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Module Structure

Description of the Module

Items Description of the Module

Subject Name Sociology

Paper Name Sociology of the Indian Diaspora

Module Name/Title Entrepreneurship in the Indian Diaspora

Module Id

Pre Requisites Familiarity with concepts of Diaspora and Entrepreneurship .

Objectives Objectives of the module are to answer the following questions:

• How to define Diaspora Entrepreneurship?

• What are the major classifications of Diaspora Entrepreneurship?

• How are Diaspora Entrepreneurs different from other entrepreneurs?

• What is the investment environment that Government of

Role Name Affiliation

National Coordinator

Subject Coordinator Prof Sujata Patel Department of Sociology,

University of Hyderabad

Paper Coordinator Prof. Kamala Ganesh Formerly Dept. of Sociology, University of Mumbai

Content Writer Rakesh Ranjan Research Scholar, Centre for the Study of Social Systems, Jawaharlal Nehru University

Content Reviewer Prof. Kamala Ganesh Formerly Dept. of Sociology, University of Mumbai

Language Editor Prof. Kamala Ganesh Formerly Dept. of Sociology, University of Mumbai

Technical Conversion

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India offers for its Diasporas?

• Which are the major legislative institutions established by the Indian government to promote Diaspora Entrepreneurship?

• What is the linkage between Return Migrants and Diaspora Entrepreneurship.

Key words Diaspora Entrepreneurship, Ethnic Markets, Diaspora Engagement, Diaspora and Homeland Development, Cultural Embeddedness

Entrepreneurship in the Indian Diaspora

Section V Module 4

QUADRANT I

1. INTRODUCTION

Ethnic and social networks can be seen as one of the important instruments of nations in the promotion of international trade. Familiarity that is available through ethnic and social networks helps to overcome weaknesses in the information and contracting environment (Curtin 1984). Robin Cohen (1997: 84) in his book ‘Global Diasporas: An Introduction’ definesthe trade diaspora as an important type of diaspora with examples of Chinese traders in European colonies of South-East Asia and the Lebanese in the Caribbean and East Africa. Cohen introduced the idea of diaspora as a continuous state of formation and reformation (Cohen, 1997:15). A more recent study by Baghdiantz-McCabe et al. (2005) explores the role of ‘diaspora entrepreneurial networks’- merchant families and their extended regional networks with others of the same ethnic origin- focussing particularly on Armenians, Jews, Greeks and Indians. This process of formation of diaspora business networks, popularly known as trade diaspora continued in its mercantile style till the early twentieth century, but their diasporic role was not considered seriously by any nation state.

Over the last three decades,diaspora entrepreneurship has gained visibility. Globalization has enhanced the practical, economic and affective role of diasporas, showing them to be an adaptive form of social organization. In recent years due to the impact of globalization there is a growing evidence of diaspora entrepreneurship in India. With the extension of transnational networks, diaspora affiliation towards the homecountry started becoming more close, especially with the regulatory changes in Indian government’s foreign investment policies. Post 1990, liberalization created an environment for diaspora entrepreneurship especially in the service sector such as Information Technology, Education, Infrastructure and Healthcare. Recent research suggests that expatriate communities (both those living abroad and those who have returned) are playing an important role in increasing bilateral trade between their country of origin and the country in which they are based.

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2. DEFINING DIASPORA BUSINESS AND ENTREPRENEURSHIP

Diaspora entrepreneurship refers to the development of businesses by immigrants who are in a position to take advantage of diaspora policies and organizations established by countries that are promoting entrepreneurship in their diasporas. This kind of economic development relies mostly on organizational ties between migrants and the governments, institutions, and agencies that are promoting it (Website, Migration Policy Institute, 2012. Available HTTP <http://www.migrationpolicy.org>). Diaspora entrepreneurs can serve as a channel for organizational ties between their home countries and destination countries. Newland and Tanka (2010) in their work on Diaspora Entrepreneurship analysed previous work by Knight (1921), Schumpeter (1934), and Joseph Schumpeter (1974) and tried to differentiate between two forms of Diaspora Entrepreneurship:namely Necessity Entrepreneurship and Opportunity Entrepreneurship.

