Innovation ecosystemsEmpowering entrepreneurs and powering economies

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3 Introduction

4 Evolutionoflabourmarkets

8 Revolutionoflabourmarkets?

10 Mappinginnovation

13 Nurturinginnovation

15 Fosteringinnovationfortheglobalcommunity

17 Recommendationsforcreatingsuccessfulinnovationecosystems

18 Aboutthisreport

Contents

2

ThisreportwaswrittenbyAnnaLawlorandeditedbyMonicaWoodleyofTheEconomistIntelligenceUnit.

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Theriseofmicro-multinationalsstart-upswhichoperateacrosshigh-andlow-costlocations,deliveringtoaninternationalcustomerbaseexemplifiestheopportunitieswroughtbyglobalisation,digitalcommunicationsandtheinternet.Thechallengesforbusinessleadersandpolicymakersaretoempowersuchopportunitiesforentrepreneursandtofosterdomesticandinternationalinnovationecosystems,whilemitigatinganincreasinglydysfunctionalgloballabourmarket.

Global economies are on the cusp of a third-wave industrial revolution1 in which enterprising, young innovators will play a central role.

Introduction

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1Basedoncommentsfromthefourcasestudies,citing:http://en.wikipedia.org/wiki/Alvin_Toffler

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2002 2012

12%

6%

2002 2012

5%

7%

2002 2012

8%

10%

2002 2012

10%9%

2002 2012

5%

8%

2002 2012

6%

8%

2002 2012

7%

13%

India**Brazil China* France IsraelUK United States

Evolution of labour markets

Mechanisationandtechnologicaladaptionbycompaniesarespeedingupprocessesandincreasingunemploymentandunder-employmentsomethingtheUSwriterandfuturistAlvinToffler2hasdescribedasapost-industrialthirdwaveofsocioeconomicorganisation.

Recordedofficialunemploymentasapercentageoftotallabourforce

The global labour market is undergoing massive structural changes that will have potentially far-reaching implications for the workforces of the future.

4

*Chinas2002=2012figuresestimated.**Indias2012figuresestimated.Source:TheEconomistIntelligenceUnit.Pleasenote:datanotavailableforNigeria.

Thetypeofworkpeopleacrosstheworldaredoingisshifting.WhileagriculturestilldominatesinemergingmarketssuchasIndiaandNigeriaandmanufacturinghastakenholdinslightlymoreadvancedeconomiessuchasChina,theproliferationoftheservicesectorsindevelopedeconomiessuchastheUS,theUKandFrance(accountingforalmost80%ofGDP3ineach)standsinstarkcontrast.4

2http://en.wikipedia.org/wiki/Alvin_Toffler3https://www.cia.gov/library/publications/the-world-factbook/fields/2012.html4https://www.cia.gov/library/publications/the-world-factbook/fields/2012.html

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5growthin2011yethadalabourparticipationrateof47.9%;fewerthanhalfofitscitizensofworkingageareemployed.Equally,Indiaproduced6.3%GDPgrowthin2011andhadalabourparticipationrateof55.6%.Chinabucksthetrend,with9.3%GDPin2011andthehighestlabourparticipationrateoftheeightcountriesexaminedinthisreport,at74.1%.

Brazil2000 68%2011 70%

Nigeria2000 45%2011 48%

India2000 60%2011 56%

China2000 77%2011 74%

Israel2000 54%2011 57%United States

2000 66%2011 64%

UK2000 62%2011 62%

France2000 55%2011 56%

Source:TheEconomistIntelligenceUnit.

Source:TheEconomistIntelligenceUnit.

DealingwithdysfunctionallabourmarketsIntheWest,thelongeconomicslowdownhasreduceddemandforlabouracrosstheboard,makingitsignificantlymoredifficultforpeopletofindwork.Perversely,infaster-growingeconomiestherearealsosignsofdysfunctionallabourmarkets.Nigeria,forexample,produced7.4%GDP

25

20

15

10

5

0

-5

-10 200

0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Brazil

China

France

India

Israel

Nigeria

United Kingdom

United States

25

20

15

10

5

0

-5

-10 200

0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Brazil

China

France

India

Israel

Nigeria

United Kingdom

United States

However,astheInternationalLabourOrganisation(ILO)considersapersontobeemployediftheyhaveworkedatleastonehouringainfulemploymentinthemostrecentweek,suchfigurescouldconsiderablyunderestimatetheunderemploymentrateinmanycountries.

