Transnational Entrepreneurship & Transnational Entrepreneurship & Informal NetworksInformal Networks

Structural holes and Return Migration in Structural holes and Return Migration in ChinaChina

16th International Metropolis Conference 16th International Metropolis Conference

12 - 16 September 2011 The Azores, Portugal12 - 16 September 2011 The Azores, Portugal

ByBy

Israel Drori Israel Drori (College of Management, School of (College of Management, School of Business, Israel)Business, Israel), , Benson Honig Benson Honig (McMaster (McMaster

University DeGroote School of Business)University DeGroote School of Business), Yuval , Yuval Kalish Kalish ((Tel Aviv University, Recanati Business School, Tel Aviv University, Recanati Business School, Israel)Israel), Xiaohua Lin, Xiaohua Lin ((Ryerson University, Ted Rogers Ryerson University, Ted Rogers School of Business, Toronto, Canada)School of Business, Toronto, Canada) – presented by – presented by Leo Paul Dana, Leo Paul Dana, (Canterbury University, Department (Canterbury University, Department

of Management, Christchurch, New Zealand)of Management, Christchurch, New Zealand) & & Shahamak RezaeiShahamak Rezaei

(Department of Society & Globalisation , Roskilde (Department of Society & Globalisation , Roskilde University, Denmark)University, Denmark)

Transnational Transnational Entrepreneurship (TE)Entrepreneurship (TE)

The process of TE involves the entrepreneurial The process of TE involves the entrepreneurial activities that are carried out in a cross-national activities that are carried out in a cross-national context and initiated by actors who are context and initiated by actors who are embedded in at least two different social and embedded in at least two different social and economic arenas. economic arenas.

By traveling both physically, and virtually, By traveling both physically, and virtually, transnational entrepreneurs engage transnational entrepreneurs engage simultaneously in two or more socially simultaneously in two or more socially embedded environments, allowing them to embedded environments, allowing them to maintain critical global relations that enhance maintain critical global relations that enhance their ability to creatively, and logistically their ability to creatively, and logistically maximize their resource base.maximize their resource base.

Information circulates to a high velocity Information circulates to a high velocity within these clusters within these clusters (by referring to Grannovetter’s (by referring to Grannovetter’s strong ties discussion)strong ties discussion).. Each person tends to Each person tends to know what the other people know. know what the other people know. Therefore, and this is the insight of the Therefore, and this is the insight of the argument, the spread of information and argument, the spread of information and new ideas and opportunities must come new ideas and opportunities must come through weak ties that connect people in through weak ties that connect people in separate clusters… Hence the strength of separate clusters… Hence the strength of weak ties. Weak ties are essential to the weak ties. Weak ties are essential to the flow of information that integrates flow of information that integrates otherwise disconnected social clusters into otherwise disconnected social clusters into a broader society. a broader society. Burt, R. (in Nohria & Eccles 1992, p. 72)Burt, R. (in Nohria & Eccles 1992, p. 72)

Mark Granovetter (1973) argued that the presence of weak ties in social networks were important aspects of social structure through which novelty is likely to flow, such as information important for finding a new job. Burt (1992) took Granovetter's argument a step further with the concept of "structural holes." Structural holes can be found in the vicinity of nodes with high betweenness centrality that mediate connections between two or more otherwise isolated cliques. In contrast to Coleman's view of social capital inherent in closed, Burt argued, and empirically demonstrated, that open networks connected via bridges across structural holes carried more consistent social benefits.

In the case of Chinese TEs, we focus primarily on the importance of In the case of Chinese TEs, we focus primarily on the importance of national diversity in providing unique sources of information. Stated national diversity in providing unique sources of information. Stated as an hypothesis:as an hypothesis:

H1: The greater the diversity of nationality in H1: The greater the diversity of nationality in a TE network – the higher the growth rate. a TE network – the higher the growth rate.

H2: The more homogeneous the residence of H2: The more homogeneous the residence of a Chinese TE’s network, the higher the a Chinese TE’s network, the higher the growth rate.growth rate.

H3: The more homogeneous the relational H3: The more homogeneous the relational range of a Chinese TEs network, the higher range of a Chinese TEs network, the higher the growth rate. the growth rate.

H4: The more homogeneous the occupational H4: The more homogeneous the occupational range of a Chinese TEs network, the higher range of a Chinese TEs network, the higher the growth rate. the growth rate.

Research Context and MethodsResearch Context and Methods

The incubator we studied is called Zhongguancun The incubator we studied is called Zhongguancun Science Park (hereafter Zhongguancun) and consists of Science Park (hereafter Zhongguancun) and consists of approximately 200 firms located in and around the approximately 200 firms located in and around the Beijing geographical environs. Zhongguancun is China's Beijing geographical environs. Zhongguancun is China's first high-tech park established in 1988 as an first high-tech park established in 1988 as an institutional innovation to better link research and the institutional innovation to better link research and the economy, and remains the country's most talent-economy, and remains the country's most talent-intensive incubator today. Often dubbed as "China's intensive incubator today. Often dubbed as "China's Silicon Valley", it is home to China's two most Silicon Valley", it is home to China's two most prestigious universities, Tsinghua University and Peking prestigious universities, Tsinghua University and Peking University, along with some 60 institutions of higher University, along with some 60 institutions of higher education and more than 200 research institutes education and more than 200 research institutes affiliated with the Chinese Academy of Sciences, various affiliated with the Chinese Academy of Sciences, various ministries, and the Beijing municipality. ministries, and the Beijing municipality.