2.1 Necessity Entrepreneurship

A ‘necessity entrepreneur’ is one whostarts a business for survival, is self-employed by default, and concentrateson petty trade and personal services. He/she does not create many jobs and in many cases barely makes enough to feed the family. Necessity entrepreneurship is largely operated by return migrants.

A greater number of necessity entrepreneurs may not correlate with higher levels of economic growth. In fact, an abundance of necessity entrepreneurs may suggest the exact opposite — that individuals are setting up their own businesses or working for themselves because they cannot find opportunities in the labour market.

Unskilled immigrants or returnees who establish their own businesses, mainly out of necessity, have different networking opportunities and approaches to starting businesses than high-skilled immigrants with business experience abroad — in Silicon Valley or the city of London, for example. Those running businesses that require little education and low start-up costs usually work in sectors that are oversaturated with competitors and have very small profit margins, thus making social capital extremely important for survival, for example in sectors like schools, small hospitals, goods and service based small enterprises etc While self-employment can create value for entrepreneurs and any employees they might have, research shows that necessity entrepreneurship has no effect on economic development (Newland and Tanaka, 2010:4). At best, it reduces overt unemployment and enables people to support themselves.

2.2Opportunity Entrepreneurship

An ‘opportunity entrepreneur’is one who is filling a gap in the economy and introducing new forms of production. He/she contributes substantially to economic growth and often creates jobs outside the family. Opportunity entrepreneurs are much more likely to have a positive impact on economic development. They are skilled individuals who specialize in high-demand and rapidly growing sectors of the knowledge-based economy. Some of the successful examples are Apollo Hospital, LMV Prasad Hospital, Chaitanya Gurukul Trust etc. These enterprises can create huge economic opportunities and profits for businesses and their countries. Even those with little education but strong business acumen may perceive and take advantage of market openings. The role of diasporas in developing knowledge-based sectors in China, India, Ireland, and Israel is now well known (Newland and Tanaka2010:4). They have provided venture capital and connections to trade networks, facilitated technology

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and knowledge transfers, and pioneered development of robust special economic zones in their countries of origin.

3. CLASSIFICATION OF TRANSNATIONAL MIGRANT ENTERPRISES

Patrica Landolt, Lilian Autler and Sonia Baires (1999) distinguish four types of transnational migrant enterprises: circuit firms, cultural enterprises, ethnic enterprises and return migrant enterprises.

3.1.Circuit Firms

Circuit enterprises are the archetypical transnational business ventures because they sustain the flow of tangible and intangible resources between a country of origin and its migrant settlements. Migrants sustain regular contact with relatives who shuttle back and forth and carry letters, cash, and precious packages. From these small and informal beginnings,a complex, multi-million dollar service industry has developed. Currently, circuit enterprises include informal and formal courier agencies that deliver money, products, and people using a variety of methods to households and businesses in home and host countries. On of the most prominent examples is the ‘NRI courier’ working from Cochin in Kerala. This courier service has started a new concept of “Emotion Delivery” under which a family can send and receive various ethnic or other products from homeland or hostland.

3.2.Cultural Enterprises

Cultural Enterprises can be seen as transnational enterprises playing a tacit role as stewards and promoters of national identity among migrants. Cultural enterprises or cultural markets are often based in the hostland and help migrant communities in daily contact with homeland. Cultural enterprises include both ventures that produce or distribute homeland based mass media such as newspapers,radio and TV programming, and businesses that produce or distribute homeland based beverages and foods. Mauritius, Malaysia, Singapore, USA are some of the effective examples of cultural markets driven by transnational enterprises. Most of these entrepreneurial activities are happening through cultural networks in the home country, where reliability issues tend to be solved through cultural relationship (Khanna and Nanda, 2003:14).Some of these cultural enterprises include ‘Radio Fiji’, ‘Radio Natal’ ; Tamil Dailies like‘Tamil Murasu’, TV channelslike ‘Vasantham’ and many others (Report of the High Level Committee on Indian Diaspora 2003: 462).