Labourparticipationrate,total(%oftotalpopulationages15+)PercentagechangeinrealGDPoverpreviousyear

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Matureeconomieswhereeconomicgrowthhasbeenlessrobustarealsodealingwithgrowingageingpopulationsmakingthemtop-heavyandproducingfeweryoungpeopletoreplacethegenerationswhoareapproachingretirementorarealreadyretired.

FranceandtheUKhavethehighestproportionofover-65sintheirpopulation(oftheeightcountriesexaminedforthisreport),whereasinfast-growingcountriessuchasNigeriaandBrazilthoseagedover65accountforasignificantlysmallersharelessthanhalfthatofFranceandtheUK.

Thisposesaproblem,andidentifiesapotentialopportunityforfast-growingcountries;theireconomiesarenotmaximisingtheyounganddynamicpopulationavailabletotheworkforce,asdemonstratedbythelowlabourparticipationrates.

6

38

52

1961

Nigeria

2011

42

66

1961

India

2011

55

73

1961

Brazil

2011

44

75

1961

China

2011

70

1961

France

2011

72

8282

1961

Israel

2011

71

81

1961

UK

2011

70

79

1961

United States

2011

Lifeexpectancyatbirth,total(years)

Source:WorldBank.

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7Populationages0-14(%oftotal)

NigeriaIndia

42% 41% 42% 44%

24% 26% 28%29%31% 36%

1961

Brazil

2012 1961 2012 1961 2012 1961 2012 1961 2012 1961 2012 1961 2012 1961 2012

40%

18% 18% 20%23%

18%

China France IsraelUK United States

Source:WorldBank.

Populationages65andabove(%oftotal)

NigeriaIndia

3%

7%

3% 3% 3%5%5%

1961

Brazil

2012 1961 2012 1961 2012 1961 2012 1961 2012 1961 2012 1961 2012 1961 2012

4%

9% 9%

17%

12% 11%12%14%

17%

China France IsraelUK United States

Source:WorldBank.

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8Zero-hourscontracts,forexample,giveemployersflexibilitytoemploycasuallabourasandwhenrequired,withnoneoftheresponsibilitiesassociatedwithhiringemployees.Companiescanthereforekeepoverheadsandcorporateliabilities(suchasemployeebenefits)low,makingthemcompetitivelynimble,advocateswouldargue.Thistrendhasswollentheranksoftheself-employedfreelancerorcontractorindevelopedeconomies,ostensiblygivingthemtheflexibilitytoacceptordeclineworkastheychooseandtooperateinthelabourmarketunrestrictedbyacontractualobligationtooneemployerbutalsounsupportedandwithoutasafetynet.

TheinternethasfacilitatedaboominonlinelabourexchangessuchasElance,oDeskandPeoplePerHour,marketplaceswhichconnectself-employedworkerswithemployersofferingone-offworkprojectsorzero-hourscontracts.5Youngpeople(aged18-24)andthoseagedover55aretwiceaslikelytohaveastheirmainsourceofemploymentazero-hourscontractthananyotheragegroup,accordingtotheCharteredInstituteofPersonnelandDevelopment(CIPD).6

Arethesedevelopmentssignsthatthelabourmarketisevolving,creatinganinternet-enabledmarketplaceofself-employed,entrepreneurialindividualswhochoosewhenandhowtheyworkforcorporations?TylerCowen,ProfessorofEconomicsatGeorgeMasonUniversityintheUS,saysthattheriseofself-employedfreelancersdoesnotconstituteasubsequentriseinentrepreneurialactivity.

One aspect of the structural changes to labour markets, particularly in developed economies such as the UK and US, is the shift to flexible and remote working arrangements.

Revolution of labour markets?

Instead,itisevidenceofsomesocialandeconomicdysfunction;heexplainsthattheyrekindofcheaplabouratthefringe,whichenablestherealentrepreneurialcreatorswhoareabletodrawfromthisemploymentpoolquicklyandeasily.

