Investing in Immigrants - Misfits Don’t Need Holograms

By Nick Slepko - July 16, 2012 | Tickers: AA, AMZN, EBAY, GEVO, NWSA | 0 Comments

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[continued from "Investing in Immigrants - Manufacturing Needs Foreigners"]

American policies bear the primary responsibility for the US losing out to its cousins in the Anglosphere.  Once upon a time, (immigrant) Rupert Murdoch turned a marginal newspaper in the middle of the Australian Outback into New York-based News Corporation (NASDAQ: NWS), the world’s leading publisher of English-language media.  However, Murdoch’s irrational love for the old (his unprofitable print divisions) is undermining appreciation for the new (his robust entertainment holdings).  However, the recent hacking scandal may have opened up the corporation to able leadership from outside the family when Murdoch passes.

Showing similar myopic nostalgia, for the first time in over a century, the US was recently ousted by Murdoch’s native Australia for the honor of taking in the most immigrants per capita.  The result has been a boon not only for the continent’s economic future, but its culinary options as well.  It should also serve as a wake up call to Americans long smug in being the destination of choice for the talented, wacky, and prosperous – which help balance out its tired, weary, and poor.

Klaus Kleinfeld should be America’s new poster boy.  After successfully running German powerhouse Siemens and ably handling his current stint as CEO of Alcoa (NYSE: AA), the world’s third largest producer of aluminum, Kleinfeld can speak with some authority on the need for comprehensive immigration reform:

In today's fast moving world, talent is the only sustainable competitive advantage. Winning is about being able to attract and retain the best and brightest from all around the world. As an immigrant to the United States, I fully appreciate the opportunities that global businesses provide for innovation and growth, and I know first hand the increasing importance of having an interconnected global workforce.  For Alcoa to remain America's leader in aluminum research, innovation, and production, we increasingly rely on our ability to hire, train, and keep a diversified workforce that draws upon talent from this country as well as from abroad. 

In many ways, Kleinfeld typifies high-skilled immigrants coming to America.  After leaving a successful run overseeing a company many times larger than Alcoa, Kleinfeld wanted not only another challenge, but a different culture.  In this way Kleinfeld is not so different from E.I. du Pont who founded DuPont, now the world’s third largest chemical company (by market cap).  Both firms are currently part of the Dow Jones Industrial Average.

Du Pont left for America when he saw the French Revolution begin to go horribly wrong. France has long been hostile to commercial revolutionaries, and du Pont was among a large group of talented Frenchmen that saw America as a place not to find opportunity, but to bring opportunity and have it appreciated (and not condemned or interfered with).  Using French capital, French machinery, and French technical knowledge he founded a gunpowder company in Delaware.  His superior product quickly became an American staple and he used its profits to expand (and indeed create) the new country’s chemicals industry.  DuPont was so successful a century later that it was one of the first corporations to run afoul of federal antitrust acts.

A century and half later, the son of Persian immigrants to Paris, Pierre Omidyar, founder of eBay (NASDAQ: EBAY), moved to America when he was six as his surgeon father and scholar mother found the country a more inviting climate (even through the Ayatollah years).  He later met Canadian Jeff Skoll who guided the company through its formative years.  Skoll was already well on his way to being a self-made man – having worked his way through college and founding two businesses during that time.  Had he not left for Stanford to get his MBA, he might never have met and collaborated with Omidyar in California.

The PayPal story offers an even more compelling case for a better, more nimble immigration policy.  Currently just another bureaucratic, multi-billion dollar subsidiary of eBay that seems to have lost a lot of its original flair now that its pioneers have moved on, the company still employs thousands (the majority of which are Americans).  Originally envisioned as “an alternative currency” by its founders – four of the five of which originally came from outside North America (Germany, Poland, South Africa, and Ukraine) – the upstart company defeated better financed rivals backed by corporations that now use PayPal (some as result of popular campaigns organized by consumers).

Humorously dubbed by the media as the PayPal Mafia, about half the thirtysome individuals connected with the group are foreign-born Americans that got their start with some aspect of the early Confinity or X.com ventures (which merged to become PayPal long before being sold to eBay).  German-born Peter Thiel is the man at the nexus of what has been an explosion in new ventures which have in aggregate been highly-profitable (estimated by Fortune at over $30 billion in collective revenue in 2007) and they have played a significant role in keeping the US at the forefront of new technology and discovery.

As Thiel recounts, “It basically started by hiring all these people in concentric circles…I hired friends from Stanford, and [Ukraine-born] Max [Levchin] brought in people from the University of Illinois.”  In fact, many of the original Pals are now overseeing key divisions of (immigrant co-founded) Google and other giants, or funding native-born Americans attempting to follow their dreams and passions in numerous ventures (even while the recession drags on).

One of PayPal’s original co-conspirators, South African-American Elon Musk, has sunk over $100 million of his own money into developing SpaceX – one of America’s most viable private space companies.  Musk initially spent two years studying in Canada before moving down to the US where he believed, “great things are possible.”  The two major inspirations he has cited for his serial entrepreneurship are Serbian-American Nikola Tesla and Thomas Edison (whose father immigrated to America after unsuccessfully trying to overthrow the British colonial government in Canada during the Mackenzie Rebellion).

