Any successful company knows that attracting, retaining and centralizing its global talent is a necessity for innovation. But what happens to this progress when external factors, such as immigration restrictions, are placed on a company’s highly skilled workers?

New research from Deepak Nayak, assistant professor of management and human resources, reveals that immigration-driven restrictions ultimately lead to two unintended results:

• Companies, in pursuit of their innovation objectives, choose to deal with the many challenges associated with managing their research and development (R&D) employees who are scattered across the globe.
• In situations where global coordination of R&D is not possible, companies choose to shelve projects entirely.

The ultimate result is a decline in overall innovation, research and development that can hinder meaningful scientific breakthroughs in key areas such as pharmaceuticals and disease treatment.

In his study, “Restrictive Immigration Policies and MNE Innovation,” Nayak looked at U.S.-based Multinational Enterprises (MNEs), corporations that play a key part in the global economy by delivering goods or services in more than one country. He studied companies in 18 industries, including business consulting, information technology, software and chemical and pharmaceutical manufacturers such as Pfizer, IBM and DuPont.

Nayak coauthored the paper with colleagues Solon Moreira and Ram Mudambi from the Fox School of Business at Temple University.

“MNEs source skills from global regions, but they need to source the right kind of human capital in order to be successful,” says Nayak. “While there is an increasing demand for STEM skills in the U.S., the scarcity in domestic supply of relevant talent prompts MNEs to draw knowledge workers from foreign subsidiaries. However, when faced with immigration restrictions intended at replacing foreign workers with local talent, MNEs instead move projects overseas.”

One metric Nayak used to measure the cost of immigration restrictions was the number of patents granted to the MNEs.

“While the U.S. has strong intellectual property rights, if firms have to move their R&D to another country due to immigration restrictions, there is a cost to managing innovation with globally dispersed teams versus domestically,” Nayak says. “When individuals cannot share their tacit knowledge through in-person interactions within their organizations, projects often get abandoned completely. This particularly affects pharmaceutical and chemical research, slowing down the advancement of the innovation frontier by five to ten years.”

Immigration restrictions also present companies with other challenges that hinder innovation. Coordination of meetings across time zones, the lack of organic opportunities for workers to easily talk and share ideas, increased costs due to immigration restrictions and governance expenses all constrain a company’s ability to innovate.

Some industries can cope with immigration restrictions by embracing a virtual, multinational work environment. Others, such as the chemical and pharmaceutical industries, however, rely on real-time knowledge sharing among highly skilled workers who are located in one facility or within one country.

“The research shows that policies that constrain MNEs’ ability to mobilize a strategic workforce across national boundaries are harmful to their competitive advantage,” Nayak says. “These restrictions on high-skilled immigration results in the loss of potential talent and innovation and hinders the growth and development of a country’s knowledge workforce.”