(Illustration by Lisk Feng)
I know you expect me to say come home,” Zambia’s then president Levy Mwanawasa said to Zambian diasporans during his trip to the United States in 2004. “I am not going to do that. I have no jobs to give you. Work here and send money home.” 1 More recently, U.S. News & World Report ran the headline “Sub-Saharan Africa Bleeds Skilled Labor as ‘Brain Drain’ Continues” in an article about some African nations’ inability to retain skilled labor. Does the future of developing economies depend on a simple tradeoff between remittances and brain drain? Or is there an alternative path where migrants can return home—even temporarily—to create new opportunities for economic growth?
While studying at Northwestern University, Francis Laurel, a member of a prominent political family in the Philippines, became close friends with Tadahiro Yoshida, whose father owned a zipper company in Japan. A few years after receiving their MBAs, they launched what is now the YKK Fastening Products Group, with operations in Japan and the Philippines. When the pair started in 1977, the Philippines was not a major destination for global manufacturers. Without the personal connection formed in graduate school, Yoshida probably would not have chosen to invest in the Philippines, and without Laurel’s personal and political connections in the Philippines, it is unlikely that the venture would have survived. Today, it can be hard to find a product with a zipper made by anybody else. As the global stock of migrants continues to expand, and as overseas investment by multinational firms becomes ever more central to the global economy, migrant collaboration and entrepreneurship has become the story of how global business is done.
Our research confirms that diasporans—migrants and their descendants who sustain a connection to their home country—can operate as transnational brokers with a distinct advantage: They can act as trusted intermediaries who broker relationships between their home countries and their countries of residence, connecting people and integrating resources and institutions from both places. Diasporans’ transnational brokerage works from the inside out—such as facilitating government-led institutional reform in their countries of origin by connecting officials to overseas resources, including technical expertise—as well as from the outside in, such as by enabling multinational firms to invest in diasporans’ home countries.
Discussions of the migration crises in Europe and the United States have focused on the short-term difficulties of settling and integrating migrants into their new countries of residence. But new research focusing primarily on those who elect to migrate—as opposed to those who are forced to flee their home country—continues to reveal surprising benefits from migration for both the home countries and the new countries of residence. Research findings even suggest that migrants compelled to leave because of political conflict or unrest can eventually generate such benefits. As countries like Syria, Libya, and Venezuela seek to rebuild their economies and political institutions in the wake of violence and political instability, migrants may represent their home country’s greatest resource. And as some of these migrants opt to forge new connections between their countries of origin and their new ones, these diasporans can provide opportunities for firms and other stakeholders in their countries of residence as well.
Transnational Brokers
Jennifer M. Brinkerhoff (this article’s coauthor) set out to investigate how individual diasporans, rather than large diaspora groups, could have a profound and lasting influence in their countries of origin, specifically by catalyzing institutional reforms, or changes to the ways that governments or economies work. She investigated reform efforts involving diasporans in Egypt, Ethiopia, and Chad, having followed some of these individuals for up to 15 years. Benjamin A. T. Graham (this article’s other coauthor) has conducted similar research focused on the role of diasporans in multinational firms. His teams interviewed the managers of over 400 multinational firms in the Philippines and the country of Georgia, allowing him to compare the firms that diasporans own and manage with foreign firms that lack diaspora connections. Together, here is what we found.
Diasporans are powerful actors in the global economy. As they navigate life between two countries, they establish personal relationships in each place. Living in multiple countries shapes their language skills, their cultural fluency, their awareness of possibility, and, most important, their social ties. This is what Brinkerhoff has termed the “in-between advantage,” which develops through diasporans’ experience identifying with and understanding both the home country and the country of residence, and their related ability to access people, resources, and institutions in both places.2 These advantages accrue not only to first-generation migrants who become diasporans, but also to their children and grandchildren who retain strong ties to the home country.