Morethan75millionyoungpeoplearenowunemployedglobally,withsomeofthehighestyouthunemploymentratesfoundindevelopedeconomies.Beforethefinancialcrisis,youthunemployment(ofthoseaged15-24)inEuropewasalreadydoublethatoftherestofthepopulation,7andthisgrouphasbeenhithardestduringtherecession;bytheendof2012theyouthunemploymentratewas2.6timesthetotalrate,accordingtotheEUstatisticaloffice,Eurostat.8Emergingmarketsfarecomparativelybetter.IndiahashalftheyouthunemploymentrateofFrance,forexample.AlthoughNigeriahasayouthunemploymentrateof38%,afarlargerproportionofmanyemergingeconomiesareinformalcash-in-hand,untaxed,unmonitoredandunaccountedforworkandeconomicproductivitythatoperatesoutsideofthe

formaleconomy.Thiscanobscureorskewthetrueeconomicpicture.ItisestimatedthathalfofIndiaseconomyandasmuchas90%ofitslabourforcefallundertheinformaleconomy,9secondonlytoSub-SaharanAfrica,whichhasthelargestinformaleconomyintheworld.

SchumpeterscreativedestructionForJaideepPrabhu,JawaharlalNehruProfessorofBusinessandEnterpriseattheJudgeUniversityofCambridgeJudgeBusinessSchool,UK,thisistheresultofSchumpeterscreativedestructionthewayinwhichcapitalisteconomicdevelopmentarisesoutofthedestructionofsomeprioreconomicorder.Whatwereseeing,itsreallytheneweconomyoftheinternetthathasmadetheworldflat,butonlyincertainsectorsandonlyforcertainpeoplepeoplewhohaveaccesstothoseglobalecosystemsandglobalnetworks,hesays.PeopleinvolvedinmanufacturingintheWest,forinstance,haveseentheirincomesdeclineoverthepast20yearsorsoastheChinese,inparticular,addverylargenumbersofpeopletotheglobalworkforceinthosesectors,andWesterncompetitivenesshasnotkeptup.

AsWesterneconomiesshiftfurtherintosectorssuchastechnicalservicesandIT,thereisadivergencebetweenthosewiththerelevantknowledgeandexperienceinsuchhigh-demandareaswhogainemploymentevenifitisinanon-traditionalandmoreflexibleformandthosewithmoretraditionalskillsandknowledgewhohavelimitedaccesstoemployment.Itisnotjustchangesinlabourmarkets,butthewayinwhichpeopleworkisshiftingaswell.

>75millionThenumberofyoungpeoplewhoarenowunemployedglobally.Source:Eurostat.

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0 10 20 30 40

17.8%Brazil

5.8%China*

22.6%France

10.5%India

38%Nigeria**

18.9%UK

17.6%United States

14.7%Israel

0 10 20 30 40

17.8%Brazil

5.8%China*

22.6%France

10.5%India

38%Nigeria**

18.9%UK

17.6%United States

14.7%Israel

9

Sources:CIAWorldFactbook.10*OECD.11**WorldBank.12

Source:CIAWorldFactbook-Unlessotherwisenoted,informationinthepageisaccurateasofjanuary1,2012

*Youthunemploymentrate,aged15-24,bothsexes.Source:MillenniumDevelopmentGoalsDatabase1UnitedNationsStatisticsDivision.**WorldBankstatistics.

Youthunemployment(aged15-24),2012

Youthunemployment(aged15-24),2011

5http://www.economist.com/news/business/21578658-talent-exchanges-web-are-starting-transform-world-work-workforce6http://www.cipd.co.uk/pressoffice/press-releases/zero-hours-contracts-more-widespread-thought-050813.aspx7YouthUnemploymentTrends:http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Unemployment_statistics#Youth_unemployment_trends8YouthUnemploymentTrends:http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Unemployment_statistics#Youth_unemployment_trends9https://www.credit-suisse.com/newsletter/doc/apac/aic2013/20130712_indiamkt.pdf10http://www.indexmundi.com/g/r.aspx?v=222911https://skills.oecd.org/informationbycountry/chinapeoplesrepublicof.html12http://businessdayonline.com/2013/11/addressing-youth-unemployment-in-nigeria/

ProfessorPrabhubelievesthenextgenerationsapproachtoworkwilltransformpartsofthegloballabourmarket:Wewillstarttoseeaverydifferenttypeofemployment,whereyoungpeoplearenotlookingtobigcompaniestoemploythembutwillincreasinglystartbeingtheirownemployer,havetheirownbusiness.Hebelievesthatthedemocratisationofinnovationisunderway.