3.3.Ethnic Enterprises

Ethnic enterprises include a range of small business ventures located in immigrant neighbourhoods which sell exclusively homeland based products, and which cater to a broadly ethnic following. It includes small grocery or convenience stores, restaurants and bakeries, retail commerce, beauty shops, auto mechanics, and crafts people such as carpenters and plumbers, as well as informal street vendors. Given the large concentration of Indians worldwide, the ethnic enterprise sector is vibrant and diverse. It also has more transnational links. While many ethnic enterprises depend on a steady supply of regulated and unregulated imports from homeland, businesses maintain transnational supply networks.

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Ethnic Shops in London

Source: City Listings, UK , Available at HTTP <http://www.city-listings.co.uk/company/shreeji_sweets_1068660.html

Source: Blog Entrée: Tooting Road Trip- Sambo07 Available HTTP <http://sambo7.blog.co.uk/2010/07/31/upper-tooting-road-has-no-architectural-splendour-no-open-green-9077978/>

Pennsylvania Indian Grocery Store, USA.

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Source:Available at HTTP <http://www.searchindia.com/search/groc.html

1.1.Return Migrant Enterprises

The fourth type of transnational enterprise is the business venture of ‘return’ migrants located in the homeland. The common types of return migrant micro-enterprises include schools, universities, hospitals, infrastructure investments, information technology investments, hotels and restaurants, and service based enterprises. Return migrant business ventures depend on transnational links and flows for their investment capital, human capital, maintenance costs and expansion capital (Baires and Innocenti 1993). Typically, the idea for a return migrant enterprise originates with the migrant’s cultural and labour experience in the hostland, and the investment capital comes from the migrant’s personal savings. Some of these ventures in India are Apollo Hospital, L V Prasad Eye Hospital, Chaitanya Gurukul Trust and others.

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Dr. Pratap C Reddy, Returned NRI and Founder, Apollo Group.

Source: Available HTTP <http://www.forbes.com/profile/prathap-reddy/>

Return NRI and Ex-IITian starts world-class school in Bihar village

Source: Times News Network, Feb 3, 2011. Available HTTP <http://timesofindia.indiatimes.com/city/patna/Ex-IITian-starts-world-class-school-in-Bihar-village/articleshow/7419365.cms>

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2. SIGNIFICANCE OF INDIAN DIASPORA ENTREPRENEURSHIP

There is a history to the current flourishing diaspora entrepreneurship. For many centuries, colonies of South Asian merchants were present in the many ports of the Indian Ocean and the China Seas. These merchants always kept a close link with the regions of South Asia where they came from. These merchants from 1500 AD to 1900 AD played a key role in relation to the land trade between India, Iran, Central Asia and Russia (McCabe 2005: 34). World System theorists argue that, during the colonial period, the Indian economy became part of the new European-dominated world economy and played a role of semi-periphery. India with its semi peripheral status between Europe as a centre and Africa, Asia and Latin America as a periphery, positioned its merchants and traders in key roles (Markovits, 2004:11).

The developments in information and communication technology, to a great extent helped to unleash the entrepreneurial potential of the diaspora. Not only India, but many countries started their special overseas affairs ministries and departments to facilitate the relationship with their diasporas with special focus on investment (India, Bangladesh, Mexico, Israel etc). It is a political, economic, social and cultural global phenomenon which challenges nation states and leads up to the birth of multiple networks, trans-national or transcontinental, but also regional or local, bringing migration into the main world stakes (Faist and Reisenauer, 2010).

Individuals are more likely to start a business in a country with robust economic growth, a high level of formal sector participation, a high-quality and business-friendlylegal and regulatory environment, and relatively easy access to finance. The Indian government has shifted its focus to tap the wealth, knowledge and skills of its diaspora to foster the establishment and growth of businesses, training centres, and educational institutions. After Independence, India had largely neglected an engagement with its diaspora. The necessity of renewed diaspora engagement appeared only after economic reforms in 1991.