There is reason to expect that those who elect to migrate are on average more entrepreneurial than the rest of us. They tend to be curious, ambitious, and tolerant of (if not enthusiastic for) ambiguity, challenge, and risk. For example, Djimé Adoum, born in Chad, demonstrated leadership, confidence, curiosity, and courage at a young age, which led his father to designate him as the one child from the family to leave Koranic school and attend a newly opened local French school. Referring to this new kind of schooling, his father told him, “Take it all the way and see what is in it for you.” Adoum did, eventually earning a PhD in agricultural economics from the University of Maryland. Believing in his potential to effect economic and political change in his home country and in Africa more broadly, Adoum later left his successful career at the US Department of Agriculture to become the Chadian minister of agriculture and irrigation.
The migration experience may also foster entrepreneurial behavior as migrants’ progress in the country of residence builds their confidence and their belief that they can change the world around them. Ethiopian-born Henok Assefa did not imagine he might one day lead a national institution in his home country. But his work for the Brooklyn Chamber of Commerce helped him develop both the confidence and the expertise to become the deputy secretary general of the Ethiopia Chamber of Commerce and eventually launch the Addis Ababa-based company Precise Consult International.
Most innovation occurs at the fringes of established power structures. Being on the fringe means that entrepreneurs can develop their innovation without appearing to threaten those structures. Diasporans can conform with or deviate from expected behavior, depending on which strategy supports their innovation. This is another element of the in-between advantage: When diasporans introduce a new way of doing things, it is less jarring than it might be coming from anyone else. Locals perceive them as compatriots but at the same time accept that they are different, owing to their experience abroad.
In her work to promote faith-based development in Egypt, US-based Egyptian diasporan and engineer Nermien Riad uses her Egyptian social ties and cultural identity to access the Coptic Orthodox Church leadership, including Pope Tawadros II, and Egyptian business leaders. She can elicit their support for her work with Coptic orphans, to recruit church volunteers, and, in the case of business leaders, to secure funding for her programs. Due to local cultural and religious norms, a nondiasporan Egyptian woman, by contrast, might not dare to ask for such audiences and support, or might be discouraged from doing so.
Riad can also hedge her US and Egyptian identities to maintain good relationships even as she denies local requests. When she is asked to do things beyond her organization’s mission and strategy, she can respond with a locally accepted noncommittal phrase, “Insha’Allah” (God willing). By deferring to her shared faith with local counterparts, she can dodge such questions as not hers to answer. Riad can selectively engage her Egyptian and foreign identities to navigate social and political opportunities and obstacles.
Diasporans’ unique abilities are also rooted in their social ties. Decades of social network analysis have illustrated the power that accrues to individuals who are positioned to connect two communities that are otherwise mostly unconnected. Diasporans often occupy space between distinct social groups. According to sociologist Ronald Burt, individuals who fill these “structural holes” have “an opportunity to broker the flow of information between people, and control the projects that bring together people from opposite sides of the hole.” Scholars studying social networks also distinguish between strong ties and weak ties. Strong ties are valuable because they are characterized by high trust and can be used to sanction behavior, while weak ties are valuable because they connect people to others who are different from themselves, allowing for learning, gathering information, and identifying new opportunities.
When Georg Baratashvili cofounded an aluminum recycling business in Tbilisi, the capital of his native Georgia, he did so with a Swedish business partner he met while living in Sweden.3 During his time abroad, Baratashvili developed a deep knowledge of the Swedish recycled metals market and formed long-term relationships with friends and coworkers. He was then able to serve as a broker connecting his Swedish network, including his business partner and the customers to whom they sold the recycled aluminum, to his Georgian network, including key employees in the recycling plant and local suppliers of scrap aluminum. Migration enabled Baratashvili to form high-trust ties through his long-term relationships with friends and coworkers in two countries and seize a business opportunity that others could not even see, much less capitalize on.
Not all diasporans possess the traits, skills, and networks to serve as transnational brokers. We are specifically talking about migrants and descendants of migrants who have chosen to develop and retain strong social ties in both their home country and their country of residence. When we consider transnational brokers as potential leaders in business, multinational firms, and government innovation, we are usually describing educated and relatively wealthy diasporans.
