Migration Background Boosts Innovation
ResearchZEW Study Shows: Migrant Founders Lead in Innovation and Start-Up Rates – But Financing Remains a Hurdle
Migrant founders are an important driver of innovation in Germany as they bring new products and services to the market more frequently. Yet, despite their strong focus on growth and innovation, they have less access to external capital and need to rely more on personal capital and support from family and friends. This means that considerable economic potential remains untapped, as a current ZEW analysis reveals.
“It is especially in highly innovative sectors that start-up founders with a migration background can make a decisive contribution to structural change – but the general conditions have to be right,” explains study co-author Professor Hanna Hottenrott, head of ZEW’s “Economics of Innovation and Industrial Dynamics” Research Unit.
“There are disadvantages in particular in terms of access to bank loans, and targeted political measures are needed to solve this. A better integration of migrant founders into the start-up ecosystem would both increase their chances of success and bring fresh momentum to industries where they are currently underrepresented,” adds Elisa Rodepeter, co-author of the study and researcher in the unit.
High innovation potential from people with a migration background
The ZEW study shows that people with a migrant background do not usually start a business to escape economic hardship but in many cases become entrepreneurs to put business ideas into practice, tap into new markets or improve existing market offers.
Business expansion is stated as a primary objective by 33 per cent of migrant-founded firms, compared to only 25 per cent of businesses found by entrepreneurs without a migration background. This goal is closely aligned with an above-average emphasis on innovation: Migrant founders invest more frequently in research and development, and they more often launch novel products or services that were not available in the domestic or international market before. These differences in innovation orientation exist independently of alternative influencing factors such as start-up experience, level of education, sector and location. People with a migration background thus play an important role in modernising and diversifying the German start-up ecosystem.
Difficult access to capital
Despite their high level of commitment and their innovative strength, start-ups with a migrant background face considerable financing hurdles in Germany: 18 per cent report difficulties in accessing external capital – compared to only 12 per cent of non-migrant founders. These differences even remain when factors such as sector, level of education, start-up experience and location are taken into account. The analysis suggests that a lack of long-standing banking relationships, prejudice as a barrier when seeking bank lending, as well as constrained access to established networks reduce the chances of obtaining financing. As a result, promising innovation projects can either not be realised at all or only with a delay.
About the study
The findings are based on data from the IAB/ZEW Start-up Panel, a representative data sample providing information on business start-ups and young firms in Germany. The data describe and analyse the structure and development of young companies. In terms of both sample size and the level of detail provided, the IAB/ZEW Start-up Panel is a unique data source which is used by a great number of publications and projects as a source of background information on the business situation and dynamics of start-ups in Germany.
