Frontier tech, innovation and competitiveness: a public policy nexus
This story is brought to you by Pierrick Bouffaron and Antonio Castro Neto.
AM2 is a Singapore-based venture studio that creates and strengthens science-startup projects in the advanced materials and advanced manufacturing fields. Join an incredible community building the future 🔥🤖
The number of professionals embarking on an entrepreneurial journey is globally on the rise. At the public policy level, promoting entrepreneurship has been a tool widely used by governments to stimulate economic development and generate employment. From Israel to France, Chile or Singapore, from established to aspiring “startup hubs”, countries, regions and cities alike have taken the mandate to stimulate the emergence of small businesses and innovation.
More recently, deep tech entrepreneurship has come to the forefront of governmental discourses. Pushed into action by the necessity to address global challenges (e.g., global pandemics like Covid-19, climate change, ageing population) and intense economic policy making, a growing number of entrepreneurs-to-be now make the leap from science to business. Still, compared to the digital industries with lower barriers to entry (i.e., capital, expertise and productization requirements), the numbers remain low.
The increasing presence of government in stimulating entrepreneurial activity gives rise to a growing need to reexamine the role of public policy on deep tech activity and entrepreneurial finance through a systemic lens. How do local public policy tool mechanisms such as government transfers and subsidies, labor laws, and the development of entrepreneurship education influence the rate of deep tech startup activity, finance, and innovation?
When looking globally at the national contribution of startups and SMEs, one must realize that only a small share of dynamic firms generates most of the jobs and the economic value. Chasing this tip of the innovation iceberg, many policymakers concentrate their efforts to ensure that people can start new ventures and develop them hastily into high-impact new firms (or expand existing ones to their full potential). Those firms must grow in such a way as to be able to quickly abandon the world of micro-enterprise and become competitive ventures with both the potential for continued growth and the expectation of achieving this. Growth speed appears more important than ecosystem velocity in this line of thought. This kind of imbalance is particularly felt by frontier tech entrepreneurs, who face a long and difficult path to turn their discoveries into a market reality. Expanding the base of what is considered as competitive assets will be vital to reconsider the local productivity gap and encourage structural change in tomorrow’s economies: not all companies follow such a linear — or exponential, leading to frantic hunt for unicorns—and continuous high growth pattern.
Many economists argue that a more systemic approach and calibrated support to industrial value chains would bring more economic resilience over time (see for example 1, 2 and 3). Such an approach considers the variables that affect entrepreneurial opportunities — including the capacity, profile, and dynamism of the demands of households, governments, and firms — which are positively correlated with the size and growth of the economy. The required pragmatism, agility and courage to embrace such a systemic approach to ecosystem building can leave policymakers in a hesitant search for hybrid answers, pulled between sending short-term political signals and long-term transformative objectives. The European Union has long been criticized to flit around tech startup policy, enforcing a litany of tech proposals over the years. In Asia, various innovation policy instruments have been used to embrace the fourth industrial revolution, based on digital technologies.
In Singapore, political decisions have played a central role in the development of entrepreneurship by defining policies and creating modern infrastructure, building networks and innovation support mechanisms. Incubators, accelerators and advisory services are one of the most ubiquitous and persistent forms of local government support today. Evidence of the success of these programs, however, is still difficult to track due to selection and endogeneity issues, and lack of systematic data on outcomes.
More recently, the country positioned itself on frontier tech venturing, broadcasting its knowledge-intensive economy and ambition to build the industrial value chains of the future. Capitalizing on two world-class universities (NUS, NTU), elite research agencies (e.g., A*STAR) and one of the most advanced regional industrial infrastructures, the country has been touting his first generation of startups on the global stage. Yet, to grow strong and sustainable, the Singaporean frontier tech ecosystem is to finely combine effective political leadership, finance, market, cultural and human capital efforts over the next years. From the start, policymakers focused their attention to bringing effective education and deep tech training to a level that private markets did not enable (by lack of mature corporate players and tech capabilities) — an effort we observe daily within universities. In parallel, skilled deep tech entrepreneurs started to receive endowments to stimulate risk taking, both directly (subsidies, investments) and indirectly (funds of funds). Overcoming capital gaps where investors face institutional constraints on considering frontier tech is essential, but the emergence, consolidation and maturation of a sub-VC scene will take time.
