The Power of Human Migration and innovation in the 21st Century

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

 

BOSTON, United States – 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, experiencesand 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 $3.8bnof 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 numberone 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 theInterswitch 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. https://www.bcg.com/publications/2021/how-global-migration-drives-innovation