By Eliana Chow
While more U.S. employers are recognizing the strategic importance of building diverse teams, the wisdom of hiring more immigrants to increase profitability depends largely on context. A recent paper from NC State University’s Elena Kulchina and the University of Pennsylvania’s Exequiel Hernandez reveals differences in the value immigrant managers bring to multinational corporations versus independent businesses.
“To date, researchers have spoken in general terms about the benefits immigrant employees bring to the table in their nonnative countries,” says Kulchina, an associate professor of strategic management at the Poole College of Management. “Our paper lays the groundwork for more applicable best practices for the founders and owners of independent firms.”
Our paper lays the groundwork for more applicable best practices for the founders and owners of independent firms.
Kulchina and Hernandez identify a key distinction between how independent businesses and global corporations build their brand. On one hand, subsidiary companies can rely on the established brand name of their parent company, like how LinkedIn is fueled by Microsoft’s reputation for advanced technology and professionalism. “No matter where you are in the world, Microsoft is Microsoft,” Kulchina says. “Because almost everybody knows the name, immigrants in a new country will naturally gravitate toward working for the company. Trust has already been established through advertising and branding, regardless of the nationality of the company’s managers.”
In contrast, entrepreneurial ventures and other independently owned firms rely heavily on the personal networks and relationships of their founders and managers. If they are to effectively attract immigrant employees and benefit from immigrant community networks and resources, these types of firms must first hire an immigrant manager from the same home country as the community they seek to engage. Doing so eliminates language and culture barriers that might otherwise impede growth and builds a bridge of trust between potential employees and the new firm. “Birds of a feather flock together,” Kulchina explains. “A U.S. immigrant to Russia is more likely to trust and produce quality work for a fellow American manager than a Russian manager.”
Most of the time, the benefits of working with immigrant communities far outweigh the necessary investment and sacrifice to hire and support an immigrant manager.
The researchers also acknowledge tradeoffs for independent founders or owners in deciding whom to hire for managerial roles. In most cases, an immigrant manager will face unique challenges by nature of being a nonnative or expatriate. They will likely require additional time and resources to understand the work culture and politics of their new country of residence. On the other hand, an immigrant manager is better equipped to build lasting partnerships with other immigrant businesses and employees, leading to the long-term success of the company. “Most of the time, the benefits of working with immigrant communities far outweigh the necessary investment and sacrifice to hire and support an immigrant manager,” Kulchina says.
Ultimately, while large subsidiaries or corporations can benefit from immigrant contributions regardless of the nationality of their managers, harnessing immigrant labor for smaller organizations will only notably increase profits if the manager reflects the same national and immigrant identity as their employees. “Immigrants are often an overlooked and underreached population in business circles,” Kulchina notes. “Through this work, we hope independent business owners and founders will recognize the value in hiring immigrant employees, opening new doors for both organizations and immigrant communities to thrive.”
Through this work, we hope independent business owners and founders will recognize the value in hiring immigrant employees, opening new doors for both organizations and immigrant communities to thrive.
The paper, “Immigrants and Foreign Firm Performance: Effects on Foreign Subsidiaries Versus Foreign Entrepreneurial Firms,” is published through Duke University’s Innovation and Entrepreneurship Initiative. The paper was co-authored by Exequiel Hernandez of the University of Pennsylvania and Elena Kulchina of North Carolina State University.
—
Note to Editors: The study abstract follows.
“Immigrants and Foreign Firm Performance: Effects on Foreign Subsidiaries Versus Foreign Entrepreneurial Firms”
Authors: Exequiel Hernandez, University of Pennsylvania; and Elena Kulchina, North Carolina State University and Duke University
Published: March 9, 2020, Organization Science
DOI: 10.1287/orsc.2019.1331
Abstract: Studies have demonstrated that foreign firms locate where immigrants from their home countries reside and have suggested that doing so can improve performance. We argue that to properly assess how immigrants impact the performance of co-national firms, research must account for heterogeneity in how independent foreign firms (owned by individual foreigners) versus multinational corporation (MNC) subsidiaries (owned by a foreign corporate parent) benefit from immigrant communities. Independent firms have a greater need for resources from the immigrant community and depend more on their individual managers’ personal connections within the community to obtain such resources. Subsidiaries of MNCs can instead rely on the impersonal organizational resources of their parent firm (e.g., brand, reputation, channels) to access valuable immigrant community resources. Using data on foreign firms in Russia during 2006–2011, we find that immigrants improve the profitability of co-national independent firms only if they are managed by immigrant chief executive officers (CEOs), whereas co-national MNC subsidiaries profit from immigrants regardless of their CEOs’ nationality. Our study suggests that although organizations benefit from the resources of co-national immigrant communities in foreign markets, the means by which they activate them — personal or impersonal — systematically vary across different types of firms.
- Categories:
- Series:
