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

• DOI: http://doi.org/10.1002/sej.1352
• Author: Dan J. Wang
• Date: 01 June 2020
• Published date: 01 June 2020

RESEARCH ARTICLE

When do return migrants become entrepreneurs?

The role of global social networks and institutional

distance

Dan J. Wang

Columbia Business School, Columbia

University, New York, New York

Correspondence

Dan J. Wang, 3022 Broadway, Columbia

Business School, Columbia University, Uris

Hall 723, New York, NY 10027.

Email: djw2104@columbia.edu

Funding information

Chazen Institute Faculty Grant; Kauffman

Foundation Junior Faculty Fellowship Grant

Abstract

Research Summary:Does embeddedness in global social

networks elevate or diminish individuals' propensity to

found new ventures? I analyze entrepreneurial entry among

a large, cross-country sample of skilled return migrants, all

of whom had worked abroad in the United States before

returning to 98 different home countries. My findings reveal

that maintaining stronger cross-border social ties—that is,

relationshipsto former colleagues abroad—leads returnees to

be more likely to found new ventures in their homelands.

However, the positive effects of cross-border social ties

diminish with greater institutional distance between the

returnee's home country and the United States. The findings

have implications for research at the intersection of social

networks, international migration, and entrepreneurship.

Managerial Summary:When it comes to founding a venture,

social networks are often critical in helping prospective

entrepreneurs identify new market opportunities and

resources. Which types of networks are most beneficial in

helping people become entrepreneurs, however, still

remains a question. This paper asks whether having social

connections to individuals across countries makes one more

likely to become an entrepreneur, and if so why? Studying

skilled return migrants, I find that returnees who maintain

stronger social ties to those they met while working abroad

are more likely to start companies, but only if there is suffi-

cient similarity between the market environments of the

Received: 12 December 2018 Revised: 10 December 2019 Accepted: 13 December 2019 Published on: 15 April 2020

DOI: 10.1002/sej.1352

© 2020 Strategic Management Society

Strategic Entrepreneurship Journal. 2020;14:125–148. wileyonlinelibrary.com/journal/sej 125

returnee's home country and the country where the

returnee worked abroad.

KEYWORDS

entrepreneurship, institutional distance, return migration, social

capital

1|INTRODUCTION

The returnmigration of skilled individuals to their home countries has fueleda global economic transformation overthe

past two decades, drawingconsiderable scholarly attention(Kerr 2018; Saxenian,2006). In particular,a wave of research

has examined both the successes and challenges of returnees who found ventures in their homelands (Kenney,

Breznitz, & Murphree, 2013). Some work shows that returnee entrepreneurs bring advantages to the ventures they

establishthrough their access to resources and ideas from overseas(Liu, Lu, Filatotchev,Buck, & Wright, 2010; Zhou&

Hsu, 2011) whereas other evidence highlights that returnees sometimes struggle to mobilize venture resources

(Obukhova, 2012; Qin, Wright, & Gao, 2017). Whether or not returnee entrepreneurs are successful, this prior work

generallyagrees on one common featureof returnee entrepreneurs: most relyheavily on their cross-border social ties.

After returnees come backto their home countries, many maintaincross-bordersocial ties through continued contact

with individuals abroad.Whereas prior work hasdocumented how cross-border socialties facilitate thetransfer of over-

seas ideas and resources to firms that employ or were founded by returnees, scholarship lacks insight into how

returnees' cross-border ties might also shape their decisions to start new ventures (Dutia, 2012; Lin, Zheng, Lu, Liu, &

Wright, 2019;Pruthi, 2014; Qin & Estrin,2015). Furthermore,although broader research on social networks and entre-

preneurial entry finds that those with more diverse networks tend to become entrepreneurs (Aldrich & Kim, 2007;

Aldrich & Zimmer, 1986; Hoang& Antoncic, 2003), it stopsshort of specifying whether social ties thatspan geographic

bordersserve as better channelsfor ideas and resourcesthat promote entrepreneurialentry (Zhou, Wu, & Luo,2007).

My study of returnee entrepreneurship addresses this missing piece. To develop my argument, I fuse research on

how knowledge acquisitionshapes entrepreneurship with work on social networks and knowledge transfer. As a base-

line, I argue that maintainingcross-border ties connects returneesto knowledge from abroad thatis novel—that is, new

to a market context (Shane, 2000)—to their home countries, enhancing their ability to identify new venture creation

opportunities. Furthermore, becauseinformation about ventureopportunities is oftenencoded in complex knowledge—

that is, tacitand multifaceted(Ganco, 2013; Hansen,1999)—stronger,as opposed to weaker, cross-border ties arebetter

suited tofacilitate its transferacross borders (Hansen, 1999). Finally, I argue thatthat cross-border tiesto countries that

are institutionally similarto a returnee's homeland aremore likely to channel relevant knowledge—that is, applicable to a

market environment (Kostova, 1999)—boosting a returnee's odds of starting a venture.

Evidence comes from original survey data on 3,840 skilled professionals who worked abroad in the United

States before returning to 98 different home countries. Maintaining cross-border ties—especially stronger ties—

increases returnees' likelihood of founding ventures, but the effect weakens for returnees in home countries that are

institutionally dissimilar from the United States. In further analysis, I isolate knowledge transfer as a key mechanism

by showing that cross-border ties lead returnees to found ventures that are more likely to be oriented to the markets

and industry sectors where the returnee had worked abroad. With a natural experiment, I rule out a returnee's pref-

erences for a work location abroad as a source of endogeneity in my analysis.

My results contribute to a deeper understanding of social networks and entrepreneurship in a global context.

First, whereas research on entrepreneurship has focused on how the size and diversity of one's social network can

be advantageous for venture formation, it has yet to consider the role of social ties that span country borders.

Although some work speculates about the benefits of such geographic brokerage for entrepreneurs

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