Transnational Entrepreneurship & Informal Networks Structural holes and Return Migration in China 16th International Metropolis Conference September 2011 The Azores, Portugal By Israel Drori (College of Management, School of Business, Israel), Benson Honig (McMaster University DeGroote School of Business), Yuval Kalish (Tel Aviv University, Recanati Business School, Israel), Xiaohua Lin (Ryerson University, Ted Rogers School of Business, Toronto, Canada) – presented by Leo Paul Dana, (Canterbury University, Department of Management, Christchurch, New Zealand) & Shahamak Rezaei (Department of Society & Globalisation, Roskilde University, Denmark)

Transnational Entrepreneurship (TE) The process of TE involves the entrepreneurial activities that are carried out in a cross-national context and initiated by actors who are embedded in at least two different social and economic arenas. The process of TE involves the entrepreneurial activities that are carried out in a cross-national context and initiated by actors who are embedded in at least two different social and economic arenas. By traveling both physically, and virtually, transnational entrepreneurs engage simultaneously in two or more socially embedded environments, allowing them to maintain critical global relations that enhance their ability to creatively, and logistically maximize their resource base. By traveling both physically, and virtually, transnational entrepreneurs engage simultaneously in two or more socially embedded environments, allowing them to maintain critical global relations that enhance their ability to creatively, and logistically maximize their resource base.

Information circulates to a high velocity within these clusters (by referring to Grannovetter’s strong ties discussion). Each person tends to know what the other people know. Therefore, and this is the insight of the argument, the spread of information and new ideas and opportunities must come through weak ties that connect people in separate clusters… Hence the strength of weak ties. Weak ties are essential to the flow of information that integrates otherwise disconnected social clusters into a broader society. Burt, R. (in Nohria & Eccles 1992, p. 72) Information circulates to a high velocity within these clusters (by referring to Grannovetter’s strong ties discussion). Each person tends to know what the other people know. Therefore, and this is the insight of the argument, the spread of information and new ideas and opportunities must come through weak ties that connect people in separate clusters… Hence the strength of weak ties. Weak ties are essential to the flow of information that integrates otherwise disconnected social clusters into a broader society. 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 national diversity in providing unique sources of information. Stated as an hypothesis: In the case of Chinese TEs, we focus primarily on the importance of national diversity in providing unique sources of information. Stated as an hypothesis: H1: The greater the diversity of nationality in a TE network – the higher the growth rate. H1: The greater the diversity of nationality in a TE network – the higher the growth rate. H2: The more homogeneous the residence of a Chinese TE’s network, the higher the growth rate. H2: The more homogeneous the residence of a Chinese TE’s network, the higher the growth rate. H3: The more homogeneous the relational range of a Chinese TEs network, the higher the growth rate. H3: The more homogeneous the relational range of a Chinese TEs network, the higher the growth rate. H4: The more homogeneous the occupational range of a Chinese TEs network, the higher the growth rate. H4: The more homogeneous the occupational range of a Chinese TEs network, the higher the growth rate.

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

Research Context and Methods Research Context and Methods Examining the social network of TEs is difficult, as unlike ethnic enclaves, TEs are typically disbursed throughout the geographical and industrial landscape, providing a difficult population to identify and study. Examining the social network of TEs is difficult, as unlike ethnic enclaves, TEs are typically disbursed throughout the geographical and industrial landscape, providing a difficult population to identify and study. The network data was interpreted using the Blau index of diversity (Blau, 1977). This index is often used to measure the level of diversity when categorical data is used. The index is calculated as The network data was interpreted using the Blau index of diversity (Blau, 1977). This index is often used to measure the level of diversity when categorical data is used. The index is calculated as Where p is the proportion of individuals in each category i, and n is the number of categories. The Blau index (also called Hirschman-Herfindahl index in economics) has a theoretical range of 0 to 1, with 0 indicating perfect homogeneity, and 1 indicating perfect heterogeneity. Empirically, the Blau index of diversity depends on the number of categories, n. The more categories there are, the larger the maximal size of the Blau index. Where p is the proportion of individuals in each category i, and n is the number of categories. The Blau index (also called Hirschman-Herfindahl index in economics) has a theoretical range of 0 to 1, with 0 indicating perfect homogeneity, and 1 indicating perfect heterogeneity. Empirically, the Blau index of diversity depends on the number of categories, n. The more categories there are, the larger the maximal size of the Blau index. The Blau index of diversity was calculated for each respondent by examining the proportions of alters in their egocentric network that fit 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 diversity of nationality would be 1-[(0.6) 2 +(0.4) 2 ]=.48. The Blau index of diversity was calculated for each respondent by examining the proportions of alters in their egocentric network that fit 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 diversity of nationality would be 1-[(0.6) 2 +(0.4) 2 ]=.48.

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

Our findings regarding TEs in China demonstrated that firms were advantaged through national diversity, confirming other research in the importance of overseas networks in enhancing transnational activity. It would seem that the Chinese government is wise in their policies to encourage and even partially subsidize return migration, something recently adopted by a range of countries including Israel, Ireland, Taiwan. Overseas networks clearly provide unique non-redundant or otherwise valuable resources that enhance organizational growth and efficiency. Our findings regarding TEs in China demonstrated that firms were advantaged through national diversity, confirming other research in the importance of overseas networks in enhancing transnational activity. It would seem that the Chinese government is wise in their policies to encourage and even partially subsidize return migration, something recently adopted by a range of countries including Israel, Ireland, Taiwan. Overseas networks clearly provide unique non-redundant or otherwise valuable resources that enhance organizational growth and efficiency. However, our findings regarding the character and relationships to structural holes differed considerably in this study from conventional network evidence. In contrast to national networks, our findings were that organizational homogeneity provided advantages within the Chinese environment. However, our findings regarding the character and relationships to structural holes differed considerably in this study from conventional network evidence. In contrast to national networks, our findings were that organizational homogeneity provided advantages within the Chinese environment.

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

End Thanks for your attention.