Cultural Diversity, Innovation, and Entrepreneurship: Firm‐level Evidence from London

Abstract

A growing body of research is making links between diversity and the economic performance of cities and regions. Most of the underlying mechanisms take place within firms, but only a handful of organization‐level studies have been conducted. We contribute to this underexplored literature by using a unique sample of 7,600 firms to investigate links among cultural diversity, innovation, entrepreneurship, and sales strategies in London businesses between 2005 and 2007. London is one of the world's major cities, with a rich cultural diversity that is widely seen as a social and economic asset. Our data allowed us to distinguish owner/partner and wider workforce characteristics, identify migrant/minority‐headed firms, and differentiate firms along multiple dimensions. The results, which are robust to most challenges, suggest a small but significant “diversity bonus” for all types of London firms. First, companies with diverse management are more likely to introduce new product innovations than are those with homogeneous “top teams.” Second, diversity is particularly important for reaching international markets and serving London's cosmopolitan population. Third, migrant status has positive links to entrepreneurship. Overall, the results provide some support for claims that diversity is an economic asset, as well as a social benefit.

Immigrant Diversity and Economic Performance in Cities

“…They find that firms dominated by immigrants tend to innovate at a lower-than-average rate, while firms whose foreign workforces are highly diverse are more innovative, especially in terms of their propensity to introduce new products. Focusing on a sample of firms in the London metropolis between 2005 and 2007, Nathan and Lee (2013) find that those with ethnic-and birthplace-diverse owners and partners are significantly more likely to introduce new products and processes, though this form of diversity appears unrelated to commercialization activities. Moreover, they find that the positive relationship between diversity and innovation is not confined to firms operating in ''high-tech'' sectors.…”

The wider economic impacts of high-skilled migrants: a survey of the literature for receiving countries

“…Some clues come from Nathan and Lee (2013), who look at 'top team' diversity in London firms. They find that companies with ethnically diverse senior management are more likely to introduce new product innovations.…”

Psychology and the Geography of Innovation

“…Migrant groups tend to be self-selecting as more dynamic and entrepreneurial (Nathan, 2011) and past work has suggested that migrant diversity is a better predictor of economic success than ethnic diversity (Nathan, 2011;Lee, 2013). Evidence suggests that diverse firms are more innovative, although research on whether urban context helps this effect is less clear (Niebuhr, 2010;Nathan & Lee, 2013;Lee, 2015).…”