By Johann D. Harnoss, Associate
Director, Innovation, BCG Henderson Institute, Berlin
Anna Schwarz, Head of Programme - Global
Transformation, Heinrich-Böll-Stiftung European Union
Martin Reeves, Chairman, BCG Henderson
Institute
Francois Canndelon, Global Director, BCG
Henderson Institute
Apple’s iPhones, Tesla’s cars and
Pfizer’s RNA-based COVID-19 vaccines are some of the everyday innovations that
change our lives for the better, but they carry a greater significance as well.
Each one was conceived by a small team of boundary-breaking inventors who share
something in common: These innovations were driven by immigrant founders—people
who had crossed physical borders before advancing the boundaries of what’s
possible for all of us.
Humans cross borders and humans
create boundary-breaking innovations. Humans crossing borders invariably create
global networks. By migrating, people connect the new contacts they form in
their destination countries with the ones in their communities of origin. Seen
from this vantage point, people do not merely leave one country and arrive at
another; they bridge the two.
Immigrants drive innovation in both
destination and origin countries. Immigrants drive innovation either directly,
through entrepreneurial or inventive activity, or through their close
collaboration with native workers in companies of all sizes. As the global
leader in attracting skilled foreign talent, the United States provides a good
magnifying glass to examine migrants’ entrepreneurial and inventive activity.
On the company level, 45% of all
Fortune 500 companies were founded by an immigrant or the child of an
immigrant, and 50 out of 91 startup companies worth more than $1 billion had at
least one immigrant founder. As of today, more than 3 million immigrants
(skilled and unskilled) have become entrepreneurs, creating a total of 8
million jobs. Immigrants also contribute significantly to economy-wide
innovation: Since the 1970s, about 30% of all increases in per capita
productivity in the US can be traced back to immigrants innovating closely
together with locals. Countries in Europe and Asia see similar patterns, though
at somewhat lower magnitudes.
Indeed, immigrants tend to increase
productivity in most countries around the world, largely because of the
diversity of perspectives, experiences and ideas that they contribute when
working closely with locals in companies in their destination countries. These
innovation-inducing effects are mostly—if not exclusively—driven by skilled
talent.
In addition to driving innovation,
immigrants also trigger innovation by increasing the spectrum of consumer
tastes and needs that companies can serve. The story of Richard Montañez, a
PepsiCo janitor and the son of a Mexican immigrant, illustrates this nicely.
Following the temporary breakdown of a machine that dusted the cheese-flavoured
snacks the company made, he added flavours inspired by Mexican street food to
the bare chips—and instantly realized he was on to something. Recognizing an
opportunity to create a product that would appeal to his own demographic, he
pitched his idea to the CEO of PepsiCo and thus invented a best-selling snack,
Flamin’ Hot Cheetos, which has since grown into a multimillion-dollar franchise
for PepsiCo.
Migrants also generate powerful, yet
largely overlooked, innovation effects in origin countries. Leveraging global
networks, migrants often reinvest capital in, and transmit productive ideas to,
their countries of origin. Migrant diaspora networks can thus drive capital
accumulation, innovation and catch-up growth in origin countries.
The IT industry in India, for
instance, owes its existence in no small part to Indian-born talent that
returned home after education and work abroad, notably in the US. Consider
Faqir Chand Kohli. After obtaining a degree from MIT and working in Boston, New
York and Canada, he took the lead at Tata Consultancy Services, building it into
India’s largest IT service company.
These stories are clear causal
evidence that countries tend to develop new companies and industries as a
direct result of having created migration networks with people in places that
already possess the latent knowledge required to build such value-creation
steps. In other words, a country is much more likely to start producing a
certain product from scratch if a destination country of its emigrants excels
in producing that product.
Immigrants in destination countries
constitute a sizeable work force. They fill labour shortages and, perhaps
counter-intuitively, drive up wages for domestic workers. Working for wages
many times higher than those in their origin countries, migrants create
significant demand for goods and services, thus fueling economic growth in
destination countries. Strikingly, migrants also tend to moderately increase
the wages of the locals they work with. Because more diverse teams are often
more productive, they tend to bump local workers into communication and
oversight roles, which are usually better compensated. While there are
certainly instances of job competition between native workers and immigrants at
the lower end of the skill spectrum, the overall effect on job creation and
wage levels tends to be positive.
