Entrepreneurs from Low-Skilled Immigrant Groups in Knowledge-intensive Industries – Company Characteristics, Survival and Innovative Performance

Technology entrepreneurship is an important facilitator for the introduction of new products and for the diffusion of innovations throughout the economy. It is therefore an important contributor to long-term growth. For a country to reach its long-term growth potential, it is crucial that members of all population groups have the ability to participate in technology entrepreneurship. In that context, the present paper will take a comparative look at technology entrepreneurs with and without immigrant background. A specific focus is on start-up characteristics, company survival and innovative performance. Immigrant groups whose levels of education have been historically lower than those of natives are significant components of the overall populations of many developed countries. This paper investigates how immigrants from the “recruitment countries” of south and southeast Europe contribute to technology entrepreneurship in Germany. Immigrants from the first and higher generations are considered. Immigrants from recruitment countries are the largest immigrant group in Germany, representing 7% of the population. They came to Germany to work in dependent employment in the industrial sector and had typically a low level of education at the point of arrival in Germany. The present study uses company data from Creditreform, Germany’s largest credit rating agency. The company information was matched with information on patent applications from the European Patent Office. The company owners were identified as immigrants from recruitment countries or natives on the basis of ethnic name-coding performed by the market research company Acxiom. The results show that immigrant entrepreneurs are less than half as likely to found a company in a knowledge-intensive industry as native entrepreneurs. Compared to companies in exclusively native ownership, companies owned exclusively by immigrants have a smaller start-up size and their founders are younger when they start their company. Furthermore, these immigrant companies have a shorter survival span. Once detailed controls for the resources that are available to the company have been included, there is no difference in filing patent applications between these two company types. Partnering between immigrants and natives seems to pay off. Firms in mixed immigrant-native ownership are larger than or as large as firms owned exclusively by natives, and their survival rates in the manufacturing sector are comparable to those of companies owned exclusively by natives. The lower participation of immigrant entrepreneurs in knowledge-intensive industries can be explained by lower education levels. In order for Germany to reach its full potential in the area of technological innovation, it is important that more immigrant entrepreneurs become active in knowledge-intensive industries. The most important implication for public policy is therefore the necessity to improve the education of second- and third-generation immigrants in Germany. The smaller size of firms exclusively in immigrant ownership calls for an investigation into whether immigrants face specific problems with regard to access to capital.

Müller, Elisabeth (2011), Entrepreneurs from Low-Skilled Immigrant Groups in Knowledge-intensive Industries – Company Characteristics, Survival and Innovative Performance, ZEW Discussion Paper No. 11-030, Mannheim, published in: Small Business Economics.