Global start-up culture’s heart is local

JIN DING/CHINA DAILY

Fast-growing companies and startups were once the domain of Silicon Valley and Seattle. No longer.

Today, the United States boasts several innovation hotspots, including Austin, Miami, New York City and Washington, DC. Similar hubs have also sprung up in Europe in recent years, including in Amsterdam, Berlin, Helsinki, London, Paris and Stockholm. But this phenomenon is no longer confined to the advanced economies of the West. In fact, the startup culture has gone global.

China tops the list of innovators, closely followed by India. But unicorns (private companies valued at over $1 billion) can be found in a variety of countries, including emerging and newly developed economies like Brazil, Indonesia, Israel, Japan, Nigeria, Singapore and South Korea.

The largest proportion of high-growth companies can be found in financial technology or fintech, with other key sectors including e-commerce, internet software and services, healthcare, education technology, artificial intelligence, cybersecurity, and supply chain logistics and delivery. not far behind. One common thread is obvious: the digital economy.

Of course, that’s not the whole story. Significant activity, growth and value creation can also be found in sectors related to the green energy transition and the circular economy. For example, the Paris-based Back Market – which is valued at $5.7 billion – facilitates the remanufacturing and recycling of electronics, helping to address the world’s growing e-waste problem. Biomedical science – with its applications in medicine, health, agriculture and synthetic biology (developing new biological parts, devices and systems or redesigning those found in nature) – is another notable area of ​​innovation.

The digital realm has created particularly fertile ground for innovation worldwide. This reflects above all the growing accessibility, which is made possible above all by the rapid spread of the mobile Internet. With more than 6.6 billion smartphones in use today, the market for digital services delivered over the internet is huge and encompasses nearly 84 percent of the world’s population.

Equally important, a combination of public and private investment has increased the speed and quality of mobile internet connections and reduced the cost of both internet-enabled devices and streaming data. As I wrote last year, India is a prime example of how availability and affordability are supporting the emergence of new economic ecosystems in which innovation, entrepreneurship and augmented consumer services can thrive.

Low barriers to entry also help: capital requirements are low, and there is a large and growing supply of creative talent available to hiring startups. Additionally, for many digital service companies, costs tend to focus on software and development, as accessible cloud computing services remove the need to create and manage a vast IT infrastructure. So the marginal cost of adding prospects is small. Scaling up may not be a trivial challenge, but it’s not very expensive either.

And there’s plenty of room to scale. For Internet-based companies, the total addressable market is often large. In many areas, such as software, it spans the globe. Chinese estimates show that the average distance between seller and buyer on e-commerce platforms is around 1,000 km, compared to 5 km for a traditional retail or service company.

Internet-based businesses, from e-commerce to fintech and education technology, not only claim customers from traditional companies; They also serve consumers that traditional companies don’t reach at all. In developing countries in particular, the incentive to invest in digital infrastructure and the expansion of mobile internet is therefore very strong and brings profit-oriented private business models into line with the goal of inclusive economic growth.

While the Internet has removed many geographic barriers, high-growth businesses cannot simply spring up everywhere. Although such companies can be found in more countries than ever, they remain concentrated in entrepreneurial hotspots. For example, of the 24 unicorns in Germany (as of March 2022), 17 are based in Berlin and five in Munich. Of the top 24 unicorns in France, 19 live in Paris and one in a Paris suburb.

This concentration reflects the importance of local ecosystems that support entrepreneurial activity, including venture capital industries, growth capital platforms, legal and recruitment services, and effective regulatory frameworks. A variety of hard and soft infrastructure can also increase the efficiency and dynamism of the innovation process, but this evolves over time.

Multinational companies are often driving advances in these support sectors, bringing their experience, skills and global connections. But these companies don’t simply apply the same business model to new environments and fly in existing staff to guide the process. As opportunities vary from country to country and meeting local needs requires an understanding of local issues, companies need to seek talent with in-depth knowledge of local conditions and connections to local entrepreneurs.

Such talent must be integrated into a cohesive corporate structure and culture. But it is a highly interactive local network – one that is decidedly non-virtual – that forms the core of an entrepreneurial ecosystem that can facilitate the transformation of innovative ideas into viable businesses. Experienced angel investors are often an important part of such a network, as are investors who see themselves as entrepreneurs and not just risk takers. Universities often play an important role as they are usually open meeting places and sources for young potential entrepreneurs.

In this digital age, all countries can and should aim to develop hubs for innovative entrepreneurship. But to succeed, they must cultivate their key ingredients, specifically human capital, digital network infrastructure, a supportive regulatory environment, and policies that encourage funding.

In all their endeavors, they must bring an understanding of the characteristics of the local ecosystems where innovation thrives. Tech entrepreneurship has gone global, but its beating heart remains local.

The author, Nobel Laureate in Economics, is Professor Emeritus at Stanford University and Senior Fellow at the Hoover Institution.

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