Migrants are key to international business expansion

Migrant workers bring a wealth of positive economic and business-critical benefits. Jonas Puck offers a ground-breaking piece of research, revealing a more positive account of global migration than what exists already

We live in strongly interconnected and globalised world. We have multilateral investment policies, trade agreements, and distribution routes, to enable the swift exchange of goods and services. We have political unions to encourage and facilitate this trade, as well as to create more consistency in laws. And, most importantly, we have processes to allow people to move between countries with more ease than ever before. It’s because of this ease that international migration has increased by close to 100 million migrants over the last 20 years (from 173 million in 2000 to 272 million in 2020).

One of the most common reasons for migration is the pursuit of new job opportunities. In a world where travel has never been easier, people are more willing to uproot to new countries and regions for better occupational opportunities.

As a consequence of such an increase in migration in recent years, public attention has been focused almost exclusively on ensuring that the labour markets and social security systems of the countries taking in large numbers of migrants are prepared for the influx. While managing migration, and creating an apparatus for successful international immigration, are undoubtedly key global policy challenges, this focus on finding solutions to potential problems has meant that very little, if any, attention has been awarded to the benefits and opportunities migrants bring. In reality, the economic potential for these hosting countries is huge. It’s because of this that I, along with my colleagues Vera Kunczer and Thomas Lindner, undertook research into the relationship between immigration from a particular country to another, and businesses expanding into that country of origin.

International expansion

For many firms, a fundamental facet of their business strategy is international expansion. By targeting new, relatively untapped markets, they are trying to find more favourable conditions than the local markets, which can often be fiercely competitive and overly saturated. However, like families going on holiday abroad, many businesses can struggle to get to grips with local customs and practices, which can be fatal when looking to penetrate a new market. As a result of this, many firms fail when looking to sell their products or services outside of their home country, or at least don’t achieve the return they were hoping for. Migrants from the country that a firm is trying to expand into can fill these knowledge gaps. Offering a comprehensive understanding of the language, economics, culture, political systems, and the business practices of their home countries, migrants can provide invaluable insights to firms looking to expand into new markets. Harnessing migrants’ local knowledge, businesses can adapt their operations to local demands, increasing the likelihood of success.

Inevitably, there are limitations to the impact that migrants can have on firms within their host country. Obsolete information of migrants’ home country, or an inhospitable and volatile environment in said home country, making investment in such a market unachievable, can significantly limit the benefits firms enjoy. Alongside this, if anti-immigrant sentiment is widespread within the host country, decreasing the likelihood that businesses within this nation are prepared to absorb any information offered by migrants, then this too will significantly limit the impact of migrants on firms looking to expand internationally. Consequently, it should be noted that migrants will benefit firms most when that immigrant comes from a politically stable country of origin, and when the country they are emigrating to has a pro-immigration attitude.

Increased investment in commercial operations

In undertaking our research into the perceived benefits migrants can have for firms looking to expand in to that migrant’s country of origin, we hypothesised that: as migration from one country to another increased, we would find that firms within the country hosting these migrants would invest more into commercial operations within the migrants’ home country. If this was found to be true, this would support the claim that migrants carry relevant knowledge and that firms can benefit from this knowledge directly (by employing) the migrants or indirectly (by collecting migrant knowledge via their networks). We undertook our research using companies within Austria – a nation that provides an ideal laboratory due to it receiving a high number of immigrants each year, with 23% of the population being recorded in 2016 to have been born in foreign country. Alongside this, Austria has an incredibly internationalised economy, with approximately 50% of its GDP being generated by business activity abroad. Our research was supported by data from the Austrian Central Bank (Oesterreichische Nationalbank OeNB) and a dataset based on more than 13,000 observations made over a 14-year period.

Using data from the OeNB, we had access to information around Austrian firms’ international operations, including both Austrian-based headquarters, and foreign subsidiaries. For each firm, we investigated the asset levels of their foreign subsidiary, noting the change for each year, and noting the country that the subsidiary was in. Along with this, we noted the migration of people into the different political districts of Austria. From this we found support for our hypothesis, that as more people from a particular country emigrate to specific region, firms from that host region invest more into operations in the migrants’ country of origin.

A positive relationship

With our research results clearly indicating a positive relationship between migration from a particular country, and subsequent investment in that nation, it can be said with confidence that migrant knowledge from the specific market a firm hopes to penetrate can prove incredibly beneficial. The local insights they provide are unparalleled, and immensely challenging to replicate by someone who isn’t from that country. Alongside this, the information that these migrants offer can significantly reduce the risk that comes from investing in a market that a firm knows little about. Because this knowledge gap has been plugged, firms can control investment more efficiently, leading to greater investment in that market over time.

While our research did not look at the success of the foreign subsidiaries of the firms included in our dataset, which would provide the clearest proof of the benefits of migration for local firms when hoping to tap into new markets, our study provides compelling evidence in support of the view that migration can present significant opportunities for firms in countries that experience an influx of migrants. We hope this research does well to help shape business theory and migration policy, offering a more positive account of global migration than what exists already.

Jonas Puck is Professor of International Business at Vienna University of Economics and Business.

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