Whether you look at North America, Asia or anywhere for that matter – micro-small-medium enterprises (MSMEs) are the steadfast drivers of economies. Startups, however, are taking this growth to a whole other level. And while they tend to start small like MSMEs, their processes, development and support networks differ considerably. Associated with tech-driven innovation, quirky, youthful workplaces and high-impact results, the global proliferation of startups may be a cultural phenomenon in addition to a new economic engine.
These problem-solving ventures do not simply emerge in a vacuum; they require an entire ecosystem to grow. With Canada’s startup scene receiving increased support, looking to innovations in Asian ecosystems would take disruption to a new level. The idea of “pivoting,” associated with the lean startup movement, is when a company makes fundamental changes to its structure, direction and audience when an original business plan fails to take off. Canadian startups can grow by pivoting towards Asia, and policies looking to drive innovation in the Canadian ecosystem should take advantage of this opportunity. Not only does Asia offer a new market and consumer base, but a growing entrepreneurial support network in these countries offer the infrastructure for Canadian companies to dock, learn and collaborate with new, inventive small businesses in the region.
Challenges in a Canadian Ecosystem
The 2017 Global Startup Ecosystem Report, which ranks global cities on their ability to build and sustain startup ecosystems ranked Canada the 15th best location in the world to start a company. Canada is home to a few well-known “unicorn” companies (ventures that are valued at US$1 billion or more) such as Shopify, Slack and Hootsuite. Despite these high-profile gains, Canada is not doing as well as it could. Canada’s venture capital investments peaked in 2000 at nearly C$3 billion, but in 2013 only C$1.9 billion was invested in the country, according to the Rotman School of Management. In comparison, US$35 billion was invested in the United States in the same year. While Canada is ranked fifth in the world (behind the U.S., China, India and the U.K.) in terms of global venture capital investment, and many Canadian companies achieve success in their first five years, only three per cent of firms that survive beyond that point classify as high growth. Apart from funding issues, what is accounting for these gaps?
John Ruffalo, CEO of OMERS Ventures, the venture arm of the Ontario Municipal Employee Retirement System, and one of Canada’s leading pension funds, recently stated:“I believe that the technology community knows how good Canada is as a hotbed of technology. But the general public in Canada doesn’t really understand how incredible our people or resources are here. In this time of globalization and extreme competitiveness, one of the key industries we are going to have to focus on for prosperity is technology, and many other countries around the world have concluded the exact same thing. The [pressure] for us to be even better than our competitors have never been greater.”
According to a study conducted by the Center for Digital and Economic Performance (DEEP) last year, “Canada's continued underperformance on the creation of high-growth firms, and limited transactional activity within its startup community, speaks to real weaknesses in the entrepreneurial support ecosystem.” Two major reasons can be identified for this lacklustre performance. First, while Canadian startup ecosystems benefit by having access to U.S. markets, this proximity is also a double-edged sword. An estimated 350,000 Canadian entrepreneurs and executives drawn by opportunity to Silicon Valley are creating a shortage of experienced managers and executives to help companies grow in Canada. Prime Minister Justin Trudeau spoke to this trend at the launch of the OneEleven startup hub in April, stating that countering the current “brain drain” is as important as attracting capital for startups to grow. Second, while entrepreneurial support networks are expanding, most Canadian startups are not using resources made available to them by the government. While over 140 startup assistance organizations (such as business incubators, accelerators, and hubs) operate in the country, high-growth companies like Shopify and Hootsuite did not participate in Canadian programs. While Shopify and Hootsuite hit the scene before the proliferation of local startup hubs, DEEP recommends that potential high-growth companies would benefit from specialized support programs that encourage Canadian startups to learn from and expand in international markets.