However, migration itself is a powerful tool for upward mobility. Even the most destitute refugees can rise into elite circles in the country of residence, gaining expertise and valuable social ties. For example, many diasporan business entrepreneurs who returned to Ethiopia originally emigrated as refugees from the Derg regime (1974-1987). Among the Lost Boys of Sudan—the thousands of boys from South Sudanese ethnic groups displaced during the Second Sudanese Civil War (1983-2005)—a handful went on to earn graduate degrees and rise to leadership positions in government, firms, and nonprofits. Among them, Gai Nyok earned a master’s degree in economics at the University of Illinois and became a foreign service officer in the US State Department; Biar Atem became a manager at the Venetian in Las Vegas and founder of the South Sudan Center of America.
Developing Economies
In the field of foreign aid, research suggests that development projects are more effective when they are country-led and locally owned. However, economic development usually requires both funding and technical expertise from abroad, and donors can quickly end up in control. Diasporans from developing countries are often well positioned to play an intermediary role, managing the relationships between developing-country governments and citizens on the one hand, and foreign donors and experts on the other. The founding of the Ethiopia Commodity Exchange (ECX) illustrates how diasporans can use their in-between advantage to manage conflicting pressures, enabling both foreign expertise and local control.
ECX officially opened its doors in April 2008 with the goal of reducing the risk, inefficiency, and high transaction costs associated with African agricultural markets. It connects buyers and suppliers, develops and implements grades and standards to improve the quality and reliability in the goods transacted, and provides the necessary information for those parties to more efficiently agree to prices.
ECX resulted from combining the initiative of policy champions within the Ethiopian government who were searching for market solutions and Eleni Zaude Gabre-Madhin, an Ethiopian diasporan with a decade of policy and research work in the field, mostly at the International Food Policy Research Institute (IFPRI). The then prime minister’s chief economic advisor, Newai Gebre, came upon Gabre-Madhin’s writings in 2000 and invited her to speak to government officials. She brought “an unusual mix of local and global knowledge put together,” according to Ishac Diwan, then the World Bank country director. “Understanding the place maybe gave her more ease in being convincing.” On behalf of the prime minister, Gebre requested IFPRI’s support for market reform, and specifically the temporary assignment of Gabre-Madhin to the Ethiopian government.
Through her education and exposure to markets while living in Europe and the United States, Gabre-Madhin learned how to examine market operations, identify constraints, and rectify those constraints by addressing information asymmetries. She had a culturally informed understanding of the commodities trade in Ethiopia and an international and comparative understanding of other experiences. This knowledge enabled her to perceive and assess the feasibility of a broad range of institutional alternatives. Despite many infrastructural challenges, she had confidence that ECX could be established with the help of international—primarily diasporan—expertise and Western management styles.
As a diasporan, Gabre-Madhin had the necessary social ties to broker the relationships between the Ethiopian government and foreign donors and was able to persuade each side to buy into a joint process. In the planning stages of ECX, she utilized international expertise beyond her own through IFPRI. At the execution stage, she was able to recruit top international experts in part due to her Ethiopian diasporan identity—she showed deep commitment to Ethiopia, enthusiasm for the enterprise, and confidence that she could make it work.
The diaspora staff shared the vision of what ECX could do for Ethiopia. Underlying this vision was a visceral sense, from their own experience, that things could be different in Ethiopia and that there was no reason why Ethiopians should not benefit from the same institutional options that existed in their countries of residence. Given the challenges of institutional reform, the long hours, the setbacks, and even hostility encountered along the way, professional ambition alone would not likely have been enough. As Gabre-Madhin told the prime minister, when diasporans undertake a project in the home country, “you get more than just a set of skills. You get the heart.” Local Ethiopians expressed appreciation for the way these diasporans could perceive opportunities differently and for the advantages that ensued from this vision. According to Abdullah Bagersh, general manager of the ECX exporter S. A. Bagersh PLC, “They could see things in a fresh light, rather than have someone who has already seen things the way they were. It was required that actually there be a view not tainted by the old system to be able to push something through.”
