The Immigrant Technologist:
Studying Technology Transfer with China
Immigrants account for almost half of Ph.D.-level scientists and engineers in the U.S., and are prime drivers of technology development. Increasingly, however, Chinese technologists and entrepreneurs are returning home rather than staying in the U.S. to pursue opportunities. Professor William Kerr discusses the phenomena of technology transfer and implications for U.S.-based businesses and policymakers. From New Business. Key concepts include:
- The trend of Chinese technologists and entrepreneurs returning home rather than staying in the U.S. is a trend that potentially offers both harm and opportunity to U.S.-based interests.
- Immigrants account for almost half of Ph.D.-level scientists and engineers in the U.S. and are strong contributors to American technology development. It is in the United States' interest to attract and retain this highly skilled group.
- U.S. multinationals are placing larger shares of their R&D into foreign countries, around 15 percent today. U.S.-based ethnic scientists within multinationals help facilitate the operation of these foreign direct investment facilities in their home countries.
Assistant Professor William R. Kerr teaches the required first-year MBA course, The Entrepreneurial Manager, in addition to Executive Education courses at Harvard Business School. One of his core research areas is the role of immigrant entrepreneurs and scientists for U.S. technology development, as well as the subsequent diffusion of new innovations to the immigrants' home countries.
In June, Kerr and nine other HBS faculty members spent six days in China to learn more about entrepreneurship in one of the world's fastest-growing economies. New Business Publisher Mike Roberts, also on the trip, recently talked to Professor Kerr about his research and his observations in China.
Mike Roberts: Tell us about your impressions of China.
Bill Kerr: My central observation from our trip is that China is at a tipping point for entrepreneurship on an international scale. A few years ago, most Chinese entrepreneurs educated or trained in the United States remained here to start their companies if they could do so. In Beijing, we met a number of these entrepreneurs who are choosing instead to be based full-time in China, even if they have U.S.-based venture capital funding. I talked to one Chinese entrepreneur who tested moving to China twice before; in both cases he returned to the United States disappointed. Now he feels he must be in China because, as he put it, "China is undergoing both its renaissance and its industrial revolution."
Q: Is there a downside for entrepreneurship in China?
A: Our interviews in Beijing and Shanghai emphasized that China is not for everybody. Even though the country generates a lot of excitement, offers a huge consumer market, and retains a lower-cost but very well-educated labor force, China is a hard place to make money. Local connections and professional networks remain just as important as they were in the past. This places U.S.-trained Chinese, with business connections and local knowledge on both sides of the Pacific, in a great position to create tomorrow's successful, global enterprises.
Q: Describe your research and how it relates to what you observed in China.
A: My research focuses on technology transfer through ethnic scientific and entrepreneurial networks. Traditional models of technology diffusion suggest that if you have a great idea, people who are ten feet away from you will learn about that idea first, followed by people who are 100 miles away, and so forth in concentric circles. My research on ethnic networks suggests this channel facilitates faster knowledge transfer and faster adoption of foreign technologies. For example, if the Chinese have a strong presence in the U.S. computer industry, relative to other ethnic groups, then computer technologies diffuse faster to China than elsewhere. This is true even for computer advances made by Americans, as the U.S.-based Chinese increase awareness and tacit knowledge development regarding these advances in their home country.
Q: Is your research relevant to other countries as well?
China is at a tipping point for entrepreneurship on an international scale.
A: Yes, I have extended my empirical work to include over thirty industries and nine ethnicities, including Indian, Japanese, Korean, and Hispanic. It is very important to develop a broad sample to quantify correctly the overall importance of these networks. The Silicon Valley Chinese are a very special case, and my work seeks to understand the larger benefit these networks provide throughout the global economy. These macroeconomic findings are important inputs to business and policy circles.
Q: What makes technology transfer happen? Is it entrepreneurial opportunity in the home country, a loyalty to the home country, or government policies that encourage or require people to come home?