Since the last three decades, India has developed a better mechanism to connect with its diaspora such as harnessing better technology, creating subsidies in the banking structure, less bureaucratic structure, single window access and other facilities. Access to financial capital is particularly important for individuals seeking to pursue entrepreneurial activities, whether large or small, skill-based or unskilled. The micro-credit and micro-savings revolution has opened a path to entrepreneurs who operate on a small scale, at least initially.

Indian diasporas have been contributing to the economic development of the country through Foreign Direct Investment (FDI) and transnational entrepreneurship, including support for entrepreneurs and small businesses since the last three decades. They possess a unique combination of ownership advantages, which extend from their expertise and the networks they have established at different places, to their ability to forecast new developments in the country of origin. With familiarity of the homeland environment, Indian Diasporas areproving to be more effective investors in comparison to others. Indian diasporas are more likely to invest in projects that others would consider high-risk, simply because they have better knowledge and relationship opportunities that other investors lack (Gillespie et al, 2001: 242). Cultivated knowledge and networks while living abroad help overseas Indians to harvest important synergistic advantages (Wescott and Brinkerhoff, 2006). They can act as

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important intermediaries between traditional development actors, and between diasporas and local communities.

Difference between Diaspora Entrepreneurs and Other Entrepreneurs

There are significant differences between diaspora involvement in the development of their countries of origin and non-diaspora FDI. First, the motives and pattern of diaspora investments are significantly different from that of traditional FDI. Diaspora investments may be guided not only by profit motives but also by long run considerations of establishing a base in the countries of their origin. Second, they are likely to be better informed on the capabilities and requirements of domestic labour and the sort of training local labour requires. Third, quite often the factors, which influenced the diaspora to migrate from their homelands, may influence the extent of their involvement and contribution to the development of their countries of origin (Singh, 2012: 13).

3. GOVERNMENT POLICIES TO ENCOURAGE DIASPORA ENTREPRENEURSHIP

In India, initiatives to engage the diaspora have multiplied at both the central government and state government levels. At the national level, the Ministry of Overseas Indian Affairs (MOIA), established in 2004, has a number of special programmes for overseas Indians. The MOIA is the nodal Ministry for all matters relating to Overseas Indians comprising Persons of Indian Origin (PIO), Non-Resident Indians (NRIs) and Overseas Citizens of India (OCI).It also handles all aspects of emigration and return of emigrants. The mission is to establish a robust and vibrant institutional framework to facilitate and support mutually beneficial networks with and among overseas Indians to maximise the development impact for India and enable overseas Indians to invest in and benefit from the opportunities in India. Some of these programmes are given below.

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3.1.Pravasi Bharatiya Divas (PBD): Pravasi Bhartiya Divas (PBD) has been one of the most important diaspora engagement policies of the Indian Government for the last 10 years. PBD conventions have been organized every year since 2003. These conventions provide a platform to the overseas Indian community to engage with the government and people of the land of their ancestors for mutually beneficial activities.

3.2.Overseas Indian Facilitation Center (OIFC): Overseas Indian Facilitation Centre was established to provide single window information access to Non-resident Indian entrepreneurs. A council of prominent overseas Indians, industry leaders and senior policy makers of the government governs the OIFC. OIFC has been providing investment expertise and business facilitation services to the NRIs, with the active support of its 'Knowledge Partners', which firms are specializing in the areas of foreign investment consulting, regulatory approvals, market research, joint venture partner identification, project financing, accounting, taxation, legal, portfolio investments and others.

3.3.India Development Foundation of Overseas Indians: India Development Foundation of Overseas Indians, is a not-for-profit trust registered by the Ministry of Overseas Indian Affairs, Government of India to provide a credible window for overseas Indian philanthropy in India’s social development. The objective of the foundation is to facilitate philanthropic activities by overseas Indians including through innovative projects and instruments such as micro credit for rural entrepreneurs, self-help groups for economic empowerment of women, best practice interventions in primary education and technology interventions in rural health care delivery.

