Which Emerging Markets Make the Best Homes for Startups?

In the popular imagination, emerging markets are seen as economic engines of sky-high growth, pumping out cheap products and earning investors unbelievably high returns on their interest.

But believe it or not, emerging markets also have another, more obscure strength: they are a hotbed of tech innovation, and in fact, have become fantastic bases for entrepreneurs and their fledgling, scrappy startups. After all, thanks to the internet, tech workers are location independent: they can work anywhere in the world, and are no longer bound by the harsh realities of time and distance.

While much of this is due to government incentives like ambitious infrastructure projects, there’s plenty of individual initiative at play, particularly where it concerns resources like intellectual capital. Let’s take a look at why entrepreneurs should look outside the US, as well as three tech hotspots in emerging markets.

Why look outside the US?

By now, it’s clear that Silicon Valley specifically (and for that matter, America more generally) can be challenging places to live and work, particularly for tech entrepreneurs. Though the root causes are very complex, the problems remain the same: an astronomical cost of living and shoddy infrastructure.

For instance, as of February 2017, the average rent in San Jose, California is $3,178 for a two-bedroom apartment–a figure so high that some residents are even forced to live in vehicles like RVs, cars, and vans. Additionally, in terms of internet speed and affordability, the United States does not score well; speed-wise, the country comes in at 22nd place with an average of 11 megabits per second (mb/s). Singapore, which took the first spot on the list, averaged a whopping 98 mb/s.

Much of this has to do with infrastructure, or the lack thereof. Most of America’s network is still copper coaxial cable, rather than the faster fiber optic networks that are responsible for Singapore’s blazing fast internet speeds. The fact that much of the internet is provided through oligopolies doesn’t help, either: a handful of companies (Time Warner, Comcast, Verizon, and AT&T) provide internet, which equates to high prices and little incentive to improve.

What cities in emerging markets are good for startups?

But it’s not just enough that entrepreneurs should seek reliable, robust internet connections and a low cost of living overseas. After all, while you can always consult a cost of living database in order to compare cities and countries, it’s much harder to find a base of soft capital (whether it’s skilled coders or a concentration of VC investors) without more thorough research.

Read on for three cities in emerging markets that can offer both tangible resources (like infrastructure) as well as intangible ones.

Lagos, Nigeria

Nairobi, in the nearby country of Kenya, may be known as Silicon Savannah, but there’s a new kid on the block: Lagos, Nigeria, a bustling city of 21 million–and the latest, and most surprising, addition to the startup scene.

Though Lagos has long been known for its infamous traffic jams, today, the city is rapidly gaining notoriety for another sort of traffic: web startups. Yaba, the epicenter of Lagos’s burgeoning tech industry, is a flourishing, dynamic hub, home to an impressive array of startups, incubators, and tech talent. Even Y Combinator, the California-based powerhouse that helped build big names like Airbnb, Stripe, and Dropbox, is getting in on the action, accepting a number of Nigerian applicants such as e-payment platforms Paystack and Flutterwave.

Other standout startups include Slatecube, a startup built to address Nigeria’s pressing unemployment problem–and whose founder turned down a job offer from MIcrosoft (and later told Bill Gates himself about it); or LifeBank, an app that connects blood banks with Lagos hospitals (which receive only 43% of the required plasma each year, leaving serious shortfalls).

More recently, Yaba was visited by Mark Zuckerberg, who came in part to learn more about Andela, a talent recruiting startup he backed with nearly $24 million. Zuckerberg hailed Andela, and startups like it, as a key way to address the talent-opportunity gap; though cities like Lagos are teeming with intelligent, highly qualified individuals, many of them still lack the requisite access to opportunities.

If past is anything to go by, however, the lack of opportunity in Lagos will likely not stay that way for soon–nor will the favorable climate and abundance of human capital.

Shenzhen, China

Born of an experiment with capitalism, this southern Chinese city may well be one of the most important cities that you’ve never heard of–and perfect for entrepreneurs seeking a skilled, tech-savvy workforce. For decades, Shenzhen has served the world’s factory, producing up to 90% of the world’s gadgets, from high-end products like smartphones and cutting-edge gaming consoles to more humble fare such as LEDs and phone chargers.

Today, however, Shenzhen is no longer the copycat factory of yesteryear; instead, it’s rapidly gaining a reputation for innovation, leveraging its considerable base of scientists, engineers, designers, and factory workers not towards knocking off Western products–but towards designing and producing its own, world-class machines. Some notable firms include DJI, the world’s leading manufacturer of commercially-available drones, and Huawei, the third-largest producer of smartphones globally–and number 15 on Fast Company’s Most Innovative Companies of 2017.

All this is to say that entrepreneurs, particularly those focusing on hardware, will love Shenzhen. The atmosphere is rife with innovation and disruption, as loose, decentralized networks collaborate to bring products from concept to execution with breakneck speed. After all, there’s a reason that this area, which accounts for 5% of the nation’s population, rakes in a tenth of China’s GDP, a quarter of its exports, and 20% of its foreign direct investment.

Sao Paulo

Under its previous leader, Dilma Rousseff, Brazil gained a reputation for startup savvy; her administration incentivized entrepreneurs, targeting them with low interest rates, heavy investment in infrastructure, targeted tax cuts, and even retirement benefits–providing, in essence, pro-growth bonuses. Through its program, Startup Brasil, the government bundled together visas, incubators, and even investment, centered in two cities: Rio de Janeiro, and of course, Sao Paulo.

Today, Dilma may be gone and the government totally changed–but both Brazil has retained its reputation as a tech superpower. Despite the new Brazilian government passing a series of severe austerity measures, which froze public spending for almost twenty years, the startup scene remains strong. For its part, Sao Paulo is home to multinational tech giants like Google, Uber, and Airbnb; the site of countless accelerators (such as Startup Farm, a famously intense, intensive program that has already invested over $100 million across hundreds of startups); and a robust ecosystem of both venture capital and talent.

True, the city isn’t without obstacles: Brazilian bureaucracy, for instance, is notoriously inefficient, and Sao Paulo isn’t an exception. Yet all things considered, Sao Paulo is a fantastic choice for budding entrepreneurs and their teams–especially in light of the abundant investment, an environment rich in human talent and resources, and strong, innovative, and diverse teams.

Thanks to a combination of government incentives, ambitious infrastructure projects, and individual initiative, emerging and frontier markets increasingly are an affordable, attractive alternative for cash-strapped founders with little more than drive, vision, and a plan.

2017-06-19T14:52:46+00:00 April 18th, 2017|Emerging Markets, Finance, Global Markets, Investments, Startups|0 Comments

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