By the time Gabre-Madhin and the diaspora team stepped down in July 2012, ECX had traded 608,000 tons of commodities valued at more than $1.5 billion, and the trading system linked 2.4 million farmers. In March 2018 alone, ECX traded 36,302 tons of coffee, 29,215 tons of sesame, 4,175 tons of white pea bean, and 2,467 tons of green mung bean, altogether valued at over $130 million. In addition, with significant exports to Kenya, it is supporting trade and integration for the Common Market for Eastern and Southern Africa.
ECX illustrates a much broader phenomenon of diasporans returning to government service and government collaboration in their home country. In developing countries, it is quite common for government officials, particularly in technical ministries like finance, to hold degrees from overseas and have significant overseas work experience. These backgrounds not only provide technical expertise but also embed leaders in global networks of personal and professional relationships. The ideas that flow through these networks are not just about economics or health or technology; they are also about how government can and should function.
Modernizing Business
As leaders and entrepreneurs, diasporans can collectively reshape entire sectors and markets. When Indian software engineers who trained in Silicon Valley returned to Bangalore and other cities in the 1990s, they launched the Indian IT boom. They also reshaped economic policy through both direct advocacy and more subtle, indirect influences on elite preferences. Unlike nondiasporan foreign investors, India’s diasporan entrepreneurs were socially embedded in India and thereby had greater sway.
The Ethiopian case is worth returning to, because it demonstrates the transformative potential of diaspora-founded new businesses across different sectors. Through their investments, Ethiopian diasporans have introduced new products and services, and new business practices—emphasizing customer service and demand-driven business development—that have produced sector-wide effects. Returned diasporan entrepreneurs have fostered pride and hope for Ethiopia and its economic future. Henok Assefa, founder of Precise Consult International, calls this “the back with the future effect.” These diaspora entrepreneurs know firsthand what development success looks like. In considering innovation, as Assefa puts it, “when people here are trying to figure out where to go next, we know where to go next.”
Many diasporans find that the knowledge and skills they obtain in their time abroad are most valuable back in their home country, where such capabilities and ideas tend to be scarcer. As Ernst & Young Ethiopia partner Zemedeneh Negatu notes, “Harvard MBAs are a dime a dozen” in the United States. Returned diaspora entrepreneur Yusuf Reja, founder of the human resources firm Info Mind Solutions, uses this argument to recruit people to Ethiopia-based jobs: “I think their impact will be felt more here. They’re swallowed in the larger sense in the West. They do contribute, but their contribution may not be felt by themselves or by others. But here, it’s right in their face.” When they innovate in their home country, diasporans introduce ideas that create a ripple effect, transforming entire sectors, and eventually changing attitudes and behavior.
Diasporan-led innovations are sometimes simply arbitrage—bringing ideas from one market to another—but more often they are hybrids that combine ideas from across borders. For example, Ethiopian-born Ermyas Amelga, who earned degrees in finance from Boston University and worked on Wall Street, founded Zemen Bank after returning to Ethiopia and having a negative banking experience there. Ethiopian banks had poor customer service and no checking accounts, and they required all loans be collateral-based. “I didn’t reinvent the wheel,” Amelga says. “I just looked at what a bank should be, and I said, okay, this is what we’re going to do in Ethiopia.”
Zemen Bank is proudly Ethiopian, but modern technology and Western influences underscore every aspect of Zemen Bank’s design. To recruit founding shareholders, Zemen hired and trained a team of 40 salespeople who worked on commission, used telemarketing (a first for Ethiopia), and delivered a series of sales presentations, each attended by more than 1,000 potential investors. On the information technology side, Zemen relies on ATMs, SMS banking, a call center, and an automated phone-menu banking system.4 According to Ermias Eshetu, returned diasporan and Zemen’s former vice president for marketing, they advertised as “the sleepless bank,” where customers could access services through diverse channels 24 hours a day. Zemen also introduced merit-based lending based on the viability of a project, enabling borrowers without collateral to access financing.