Positive effects of migration also
emerge in origin countries. Direct cash remittances are the most well-known. In
2020 alone, migrants sent home $660 billion. These remittances, among others,
are a highly effective means of supporting investments in education, especially
for women, thereby contributing to growth in origin countries.
In a country like Nigeria, in 2018, $6.4bn
worth of FDI came into Nigeria showing an increase compared to the $3.8bn of
2017. It is worthy to note that the main
investing countries in Nigeria are USA, China, United Kingdom, the Netherlands
and France.
We live in a world in which the
movement of people is much more tightly restricted than capital and goods are.
As a result, the number of people around the world who would like to move and
work abroad, if they could, is vast: from 750 million to 2.5 billion people, or
about 50% of all people of working age.
However, worries about brain drain
are the number one reason why leaders do not actively embrace the movement of
skilled people but take a reactive approach instead. But this shouldn’t be so.
Tolu
Oyekan, partner at BCG Lagos office said: “The truth is that many Nigerians in
the Diaspora are desirous of investing and establishing business ventures in
Nigeria as well as outside of the country. For instance, the pan-African
digital payment company, the Interswitch Group, is regarded as Africa’s first
fintech unicorn. It was established by a Nigerian graduate, Mitchell Elegbe,
who worked for a few years in the UK and returned to Nigeria to establish the Interswitch Group. Also, Dr. Ola
Brown studied in the US, worked a bit in the UK, and with her specialised
training in aviation medicine, pioneered West Africa's first air-operated
emergency medical services in Nigeria called Flying Doctors Nigeria Ltd.
The emerging consensus among
academics is that skilled migration is rarely a brain drain and can be
structured in a way as to become a win for all parties involved. This is mainly
because of the previously overlooked large, positive innovation- and
growth-stimulating effects of skilled diaspora networks sending capital,
knowledge, ideas and ideals back to their origin countries.
Consequently, we should see skilled
migration not as a game of winners and losers, but as one in which all can
win—like global trade. Policymakers would be well advised to see the true
contribution of skilled immigrants, not in terms of just getting a job done,
but as contributing to a more dynamic, vital society. This includes immigrants’
entrepreneurial activity, direct and indirect creative contributions, and the
effect on economic growth of their own domestic consumption and taxes.
At BCG, we propose that CEOs and
policymakers take four actions now, in order to tap into the large potential
created by humans crossing borders:
Start from the top. Begin by focusing on
migrants who have either a university education or vocational training—even
though it’s not easy to do, in practice, and it limits the overall promise. In
parallel, continue the urgent political and operational efforts to safeguard
the livelihoods and dignity of refugees and undocumented migrants.
Create win-wins. Close the innovation and
growth loops between countries of origin and destination countries by designing
multilateral policies, firm engagement and technology to digitally accelerate
the circular flow of ideas, capital and ideals.
Strive for vitality. As a policymaker, keep an
eye on today’s and tomorrow’s local labour market needs, but be sure to
recognize immigrants and your own diaspora of emigrants as sources of dynamism
and vitality.
Innovate to lead. As a business leader,
recognize and act on the immediate talent advantage inherent in global talent
pools—but do not stop there. Embrace cultural diversity and the functional
diversity it brings to jointly solve hard problems of discovery in innovation.
And if you believe that talent is universal, but opportunity is not, ask
yourself whether this is a cause that you, as a business leader, would want to
lead.
The movement of people across borders
is as intricately linked with human existence as is the movement of
goods—trade. Yet until now, people crossing borders have received less
strategic attention from the business community than the movement of goods.
As we show, people crossing borders
create vast global networks that already drive innovation and growth in both
destination countries and origin countries. Yet these networks remain
comparatively small in size. As a result, the latent potential to drive shared
economic value and create a more balanced world based on human values remains
unfulfilled.
The world needs a new engine of
growth and geopolitical stability more than ever. We think it’s time to elevate
the potential of people crossing borders and to explore fresh ways for
governments and business to work together for the benefit of all.
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