4. EXISTING ENGAGEMENT: ANALYSIS OF MAJOR SECTORS

Most of the diasporic returnees are first time entrepreneurs some of whom came to India post 1980 and many after liberalization to set up new ventures in IT and healthcare. These returnees were mostly professionals having considerable work experience and improved knowledge and skills, social contacts at global scale, investment potential with the help of social networks. The entire concentration of diaspora entrepreneurship in India can be observed in five major sectors - education, healthcare, IT, infrastructure, and energy &environment. Foreign Direct Investment (FDI), as a concept looks usual for investments in India, but with specific reference to diaspora entrepreneurship, there is something available, which needs to be addressed carefully. Information Technology industry widely facilitated in India through overseas networks and trade expansion from developed countries after Indian economic liberalization and issues related to the “Y2K” (Report of the High Level Committee on Indian Diaspora, 2001) with interventions of Silicon Valley entrepreneurs such as The Indus Entrepreneurs (TiE) towards expansion of IT firms to India. The diaspora entrepreneurship in healthcare sector involves skilled professionals, who are directly participating through financial investment or indirectly as knowledge entrepreneurship or in some cases both. Many examples including establishment of Apollo Hospitals in different parts of India, the NRI Academy of Sciences, Narayana Hrudayalaya Hospitals in South India and others, reflect the strong cultural ties of diasporic health professionals towards the homeland.

4.1.Healthcare Sector: Indian healthcare professionals particularly nurses reached to almost all parts of the world, not only to developing countries. Indian healthcare professionals as well as other NRIs and PIOs, have already made a valuable

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contribution to their homeland by establishing different health institutions. Major diaspora driven organizations in Indian healthcare industry are Apollo Hospitals Enterprise Ltd., Fortis Healthcare Ltd., Doctor Z India Healthcare (Pvt.) Ltd., Translational Health Sciences and Technology Institute, Panacea Biotec and many others. In Indian healthcare sector entrepreneurial activities can be facilitated through broadly two ways, first ways is direct investment by different diaspora driven organizations and second one is through the knowledge Diaspora with different modes of communication such as tele-medicine, tele-consultation, workshops, training and medical research etc.Information Technology Enabled Sector (ITES): The emigration of Indians in the nineteenth century to Fiji, Mauritius, Africa and the Caribbean countries consisted mainly of indentured labour However from the mid-twentieth century onwards, emigration to the US and some countries of the west was of a different nature. Part of the reason was because those countries more receptive to highly qualified Indian/Asian immigrants. Indian emigrants thus increasingly consisted, among others of highly qualified scientists, engineers and other professionals, also termed as a brain drain. The opening up accelerated significantly in the wake of America’s IT-led economic boom in the 90s to which Indian IT professionals had made a visible, high profile and widely recognized contribution. Advisory panels with eminent NRIs and PIOs members set up by the Department of Biotechnology and the Ministry of Information Technology have catalyzed technologies and investment into India and led to several IT and BT joint ventures, besides keeping Indian research initiatives up-to-date with global trends and policies in the biotechnology of Information and Computer Sciences.

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4.2.Education Sector: The education sector in India is also considered as one of the major areas for investments as the entire education system is going through a process of overhaul, according to a report ‘Emerging Opportunities for Private and Foreign Participants in Higher Education’ by PricewaterhouseCoopers (PwC, 2010: 15). NRI engagement in education sector is largely initiated with philanthropic activities. Organizations like Tamil Association of North America, Toronto Kolkata Foundation, American Association of Physicians of Indian Origin, North American Telugu Society, Ekal Vidyalaya Foundation, Bihar Brains and many other Indian Diaspora organizations are actively working towards development of Indian education sector with initiatives like scholarship, schools, modernization of schools, construction of hostels, facilitation of meritorious students to devleoped countries and others. In India some of the diaspora enterprises are BhuvneshwarInstitute of Technology, NRI group of Institutions, Chaitanya gurukul Trust and others.

4.3.Infrastructure Sector: As per the existing foreign direct investment policy NRIs and PIOs are allowed to invest directly up to 100% in any Indian company in the housing and real estate sector without any approval. NRIs can directly set up companies in India, other than in the nature of venture capital in India and do business in India. NRIs/PIOs can also make direct investment under the FDI policy through an overseas entity into companies in the Real Estate Sector as per the terms of Press Note 2 of 2005 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India. This route allows investment in townships, housing, built-up infrastructure and construction-development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure).