Before any of these innovations could be realized, the bank needed to convince the government of its vision. Licenses and clearances had to be obtained from a number of government agencies, most importantly the National Bank of Ethiopia, which eventually came to champion Zemen’s efforts, according to Eshetu. “They knew that [it was] the only competitive way to forge ahead in the financial sector, to have a stronger financial sector base, to open up the financial sector sometime in the future,” he says. Reflecting the success of this collaborative approach, the National Bank of Ethiopia also introduced its own automated distribution system for all banks.
In addition to its own success—profitable by the third quarter of its operation with a doubling of profit in the second year to 121 million birr (more than $13.6 million)—Zemen’s business model transformed the banking sector of Ethiopia. Other banks followed Zemen’s lead, expanding their hours of operation, reducing customer wait time, and introducing and expanding automated services. Eshetu confirms that, fulfilling its vision, Zemen “brought a real dynamism to the financial sector.”
Strengthening Multinational Firms
For multinational firms, doing business overseas, especially in developing countries, presents a number of challenges, including cultural differences; language barriers; and unfamiliar institutions, laws, and regulations. Even the world’s most sophisticated firms crash and burn in the face of these obstacles—see Uber’s retreat from Southeast Asia, or Walmart’s and Ford’s recent exits from Brazil. Diasporans can offer solutions to these challenges by using their unique social ties to connect the firms they own and manage to valuable social networks in their home country.
Social ties are profoundly important in business, particularly in countries with weak formal institutions. Where courts and bureaucracies are weak, relationships play a larger role in both business and politics. Government permits, for example, may be best secured on the golf course; or the only supplier you can rely on to uphold a contract may be the one owned by your manager’s cousin. Multinational firms often turn to diasporans to connect them to the social networks they need to thrive in these contexts. For instance, when Apple needed a new leader for its Chinese operations in 2017, it promoted Isabel Ge Mahe, who emigrated from China at age 16 and had been working for Apple in Cupertino, California, since 2008.
In his book Investing in the Homeland Graham shows that for diaspora-affiliated firms—companies that are owned or managed by diasporans—social ties are key strategic assets.5 Such firms report having more and stronger social ties than other foreign firms, including ties to counterparts at other firms as well as ties to government officials. Diaspora-affiliated firms are also more likely than other foreign firms to use their social ties to influence government policy and to resolve disputes with business counterparts outside of the court system. This strategy is effective: Diaspora-affiliated firms are more than twice as likely to report success in influencing government policy in the investment host country.
Firms understand the challenges of operating in emerging markets without the right social ties; almost all foreign firms hire local managers to handle at least some aspect of their local operations. However, even though almost all the firms Graham studied employed local managers, they still couldn’t use social ties as effectively as their diaspora-affiliated competitors. This is because local managers haven’t had the same opportunities to form close ties to counterparts in the firm headquarters or even to gain fluency in the culture of the headquarter’s country, despite their strong ties to business leaders and politicians in the investment host country. A local fixer you can’t trust is one you can’t use.
The Diaspora Advantage
Our argument is an optimistic one. New research has established diasporans’ potential as transformative players on the global stage. As institutional entrepreneurs and private business entrepreneurs, they play a pivotal role in marrying global knowledge with local context, reshaping political landscapes as well as economies. As owners and managers of multinational firms, they serve as transnational brokers, enhancing firm capabilities and taming challenging business climates. The business community has long recognized the value of social ties in business, particularly in developing countries. What has not been established empirically until Graham’s recent work is that diaspora-affiliated firms enjoy large advantages over firms that hire local managers but have no diaspora connections. Diasporans’ in-between advantage is hard to replace. The power and potential of diasporans suggests that there is more to be done by governments, firms, and nonprofits to harness diaspora capabilities for both profit and social good.
