International Business | Diversity and Migration

Reaping the Benefits of Ethnic Diversity

Fast Facts:

  • Ethnic diversity is a valuable asset for nations and companies, as long as it is well-managed.
  • When ethnic groups are shut out from the social, political, and economic life of a country, the risk of conflict, which can spill over into the workplace, rises.
  • Businesses should collaborate with government officials to support ethnic inclusion policies so that the benefits of ethnic diversity can be realized.

Global migration has increased during the past few decades, resulting in increased ethnic diversity in many countries. Only a few nations on earth consist of just one ethnic group.

Whether ethnic diversity is a plus for nations and business organizations is a topic of often-fierce debate. Many argue that ethnic diversity provides skills, abilities, perspectives, and cultures that enrich life and can lead to greater productivity, innovation, and creativity. The ethnic diversity of the United States is often seen as one of the country’s greatest strengths; studies by management scholars have found that American ethnic diversity is related to higher levels of creativity and greater productivity. At the company level, organizational behavior research has consistently shown that diversity is a valuable asset for businesses, as long as it well-managed.

But not everyone agrees that ethnic diversity is a plus. In recent years, politicians in the US and Europe have been openly critical of multiculturalism, suggesting that greater diversity is more likely to generate greater social and political unrest and significant economic costs. Despite the well-documented benefits of diversity, some studies have found that ethnic diversity in a country can lead to lower economic growth rates.

Research by SFU’s Chang Hoon Oh, the William Saywell Professor in Asia Pacific Business at the Beedie School of Business, and Jennifer Oetzel, Professor of International Business at American University, examines ethnic diversity from a different angle. Instead of just focusing on demographics and cultural characteristics, they studied the degree to which different ethnic groups are included in the economic and political fabric of a country. They contemplated that when ethnic minority groups are shut out from playing a role in a nation’s economic and political life, ethnic diversity might be more likely to create social and political conflict and increase risk for businesses.

Oh and Oetzel’s contemplations were confirmed by a study they conducted of over 30,000 subsidiaries of 4,000 MNCs from 79 home countries operating in 63 host countries. The study examined the effect of ethnic diversity in a country on employee productivity and management strategy in subsidiaries. What the researchers found is that it is not the level of ethnic diversity per se that causes conflict and increases risk. Rather, diversity only becomes a risk if some ethnic groups are disenfranchised or unrepresented in the political and economic life of a country. When one or a few ethnic groups become dominant and prevent other groups from fully participating in the political process or economic opportunities, this can increase business risk and lower labor productivity.

Oh and Oetzel conclude that ethnic diversity is highly desirable but needs to be well managed, not just at the company level but by government. Government policies related to ethnic diversity, cultural pluralism and immigration should not be considered separately from economic policies. Poor political and economic policies that disenfranchise minority groups create ethnic tensions that can spill over into the workplace. The researchers argue that businesses should work together with government officials to support ethnic inclusion policies, since effective management of diversity can positively impact business and contribute to economic growth. Business leaders have done this for other social issues, such as climate change, gender inequality, and corruption, through national and international business forums. They should do the same for ethnic diversity, not just for their own benefit but to improve life for citizens in all the countries they operate in.