Inthe20thcentury,innovationwasthepreserveoflargecorporationswithaccesstoresources,largeteamsandR&D(researchanddevelopment)budgets,heexplains.Bothindevelopinganddevelopedeconomies,werestartingtoseesomethingofarevolutionwhere,increasingly,smallerteamswithfewerresourcescandothingsthattheycouldntdoeventenyearsago.Thisisbecauseoftheneweconomy.This,hesays,isfacilitatedbyopenaccesstoknowledgethroughfreeonlinecourses(knownasMassiveOpenOnlineCourses,orMOOCs),accesstonon-traditionalfundingsourceslikecrowdfunding,theabilitytoquicklyandaffordablycreateprototypeswith3Dprinters,andaccesstosocialmediaandinternet-enablednetworksthathelpyoungentrepreneurstocommercialisetheirinnovationsandsourcenewmarkets.

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USA92,595

UK26,998

China25,326

Nigeria2,150

Brazil7,400

Israel7,500 India15,509

France11,910

10

DavidGill,ManagingDirectorofStJohnsInnovationCentre(establishedbyStJohnsCollege,partoftheUniversityofCambridge,UK),says:Ithinktheparadoxoftheconnectedworldisthat,yes,itiseasierandeasierforsomebodyintheUKtobecollaboratingwithsomeoneinPolandorSiliconValley,butyoustillfindyougetgeographicconcentrationsofpeople.Partly,Ithink,becauseitstodowithhowyoubuilduptrustandculturestostartwith.

DevelopinginnovationecosystemsTheterminnovationecosystemdescribestheroleofindependentfactorsworkingtogethertoenableentrepreneursandallowinnovationtooccurinasustainedwayinaparticularlocation.However,analysinghowtheydevelopdifferentlyindifferentplacescanenablepolicymakersandbusinessleaderstoprovideamoresupportiveenvironment.

While the internet allows this development anywhere, innovation ecosystems have emerged in multiple locations around the world hubs or hotspots of entrepreneurial activity that form a geographic cluster, for example in Silicon Valley in the United States.

Mapping innovation

Mappingtheconversationsaroundinnovationecosystemsnewsvolume

Source:Quidresearch;RelativenewsvolumesurroundinginnovationandentrepreneurshipfordistinctgeographiesasextractedfromopeninformationstreamsbytheQuidnaturallanguageprocessingandconversationmappingengine.

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Inordertoinvestigatethedevelopmentofinnovationecosystemsaroundtheworld,TheEconomistIntelligenceUnitturnedtoSiliconValleystart-upQuidInc.Astheinternethaschangedlabourmarkets,soithasalsochangedresearch.Byminingtensofthousandsofnewsandblogsourcesonline,13Quidwasabletomapconversationsineightdiversegeographieswithidentifiedinnovationecosystems:theUS,UK,France,China,India,Israel,BrazilandNigeria.

DiscussingentrepreneurshipTheresearchprovidesintriguinginsightsintohowpeoplewithinthosegeographies14discussbusinessinnovationandentrepreneurship,whichnon-domesticlocationstheyassociatewithinnovationecosystemsofinterest,andhintsattheculturalnuancesatplayinlocationsaroundtheworld.Itisbyinterpretingdatasuchasthesethatgovernmentsandbusinessleaderscanunderstandthekindsofinterventionsthatmightencourageinnovationecosystemstotakeroot,ortonurtureentrepreneursandinnovationwheresuchasystemisalreadyinplace.

QuidfoundthatinsomelargelyWesternnationsonlineconversationsandpresscoverageweredominatedbydomestic-focusedgovernmentpolicyanddataaboutentrepreneurialactivity.ThiswasthecaseintheUK,whichalsotendedtowardsbroaderconversationsaboutsmallbusinessesratherthanstart-upsandentrepreneurs,whichweremoreprevalenttermsintheUS.DiscussionsinFrancealsoconcentratedondomesticcompanies,butratherthangovernmentpolicy,itwasawardprogrammes,

Toptenlocationsmostfrequentlymentionedininnovationcontentclusters,accordingtoQuidsresearch

Source:Quid.Pleasenote:thedomesticecosystemsidentifiedineachoftheeightgeographiesaremarkedinpaleblue.