Looking Towards Asia
Currently, while 99 per cent of Canadian businesses are MSMES, only 12 per cent engage in export activities with only one per cent of those exports going to Asia. Nearly one-third of the world’s “unicorn” companies are located in Asia, with 37 in China, eight in India and a few located in South Korea, Singapore, and Japan. Not just concentrated in high-growth Asian economies, ecosystems are expanding rapidly in cities like Ho Chi Minh City, Manila, and Karachi, as seen through the growing number of incubators and accelerators. Small business accounts for 97 per cent of all enterprises in the APEC economies, and 66 per cent of people in the ASEAN region view entrepreneurship as a positive career choice (surpassing the global average of 62.5%). Higher Internet usage rates coupled with improvements in business environments, significant tax benefits, stiff country investment barriers, and startup centric support from local governments are making countries in Asia promising locations to grow startups. Additionally, increased spending from a rapidly growing middle class is propelling consumption in a new way. According to the Brookings Institute, 88 per cent of the next billion entrants into the global middle class will live in Asia.
Apart from these large shifts, smaller trends observed in Asia’s bustling startup scene have propelled its development, making local ecosystems ideal for small Canadian firms to explore. First, countries like Vietnam are experiencing a “reverse brain-drain” phenomena. Talented Vietnamese-origin entrepreneurs are leaving tech centres like Silicon Valley to start and expand their companies in Vietnam, such as the founders of Klout.inc and Chopp.vn. Drawn by the prospect of creating an impact in high-growth environments, these entrepreneurs are capitalizing on the unique opportunities in Asian markets.
One of the large draws of working in startups in Asia is also the ability to create responsive products that target everyday issues. For example, in the Philippines the growing population of overseas workers sending money back home has lead to the rise of financial technology (fintech) apps that offer a variety of new, low-cost services such as remittance payments, transfers, and lending that were otherwise expensive and dominated by a few groups. Similarly, many ventures are based around business methods and concepts that have been successful in developed countries, but with adaptations made to reflect local conditions, such as “Careem,” the Uber of Pakistan.
Finally, unique public-private partnerships are forming to create support networks that address socioeconomic gaps and challenges for entrepreneurs. The Women’s Initiative for Startups and Entrepreneurship (WISE) in Vietnam was established under the Ho Chi Minh City Department of Technology’s innovation mandate in collaboration with the Asian Development Bank. WISE offers a platform for women working in startups to address the gender-specific barriers to entrepreneurship through mentoring, fundraising, and advocacy.
Tapping into the Buzz?
Identifying the opportunities present in burgeoning Asian ecosystems requires meaningful exchanges between Canadian and Asian startups. Currently, the main inroads are through China and India. Nevertheless, there are active ecosystems within other Asian economies and there may be opportunity to negotiate Canadian access within them. An example of a program carrying out this work is Ryerson Futures – an accelerator program that works with startups based out of Toronto that moves past the idea of looking to Asia as only a source for investment, but rather for spaces of collaboration and growth in new markets. For example, in collaboration with the Government of Ontario, the Gateway 91 program plans to fund five Canadian fintech startups to enter the Indian market. In addition to having a docking point in Mumbai, the selected companies will be mentored by local industry experts and have the opportunity to collaborate with like minded entrepreneurs and firms. “We were pleasantly surprised by the willingness of Indian corporates to engage with early technology companies,” says Matt Saunders, President of Ryerson Futures. “We now operate three corporate accelerators in India and provide our innovation-for-hire consulting services to companies like Visa, Thomson Reuters, ICICI Lombard, and so on.” Similar models exist in China, such as the Shanghai Technology Innovation Center run in collaboration with MaRS Discovery District. Even without a formal Canadian institutional affiliation, popular incubators and accelerators in China such as HAX in Shenzhen attract Canadian companies looking to enter the Chinese market.
Not only will startups benefit from this type of collaboration, but also Canadian entrepreneurial development programs like Ryerson Futures can become leaders in maintaining innovative ties with Asia. Injecting energy and creativity is necessary for Canada’s startup scene to grow, and shifting our attention to opportunities in Asia will get us there.