21 January 2009

Immigrants’ Entrepreneurial Spirit Helps U.S. Economy

Biggest impact felt in California, New York, other coastal states

Ali Reza Manouchehri

By Burton Bollag
Staff Writer

Washington — When Ali Reza Manouchehri finished high school in his native Iran in the mid-1990s, he joined his father's textile business and spent the next two years selling yarn in one of Tehran's traditional bazaars. Then he moved with his family to the United States and enrolled in a university. Today he heads a fast-growing computer software company.

His company, MetroStar Systems Inc., specializes in social networking software. It helps clients set up interactive Web pages, blogs and knowledge-sharing sites known as “wikis.”

His biggest client is the U.S. government.

Manouchehri, 33, said the current U.S.-Iran relationship has not hurt his business career. If anything, it has helped. “Of course there are challenges being a young entrepreneur,” he said. But in both the United States and Iran, “people are always fascinated to hear about the other country.”

Manouchehri’s experiences are not that unusual. A recent study found that immigrants are 30 percent more likely than native-born Americans to start a business. “That makes sense,” said Robert W. Fairlie, an economist at the University of California at Santa Cruz and author of the study. “Anyone who invests the time and effort to move to a second country obviously has an entrepreneurial spirit.”

Fairlie said the phenomenon is common around the world. Studies in the United Kingdom, Canada and Australia have also found immigrants to be more entrepreneurial than native-born residents.

Using data from the 2000 census and two other surveys, Fairlie’s study of the United States found that while immigrants constituted 12.5 percent of the population, they accounted for 16.7 percent of new businesses. (Immigrant-owned businesses are also more likely to fail, so in the end, the portion of businesses owned by immigrants is virtually identical to their proportion of the population.)

Immigrant-owned businesses are on average slightly smaller than other businesses. They generated $67 billion in income — or 11.6 percent of the $577 billion revenue of all U.S. businesses, as estimated from the 2000 census.

People born abroad live all over the United States. But they have settled more heavily in some parts of the country, and consequently, have a greater economic impact in those “gateway” states. Foreign-born business owners generate nearly one-quarter of all business income in California and nearly one-fifth in the states of New York, Florida and New Jersey.

The largest number of foreign-born business owners is from Mexico — not surprising since there are more immigrants from Mexico than from any other country. But in fact, Mexicans and other Latin Americans create on average fewer businesses and have a lower success rate than people born in America.

Immigrants from Asia, on the other hand, are more entrepreneurial and tend to be more successful than business owners born in America. Fairlie told America.gov that these trends are explained by several key factors: Hispanic immigrants on average have attained lower educational levels than native-born Americans; Asians immigrants have attained higher levels.

Asians also tend to benefit more often from extended families, whose members with business experience act as mentors to those starting out. Asian immigrants also benefit more often from offers of startup capital from family members.

Manouchehri, the information technology entrepreneur from Iran, founded his company with two fraternity brother partners in 1999, during his final year at George Mason University in Virginia. He says he benefited from business guidance from his father and from $200,000 in startup capital from his family.

The company, MetroStar Systems, initially produced programs to automate the writing of other computer software. Then came the sharp downturn in 2000 of the Internet-based business sector, known as the bursting of the dot-com bubble. The company went though a few difficult years. It got its first big break in 2002 with a software consulting contract for the U.S. government.

MetroStar Systems develops social networking software for the U.S. Marine Corps and the National Guard that allows Marines and soldiers returning from combat zones to share their experiences online — an attempt to help them avoid post-traumatic stress disorder. A subsidiary of the company is developing for the U.S. State Department a game scheduled for release in February that will be downloadable onto cell phones. It is intended to teach foreigners about life in the United States.

“Our niche,” Manouchehri said, “is building technology that could bridge cultures.”

The company has grown from 10 employees and $600,000 in revenue in 2002 to 62 employees and $7.4 million in revenue in 2008.

Fairlie’s report found that immigrant-owned businesses are somewhat concentrated in both the low-skilled and high-skilled ends of the economy. This includes restaurants at one end and the technology and engineering sectors at the other. In California’s Silicon Valley, the center of America’s high-tech economy, one-quarter of all technology businesses are run by immigrants from China and India.

But despite some concentration, immigrant-owned enterprises are “distributed across all industries in the United States,” Fairlie said.

Fairlie’s study, “Estimating the Contribution of Immigrant Business Owners to the Economy” (PDF), is available from the Web site of the Small Business Administration. Information about MetroStar System’s game is available on a company Web site devoted to the game.