13Between18August2013and5December2013.14Caveat:ThosewhohappentopublishtheirviewsonlinebetweentheperiodQuidexamined;somesources(suchasaveryprolificbloggerorjournalist)couldpotentiallyskewthedatafindingsbasedontheterminologytheyprefer.TheQuiddataalsodonottakeintoaccountdifferencesinjournalisticstyle/preferenceacrossthedifferentregions,whichcouldaccountforcertainwords(smallbusinessversusstart-up)beingmoreprevalentincertaingeographies.Thedataalsodonottakeintoaccounttheproportionofthepopulationineachoftheeightcountrieswhohaveaccesstopublishingontheinternet,whichmeansthattheresultsmaynotbetrulyrepresentativeoftheviewsanddiscussionsofthoseoperatinginthenationsinnovationecosystem.

incubators,investmentsandpartnershipsthatdominated.Inthiscontext,Chinasinnovationecosystem(basedontheQuiddata)wasasintrovertedanddomesticallyfocusedastheWesternecosystems.

TheinnovationecosystemsofdevelopingcountriesparticularlyBrazil,IsraelandNigeriaweretypicallylessintrospective,focusingonglobaltradeandstrategicregionalorglobalpartnerships.Toalesserextent,Indiastoptencontentclustersincludedinternationalpartnershipstofosterentrepreneurialcollaboration(withAustraliaandCambridgeUniversityintheUK,respectively).

ConnectingecosystemsByamalgamatingthelocationsnamedincontentclustersabouteachoftheeightinnovationecosystemsexamined,amapemergesoftheconnectionsbetweenthem.ThechartbelowidentifiesnotonlydomesticinnovationecosystemssuchasChicago,NewYork,SanFranciscoandLosAngeles,inadditiontoSiliconValley,intheUSbutalsotheotherecosystemsdiscussedineachcountrysnews.TheUSsoveralldominanceofnewspertainingtoinnovation,entrepreneurialismandstart-upbusinessesisclear,asisthemutuallyfavourablerelationshipbetweentheUSandIsraelwithregardtoinnovation.

Domestic

United States

Israel

India

Europe

China

Silicon Valley

Chicago

New York

San Francisco

Los Angeles

US

1

2

3

4

5

6

7

8

9

10

Region

United Kingdom

United States

London

Europe

Britain

India

Northern Ireland

Australia

Israel

China

UK

France

United States

Europe

Paris

London

United Kingdom

India

New York City

China

San Francisco

France

China

United States

Taiwan

Hong Kong

Beijing

India

Singapore

Shanghai

Israel

Asia

China

India

Bangalore

United States

Mumbai

New Delhi

Asia

Singapore

China

United Kingdom

Europe

India

Israel

United States

New York City

Tel Aviv

Europe

India

London

Silicon Valley

China

Singapore

Israel

United States

Brazil

Europe

China

India

United Kingdom

Latin America

Asia

North America

Africa

Brazil

Nigeria

Africa

Lagos

South Africa

United States

Sub-Saharan Africa

Ghana

Abuja

West Africa

India

Nigeria

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AvnerWarner,DirectorofInternationalEconomicDevelopmentatTelAvivGlobalCityAdministration,explainsthecloseties:TheIsraeliecosystemhasnolocalmarkets(forproducts),soourlocalentrepreneursleapfrogtheIsraelimarketstraighttotheUS.AlotofthemconsideropeningtheirheadquartersintheUSinordertomarkettheirproductsthere,sowecertainlylosepartofthevaluethatwecreate.Welosealsosomeofourlocaltalent,butwerelivinginaglobalworld,andpeopleleavingdoescreatenetworks.

Headds:WeveacceptedthatIsraelistart-upshavetogoabroadtogotomarket,andnowthepolicyImusingistoattractentrepreneursfromEuropetoourearly-stageecosystem,playingtoourstrengths.

OvercomingchallengesQuidsfindingsappeartosupporttheideathatecosystemsareplayingtotheirstrengths,aswellasProfessorPrabhusassertionthatinemergingeconomies,alotoftheingenuityisreallyaresponsetoscarcity,andpeopleinnovatingsolutionstounmetneeds.AkeythemeforNigeriaisovercominginfrastructurechallengesalsoseeninmanyotheremergingmarkets.Butchallengecanfostergreatercreativity.Thesuccessofmobiletelephonyintheemergingworldisreallybecauseofthelackoflandlinesandhasbeenaveryremarkableleapfrog,ProfessorPrabhusays.Mobilephoneshaveprettymuchcoveredmostofthecountries,anddonesomuchmorecheaplyandquickerthan[through]landline[infrastructure].