In addition to eBay’s well-known (and popularly demanded) acquisition of PayPal, eBay also helped make Skype (developed by a Swede, a Dane, and three Estonians) a major force.  (As well as other ancillary business like eBooBoos for the auction-loving, spelling-challenged natives and non-natives alike.)  Omidyar like Jeff Bezos – who was adopted and raised in part by his Cuban immigrant step-father – have used eBay and Amazon (NASDAQ: AMZN) to modernize commercial markets.  Currently, it is rumored that over 75,000 individuals support themselves through business conducted through eBay.  The eBay-inspired Amazon Associates have had a lot of success too.  Third party sellers on Amazon number over 2 million and had 60% unit growth in Q1 2012 compared to Q1 2011 and their activities now represent 39% of units sold on Amazon.

At its best America has always been about attracting misfits and giving them a stable, reliable platform to do whatever it is they do best without branding them with special holograms and burdening them with reams of paperwork.  While DuPont and Omidyar are the best known French emigres, the exodus of talent from France continues (and Mr. Hollande’s recent election and his proposed policies will only encourage the trend).  The Patent Pending report done by the Partnership for the New American Economy found that although French students make up only .03% of US university students, this same group contributed 2.2% of the patents in their study sample.  The figure doubled when the study included all those born in France that had contributed to the patents in their sample.  It would be a shame to lose them all to Quebec if the US visa system prevents the Old World’s best and brightest from setting up shop in America.  (The US can no longer rely on rebel fathers fleeing Canadian insurrections.)

But French misfits are not the only ones that find commercial success in the United States.  Colorado-based bio-fuels maker Gevo, Inc. (NASDAQ: GEVO) got its start from biochemist Shota Atsumi who left Japan because, “It’s very difficult there for a young scientist to have any real independence…and it’s not an easy place to take risks.”  Working with his Chinese-born professor at the University of California-Los Angeles, they invented an additive that can reduce pollution in fuels and bottle production.  One of Gevo’s founders is a German immigrant (who came to America to get his PhD at Caltech).  He encouraged the company to license Atsumi's technology which was used to attract clients that include the US Air Force and Coca-Cola.

In part to fulfill these contracts, the company plans not only to open a cutting edge manufacturing facility in Minnesota, but also refurbish other facilities in the state.  While Gevo stock has been at all time lows recently, last month Atsumi’s and other patents held up and the company was cleared of legal problems initiated by patent pirates which have done much to paralyze traders weary of green tech.  Some investors are still reluctant to buy additional stock with the company’s recent announcement to raise more money (and the accompanying share dilution).  Still, short-term perceptions aside, the company seems clear for take off and has presented tangible uses for the cash it intends to raise (unlike the Facebookies) and it does not appear to be going for a quick smash and grab as it begins to hire an initial 28 employees to scale up its new facility for the long haul.  If Coke’s estimates and projections are to be believed, the special bottles Gevo will be designing and manufacturing for them are positive signs for the long-term.

Most troublesome for businesses and other economic creators is that most high-skilled visas are heavily restrictive and the annual renewal and arbitrary process creates constant instability for employers and families alike.  The Partnership’s patent study points out other glaring insanities in the current visa regime, such as China (population 1.3 billion) having the same visa quota as Iceland (population 0.0003 billion) – even though the study showed the Chinese responsible for 300 patents, and Icelandics only 6 in its sample set.  While legislators’ commitment to helping out our Viking neighbors to the north offset their shallow gene pool is laudable, a poll conducted by the widely-respected Opinion Research Strategies in June shows that 76% of Americans support the idea of reforming at least the STEM-related visa nightmare – even in the South (70%), the region most often less than enthusiastic about immigration.

While Omidyar was able to quit his job at Apple in 1995 after only a few months so he could devote himself full-time to pioneering what has become a major commercial system that underpins global commerce, a far more common story created by the increasingly burdensome and restrictive US visa regime is that of Dr. Surajit Sinha.

After contributing to an award-winning cancer fighting technology, the organic chemist had a difficult time finding a position that “fit his desire to do ambitious research.  Smaller more innovative startup companies he met with told him securing his H1-B visa would be a major issue…[in fact] so many high-skilled immigrants applied for H-1B visas that the cap was reached within two months [in 2006].”  Because of the illogical quotas, the unreliable green card route would have taken Sinha at least a decade – “And by then, much of my life would be over.”  So he returned to India to start his own lab which currently employs nine researchers and where Eli Lilly is among those that send representatives to him to court his inventions – including cancer drugs and morphine alternatives. 

The multi-billion dollar pharmaceuticals industry is not the only place where America willingly handicaps itself in the search for talent.  In fact, the US has not given away the space and aeronautics industry to cheap Chinese labor, but has actually ceded more and more ground to well-trained Mexican engineers American policy has barred from settling north of the border.

[continued in "Investing in Immigrants - The Future of Engineering Looks Good for California, Baja California"]

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