Thus, diaspora trend of integration towards the home country is not a new concept but it has been dramatically enhanced after globalization and increase in cross boarder entrepreneurial activities. Countries of origin are trying hard to attract diasporic talents and resources while countries of destination hope to increase the effectiveness of their development assistance and immigration and integration policies (Agunias and Newland, 2012: 13). Diaspora entrepreneurship can contribute to economic development. Countries with higher levels of diaspora entrepreneurship tend to have promising prospects for economic growth, as well as proactive diaspora engagement policies, good governance, positive socio-cultural perceptions of entrepreneurship, a critical mass of human and social capital, and access to financial institutions and pools of capital (Newland and Tanaka, 2010). Conceptually diaspora entrepreneurship is an example of Protected Market Hypothesis (Aldrich at el., 1985), which gives an entrepreneur markets with less risk and uncertainty. But, the attraction of the diaspora for homeland needs to be addressed properly by the government of the home country through relaxation of rigid procdures and encouraging initiative, which can further lead to homeland development.

5. IS THERE ANY STRONG LINK BETWEEN RETURN DIASPORA AND ENTREPRENEURSHIP?

On the one hand, brain drain is often seen as major setback for the developing countries like India and China especially in the case of IT and health professionals during the 1980s.A substantial share of the highly educated migrants to the U.S. come from China and India. Though only about one in 10 new arrivals are from one of these countries, they make up 28 percent of college-educated new arrivals. Almost half of these migrants arrived in the last

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decade, and one in four came in just the last five years (Friedberg, 2007). Recent analysis suggests that in the current global competitive environment, “brain drain” may provide a crucial advantage to the developing countries through return migration. Return migrants could play an important role in building innovative capabilities in these countries by filling knowledge gaps in critical areas of Research and Development(R & D).

Return Diaspora does not always denote physical presence but it can be through knowledge processing or entrepreneurial networks between host and home countries. As entrepreneurship is a process of risk, uncertainty and innovation (Knight 1921, Schumpeter 1934), cultural integration with the home country influences workers to invest backhome in order to enhance security aspects. As in the current global scenario where most of the developing countries’ markets are still working with protectionist mindset with a lack of innovative eco-system based on collaborations between firms, universities, R&D institutes and financial institutions (Kale, 2007:2),diaspora entrepreneurs with global experience and innovative ideas helps to generate better livelihood and creation of state development.

6. CONCLUSION

Diaspora entrepreneurship has caught the attention of policymakers and researchers who recognize that most poor countries suffer from a deficit of entrepreneurship and that this is both a cause and consequence of their poverty (Newland & Tanaka, 2010). The emergence of ‘Diaspora Entrepreneurship’ has become a key resource for social as well as business development. These entrepreneurs are not only providing leadership and management skills but also, and more importantly, they bring significant knowledge in the area of science and technology. However, it is true that transfer of knowledge is not a straightforward process and requires deliberate government policies and firm strategies for successful utilization of returnee resources.

The protectionist mind-set of business to one of risk taking or innovation and collaboration between firms, universities, R&D institutions and financial institutions can give large-scale impact and inclusiveness in the health sector. State needs to address diaspora business forums and establish required policies specifically focused on attracting and retaining skilled returnees for better entrepreneurial activities. State should consider innovative programmes, formulation of sector and technology specific policies to encourage return migration of the skilled workforce in high-technology areas. There is an urgent need to support market firms to attract and retain returned engineers and scientists by improving social infrastructure and conditions so that returnees find it easier to adjust life in new places of work. As entrepreneurship talks about risk and innovation there should be risk sharing mechanisms such as loan insurance schemes, credit guarantee etc. as it is true that diaspora entrepreneurship is a process of development of the homeland. However, it is also possible that the local entrepreneurship can create problem for diaspora entrepreneurship thinking of them as threats or competitors; in this scenario government needs to formulate policy to create better and sustainable diaspora investment and facilitate development.