‘Startup-nations-in-the-making’ may outperform other emerging tech regions in terms of those variables affecting the ignition and development of new firms — like financing or policies — but at the same time, show deficits in terms of structural factors that explain the shortage of nascent entrepreneurs. There are even special cases of what can be define as ‘dual ecosystems’ where a small, vibrant, and dynamic nucleus of high entrepreneurial activity coexists with several structural barriers that complexify its further development. This kind of configuration is quite common in maturing frontier tech economies and precisely, constitutes one of the main policy challenges for their governments. In these cases, entrepreneurship policies should devote significant efforts to broaden the pool of dynamic entrepreneurial human capital, with a long-term perspective based on strengthening the social capital platform and the educational system while fostering a growth-oriented entrepreneurial culture. Attracting entrepreneurs from other countries also contributes to this end in the short-term. Looking at the Singaporean and South-East Asian deep tech scenes, we could argue that ‘dual ecosystems’ are already a reality — cf. economic, industrial and entrepreneurial gaps— and will still be the norm for the years to come. Articulating a coherent response to promote inclusiveness, aggregation of players, knowledge sharing and internationalization will be essential for the next maturation stages.
Obviously, it is not an easy matter to define the national policies that can contribute to establish substantial growth in total factor productivity, especially when focusing on deep science. It is even harder to build support for productivity-raising reform and to make it work in practice. The frontier tech journey of Singapore is unique. The Little Red Dot is well aware of both its strengths and the aforementioned challenges, and strives to create favorable conditions regarding the social conditions, the educational system as well as the science-technology-innovation platform the country needs to keep flourishing on the tech world stage.
We believe that five pillars are key to bringing the local frontier tech space to the next level:
- Maintain the quality of the business environment.
Access to both adequate financial and non-financial resources when building a frontier tech company is a must. Broadly, successful tech economies are driven by higher education and training, well-functioning labor markets, sophisticated financial and goods markets, a large accessible domestic and/or foreign market and the ability to reap the benefits of existing technologies. The role of legal and institutional settings that mitigate the startups costs and costs of failure are also key. For all those reasons, Singapore has to stay open to the world.
2. Intensify the collaborations on the value chain.
Enabling effective cross-sectoral collaboration will ease challenges due to fractionalized markets and value chains, and boost opportunities. Corporations, investment firms, academia, and government must keep striking partnerships around open innovation and frontier tech, while slowly distancing themselves from what naysayers like to call the “innovation circus”. In particular, in order to reduce existing barriers to the entrepreneurial activity, it is indispensable that entrepreneurship in the public and private sectors do not overlap each other, but rather complement one another, by sharing strategic roadmaps.
3. Build more consistent international bridges.
Singapore needs to make a substantial investment in talented people, technology, potentially capital assets to build up and be part of the global B2B infrastructure. Even the subcategories of ‘freedom to trade’ internationally and domestic regulatory ‘barriers to entry’ are closely related to the performance of frontier tech entrepreneurship. International partnerships and expansion are not easy to accomplish, and for the time being, Singapore excelled in bringing partners locally more than sending its champions abroad. The whole ecosystem should now start supporting startups when it comes to international contract negotiations, partnerships, marketing campaigns, and expansion… including flipping them to larger markets (US, China).
4. Balance the cultural “fear of failure” and encourage creativity.
The foundational idea behind this point is that attitudes toward risk affect whether individuals choose to become an entrepreneur instead of seeking steady employment in the general labor force, which is still predominant among young Singaporean adults. The perceived risks around venturing can be a significant barrier to entrepreneurship, especially in frontier tech where complexity, long product development cycles and collective rewards are the norm. Local frontier tech entrepreneurs need to feel they contribute irrespective of their venture outcome: they are national assets to be cultivated, motivated, and remunerated to the greatest possible extent.
5. Ensure an equality of chances for first time entrepreneurs.
There is a perceptible global appetite for systemic change: entrepreneurs are seen as both vectors and potential beneficiaries. The unfolding economic consequences of the Covid-19 pandemic while, in the meantime, private equity money has never flown as much into tech, have recently opened a window onto different entrepreneurial realities. Those drivers and symptoms are part of a broader discussion in which systemic barriers are shown to create imbalances between those with privilege and those with uneven access to resources and entrepreneurial opportunities, between short-term and long-term benefits for the ecosystem. As a tiny but hyper-connected ecosystem, Singapore can lead by example and demonstrate that deep tech entrepreneurship is open to all.
