marriages may change last name
• Less integrated parents may give children first
  names typical for their ethnicity, selection
  towards less integrated immigrants
• Only probabilistic approach