The potential role of diasporans as transnational brokers for institutional reform and private business development affords opportunities for the donor community and home country governments alike. Several experiments are underway and with promising results. The International diaspora Engagement Alliance (IdEA) is a public-private partnership designed to facilitate cross-sector collaborations for social and economic development in diasporans’ countries of origin. Founded in 2011, it is a partnership between the US State Department’s Global Partnership Initiative and the US Agency for International Development, and the Calvert Foundation, which implements related diaspora partnership programming. In addition to building the capacity of diasporans to contribute meaningfully to their countries of origin, IdEA facilitates specific public-private partnerships targeted to countries, regions, and/or products. For example, IdEA collaborates with Fish 2.0, a business competition that connects fishing, aquaculture, and mariculture entrepreneurs with potential investors and advisors. The collaboration especially seeks diasporan investors and advisors, since they may be well positioned to advocate for sustainable seafood practices both in their countries of origin and in their home countries.
Many developing countries work hard to increase the economic participation of diasporans. Our argument suggests that targeting investment promotion efforts to the diaspora is efficient because diasporans’ social-tie-based capabilities are country specific. A member of the Filipino diaspora confers advantages on the firm he manages that are specific to the Philippines, which provide much less value to the firm if it invests in Malaysia or Thailand instead. Thus, when the Philippines government seeks to recruit investment from diaspora-affiliated firms, it does so with a built-in advantage over other countries competing for the same investment.
This new research invites multinational firms to do several things. Firms can begin by assessing their diaspora-based capabilities relative to their competitors. What diasporans do they currently employ, and how well are they making use of the transnational brokerage capabilities those diasporans possess? Second, firms can develop strategies to enhance their diaspora-based capabilities, including by hiring and promoting diaspora managers. Lastly, firms can use knowledge of their current diaspora-based capabilities to guide strategic decisions, especially location choices for new investments.
Firms face strong competitive pressures, and knowledge about effective use of diasporans’ capabilities is already diffusing quickly. Indeed, many firms go so far as to “create” diaspora managers through a process called inpatriate management, in which multinational firms transfer local managers to positions in the headquarter’s country. In doing so, multinational firms induce migration and create diasporans. After some period of time spent working in the headquarter’s country, inpatriate managers often return to positions working in their home country, having transformed themselves from local managers into diaspora managers. As firms make increasing use of diasporans’ capabilities, it not only creates new profit opportunities for firms but also deepens the economic interdependence between migrant-sending and migrant-receiving countries.
Migrant-receiving countries are currently the sites of immigration policy debates that will determine the number of diasporans available to fill these brokerage roles in the decades to come. The global stock of migrants—which has steadily increased in recent decades—is limited primarily by the restrictions that receiving countries impose on immigration. Thus, current debates in the United States and the European Union, as well as regional destination countries such as Chile and Botswana, shape not only what their domestic economies will look like, but also the depth and speed of global economic integration. More migration today generates a larger stock of potential transnational brokers in the future.
Political opposition to immigration is usually predicated on feared changes to the labor markets and cultures of migrant-receiving countries. Nonetheless, the evidence we present points to enormous global welfare benefits that can be realized if these concerns are addressed effectively. Many of these benefits accrue to diasporans and their home countries in the form of increased wages and opportunities for the diasporans, and remittances, investment, and the diffusion of knowledge into their respective home countries. However, when diasporans facilitate successful investments by multinationals into their home countries, the multinational firms benefit as well, generating profits and employment back in the diasporans’ country of residence.
When foreign governments seek technical expertise and leaders who can adapt global best practices to the local environment, or entrepreneurs and managers capable of thriving in the face of difficult local conditions, diasporans may often be the candidates of choice. Perhaps the next time an African head of state meets with his diaspora in the United States, he might consider asking, “Who do you know, what do you know, and how can you help?”.
This article appeared in the Fall 2019 issue of the magazine with the headline: "Mobile Innovators"
Read more stories by Jennifer Brinkerhoff & Benjamin A.T. Graham.