A: It's all of those. Surveys of these diasporic communities suggest they aid their home countries through both formal business relationships and informal contacts. Formal mechanisms run the spectrum from direct financial investment in overseas businesses that pursue technology opportunities to facilitating contracts and market awareness. Informal contacts are more frequent—the evidence we have suggests they are at least twice as common—and even more diverse in nature. Ongoing research will allow us to better distinguish these channels. A Beijing scholar we met on the trip, Henry Wang, and I are currently surveying a large population of Chinese entrepreneurs to paint a more comprehensive picture of the micro-underpinnings of this phenomena.
Q: What about multinational corporations? How do they fit into this scenario?
A: One of the strongest trends of globalization is that U.S. multinationals are placing larger shares of their R&D into foreign countries. About 5 percent of U.S.-sponsored R&D was done in foreign countries in the 1980s, and that number is around 15 percent today. We visited Microsoft's R&D center in Beijing to learn more about its R&D efforts and interactions with the U.S. parent. This facility was founded in the late 1990s, and it has already grown to house a third of Microsoft's basic-science R&D researchers. More broadly, HBS assistant professor Fritz Foley and I are working on a research project that has found that U.S.-based ethnic scientists within multinationals like Microsoft help facilitate the operation of these foreign direct investment facilities in their home countries.
Q: Does your research have implications for U.S. policy?
A: One implication concerns immigration levels. It is interesting to note that while immigrants account for about 15 percent of the U.S. working population, they account for almost half of our Ph.D.-level scientists and engineers. Even within the Ph.D. ranks, foreign-born individuals have a disproportionate number of Nobel Prizes, elections to the National Academy of Sciences, patent citations, and so forth. They are a very strong contributor to U.S. technology development, so it is in the United States' interest to attract and retain this highly skilled group. It is one of the easiest policy levers we have to influence our nation's rate of innovation.
Q: Are countries that send their scholars to the United States losing their best and brightest?
A: My research shows that having these immigrant scientists, entrepreneurs, and engineers in the United States helps facilitate faster technology transfer from the United States, which in turn aids economic growth and development. This is certainly a positive benefit diasporas bring to their home countries. It is important to note, however, that a number of factors should be considered in the "brain drain" versus "brain gain" debate, for which I do not think there is a clear answer today.
Q: Where does China stand in relation to some of the classic tiger economies that we've seen in the past in terms of technology transfer?
It is one of the easiest policy levers we have to influence our nation's rate of innovation.
A: Taiwan, Singapore, Hong Kong, and similar smaller economies have achieved a full transition from agriculture-based economies to industrialized economies. In those situations, technology transfer increases labor productivity and wages directly. The interesting thing about China and also India is that about half of their populations are still employed in the agricultural sector. In this scenario, technology transfer may lead to faster sector reallocation—workers moving from agriculture to industry—which can weaken wage growth compared with the classic tiger economy example. This is an interesting dynamic we see in China today.
Q: The export growth that technology may engender is only one prong of the mechanism that helps economic development. Does technology also make purely domestic industries more productive?
A: Absolutely. My research shows that countries do increase their exports in industries that receive large technology infusions, but non-exporting industries also benefit from technology gains. Moreover, the technology transfer can raise wages in sectors that do not rely on technology to the extent there is labor mobility across sectors. A hairdresser in the United States, for example, makes more money than a hairdresser in China, and that is due in large part to the wage equilibrium that occurs across occupations and skill categories within an economy. Technology transfer may alter the wage premiums assigned to certain skill sets, for example, increasing the wage gaps between skilled and unskilled workers, but the wage shifts can feed across sectors through labor mobility.
Q: What are the implications for the future?
A: Historically, the United States has been very successful at the retention of foreign-born, Ph.D.-level scientists, inventors, and entrepreneurs. As China and India continue to develop, they will become more attractive places to live and to start companies. The returnee pattern may accelerate as foreign infrastructures become more developed for entrepreneurship. This is not going to happen over the next three years, but it is quite likely over the next thirty to fifty years. My current research is exploring how this reverse migration would impact the United States' rate of progress.
Reproduced with permission from "A Two-Way Street: Technology Transfer," New Business, Fall 2006.
See the current issue of New Business.