Unlocking the Potential of Immigrant Exporters

Immigrant-owned small and medium-sized enterprises (SMEs) contribute significantly to trade and innovation in the Asia-Pacific Economic Cooperation (APEC) region. These businesses often exhibit a higher export intensity than their non-immigrant counterparts, reflecting their entrepreneurial ambition and commitment to international markets. However, they often struggle to scale their export activities, limiting their contribution to the burgeoning digital economy. This study examines the performance gap between immigrant and non-immigrant exporters with high export intensity, emphasizing the role of digital resources. We argue that immigrant exporters are particularly susceptible to a network scalability problem, where the costs of maintaining informal social networks across national borders outweigh the growth-related benefits.

Building on previous research emphasizing the growth aspect of scaling, especially among immigrant businesses, we deliberately focus on risk-adjusted profitability to highlight another relevant dimension of scalability. Scalability is not just about whether a firm grows rapidly. More crucially, it must achieve increasing returns to scale in input-output relationships, where revenue grows faster than costs as the firm expands. Consequently, the growth dimension is intricately tied to the profitability dimension. Notably, although prior research shows that immigrant exporters can outperform other SMEs in revenue growth, they remain, on average, smaller than SMEs with Canadian-born owners. Since immigrant-owned SMEs also face limited access to external equity finance, the need to finance expansion through retained earnings makes low or unstable profitability a potentially binding constraint on their scalability. By also conceptualizing cost inefficiencies associated with their network scalability problem, our focus on risk-adjusted profitability allows us to quantify a lead indicator of their scalability potential before long-term growth or decline materializes.