Research Context and MethodsResearch Context and Methods Examining the social network of TEs is difficult, as unlike ethnic Examining the social network of TEs is difficult, as unlike ethnic

enclaves, TEs are typically disbursed throughout the geographical and enclaves, TEs are typically disbursed throughout the geographical and industrial landscape, providing a difficult population to identify and industrial landscape, providing a difficult population to identify and study.study.

The network data was interpreted using the Blau index of diversity The network data was interpreted using the Blau index of diversity (Blau, 1977). This index is often used to measure the level of diversity (Blau, 1977). This index is often used to measure the level of diversity when categorical data is used. The index is calculated aswhen categorical data is used. The index is calculated as

Where Where pp is the proportion of individuals in each category is the proportion of individuals in each category i,i, and and n n is the is the number of categories. The Blau index (also called Hirschman-Herfindahl number of categories. The Blau index (also called Hirschman-Herfindahl index in economics) has a theoretical range of 0 to 1, with 0 indicating index in economics) has a theoretical range of 0 to 1, with 0 indicating perfect homogeneity, and 1 indicating perfect heterogeneity. perfect homogeneity, and 1 indicating perfect heterogeneity. Empirically, the Blau index of diversity depends on the number of Empirically, the Blau index of diversity depends on the number of categories, categories, nn. The more categories there are, the larger the maximal . The more categories there are, the larger the maximal size of the Blau index. size of the Blau index.

The Blau index of diversity was calculated for each respondent by The Blau index of diversity was calculated for each respondent by examining the proportions of alters in their egocentric network that fit examining the proportions of alters in their egocentric network that fit into each category. If, for example, a respondent had 5 contacts in their into each category. If, for example, a respondent had 5 contacts in their network, 3 of them were Chinese and 2 foreigners, her Blau index for network, 3 of them were Chinese and 2 foreigners, her Blau index for diversity of nationality would be 1-[(0.6)diversity of nationality would be 1-[(0.6)22+(0.4)+(0.4)22]=.48. ]=.48.

The coefficient for diversity of the residence of social The coefficient for diversity of the residence of social network is - .61, indicating that, indeed, a more diverse network is - .61, indicating that, indeed, a more diverse residence network slows growth of our Chinese residence network slows growth of our Chinese entrepreneurs. In short, they require a social network in entrepreneurs. In short, they require a social network in close proximity to their operations – cross national close proximity to their operations – cross national networks are of less help. H2 is supported. Finally, H3 networks are of less help. H2 is supported. Finally, H3 predicted that Chinese TEs would require a predicted that Chinese TEs would require a homogenous relational network – that is – they would homogenous relational network – that is – they would benefit most from social networks of similar benefit most from social networks of similar backgrounds, such as primarily family members. The backgrounds, such as primarily family members. The coefficient for diversity of relations was not statistically coefficient for diversity of relations was not statistically significant, and so we reject H3. Finally, H4 predicted significant, and so we reject H3. Finally, H4 predicted that Chinese TEs with a homogenous occupational that Chinese TEs with a homogenous occupational range would have higher growth rates. The coefficient range would have higher growth rates. The coefficient for this variable was -.45 and statistically significant, for this variable was -.45 and statistically significant, indicating that social networks with similar background indicating that social networks with similar background have faster growth rates. Thus, H4 was upheld.have faster growth rates. Thus, H4 was upheld.

Our findings regarding TEs in China demonstrated that Our findings regarding TEs in China demonstrated that firms were advantaged through national diversity, firms were advantaged through national diversity, confirming other research in the importance of confirming other research in the importance of overseas networks in enhancing transnational activity. overseas networks in enhancing transnational activity. It would seem that the Chinese government is wise in It would seem that the Chinese government is wise in their policies to encourage and even partially subsidize their policies to encourage and even partially subsidize return migration, something recently adopted by a return migration, something recently adopted by a range of countries including Israel, Ireland, Taiwan. range of countries including Israel, Ireland, Taiwan. Overseas networks clearly provide unique non-Overseas networks clearly provide unique non-redundant or otherwise valuable resources that redundant or otherwise valuable resources that enhance organizational growth and efficiency. enhance organizational growth and efficiency.

However, our findings regarding the character However, our findings regarding the character and relationships to structural holes differed and relationships to structural holes differed considerably in this study from conventional network considerably in this study from conventional network evidence. In contrast to national networks, our findings evidence. In contrast to national networks, our findings were that organizational homogeneity provided were that organizational homogeneity provided advantages within the Chinese environment. advantages within the Chinese environment.

From a theoretical perspective, this study adds From a theoretical perspective, this study adds to our knowledge of structural hole theory by to our knowledge of structural hole theory by identifying conditions under which legitimacy identifying conditions under which legitimacy and reciprocity contextually moderate efficiency and reciprocity contextually moderate efficiency outcomes, providing an alternative narrative to outcomes, providing an alternative narrative to the way networks develop and organizations the way networks develop and organizations behave. We show how Chinese TEs integrate behave. We show how Chinese TEs integrate both rational and emotional aspects of both rational and emotional aspects of organizational life, finding a way to adapt both organizational life, finding a way to adapt both the logic of global capitalism to the tradition of the logic of global capitalism to the tradition of nuanced reciprocity and social relations. Such a nuanced reciprocity and social relations. Such a finding has important implications for TE finding has important implications for TE promotion not only in China, but also in Western promotion not only in China, but also in Western economies increasingly reliant upon effective economies increasingly reliant upon effective trans-national exchange. trans-national exchange.

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Thanks for your attention.Thanks for your attention.

SHRE@RUC.DKSHRE@RUC.DK