If cities are to grow start-ups they must become more globally connected, says a new report.
Data from the 2017 Global Startup Ecosystem report released by Startup Genome earlier this month reveals that cities in emerging economies must do more to attract immigrants and seek out foreign customers.
Where 46% of start-ups are founded by immigrants in Silicon Valley, just 4% of immigrants found new firms in São Paulo and Lagos.
Shanghai also does well when it comes to foreign customers, outperforming Silicon Valley - with 32% of customers originating outside the country, against 30% in the latter. The remainder of the emerging cities bar Bangalore (at 24%) fall below the average of 23%.
Reaching foreign customers, say the report’s authors, allows start-ups to identify problems and solutions that are relevant to broad parts of the world.
“Additionally, productivity and innovation increases as start-ups go global – any given economy, companies with more exposure to foreign markets are the 'frontier' firms that drive growth.”
The authors say establishing more relationships between founders and executives in other parts of the world brings in more ideas and more innovation, resulting in faster startup growth and more vibrant ecosystems.
Those cities with the highest shares of customers elsewhere, are a mix of top-performing ecosystems and smaller places (where a small local market forces them to look outside) .
The Israeli city of Tel Aviv ranks first, where one-third of startups sell to customers outside of the immediate region. The authors points out that because of its small economy and thanks to their global community, Israeli start-ups have successfully executed go-global strategies for years.
They note too that city size guarantees nothing. “Large metropolises that are otherwise well-connected within the global economy aren’t necessarily plugged into global start-up networks.”
But how do foreign founders looking to set-up start-ups in South Africa fare?
A recent parliamentary reply by the Minister of Home Affairs Malusi Gigaba (pictured above) that his department did not approve a single application new business application between January and December last year suggests things are worse than they seem.
Most concerning is the numbers – just 148 applications for business visa renewals and 48 new business visa applications were made over this period. They seem very low.
If South Africa and other emerging economies want to pump up start-up activity they should do more to relax visa requirements and promote more connections between foreign entrepreneurs and investors and local start-ups (see also this earlier post).
Timm is a South African who writes on small business. Follow Small Business Insight on Twitter at @Smallbinsight.
*Update: Malusi Gigaba was moved to minister of finance from March 31.
Stephen Timm is a