Three-quartersofthe6billionmobilephonesbeingusedaroundtheworldareindevelopingeconomies,15andsuchproliferationinmobiletechnologyissupportingmicro-entrepreneurs(thesmallestofsmallbusinesses,withlowseedcapitalandahandfulofemployees).16AstudybytheLondonBusinessSchool1718foundthatwithinmonthsofhavingreceivedmobilenetworkcoverage,80%offishermeninKerala,southernIndia,hadpurchasedamobilephone.Theyusedthemobiledevicestocalleachfishmarketwhilestillatsea,whichenabledthemtoselltheircatchwheretheywereofferedthebestprice,makingthemarketmoreefficient:thefishermensprofitsincreasedby8%,consumerpriceswerereducedby4%,andthedumpingofunsoldfish(whichhadpreviouslymadeup5-8%ofthedailycatch)waseradicated.

15http://www.worldbank.org/en/news/press-release/2012/07/17/mobile-phone-access-reaches-three-quarters-planets-population16http://en.wikipedia.org/wiki/Micro-enterprise17http://innovation.london.edu/resource/99/index.html18TheDigitalProvide:Information(Technology),MarketPerformance,andWelfareintheSouthIndianFisheriesSector:http://qje.oxfordjournals.org/content/122/3/879.abstract19http://www.reutersmarketlight.com/index.html20http://www.reutersmarketlight.com/about_us.html

Takingadvantageoftheproliferationofmobiles,ReutersMarketLight(RML)19provideslocalandinternationalweather,cropandmarketinginformationineightlanguagesthroughSMSto1.3millionregisteredfarmersin50,000Indianvillages(althoughitisestimatedtoreach4millionfarmersthroughinformation-sharing).Suchinformationhelpsfarmersdecidewhentoplantseeds,whentoharvestandhowbesttomarkettheirproduceandatwhatprice,resultingina5.2%reductioninpricedispersion.20

InnovatingforimpactWhiletherearewell-knownexamplesofinnovationsolvingemergingproblems,toooften,MrWarnernotes,toomanyofourentrepreneursaretryingtosolvefirst-worldproblems,andpotentiallymissingoutonmassiveopportunitiesindevelopingcountries.Thequestionis:Whatkindofinnovationishappening?Wewouldliketogetthosemindsinvolvedtomakeagreaterimpact.4million

ThenumberoffarmersinIndianvillageswhobenefitfromweather,cropandmarketinginformationfromReutersMarketLight,viaSMS.Source:Reuters.

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Theroleofgovernment,theneedforbetteraccesstocapitalandstart-upculturewereallprevalent.Educationandinfrastructurewereoftenmentionedasbarriersto,ratherthancatalystsfor,innovation.Thisissomewhatsurprising,giventhatproximitytoauniversityorresearchfacilityisconsideredtobeanimportantingredientforinnovationecosystems.

CultureofcollaborationMrGillsaysthisprovidesacommunityofpeoplewhounderstandnewideas,understandresearchandabuilt-incultureofcollaboration.Headds:Themissingpieceifyouareauniversityorresearchfacilityishavingtheapplicationorcommercialfocus.Whatworkswelliswhereyouhavegatekeeperswhounderstandtheneedsofbothsides.

Thisiswhereprovidinginnovationcentres,suchasStJohnsinCambridge,isbeneficialinsupportingentrepreneurs,accordingtoMrGill.Weareafacilitatorfortheinnovationsofothers,hesays,providingflexibleworkspaceandaccesstoadvice,guidance,introductions,networksasmuchoraslittleastheyneedsothattheycangettotherightpeople,therightresources,recruitnewstaffandfindcustomersaloteasierthaniftheyweredoingitontheirown.

In order to understand the challenges facing innovators, as well as where they are receiving support, the research identified high-level topic themes discussed across all eight ecosystems.

Nurturing innovation

Innovationfactoraverageprevalenceacrossallnations Topthreegeographics

Source:Quid.

Agriculture 21%

Trade 50%

Start up 57%

Infrastructure 51%

Finance 38%

Health 27%

Education 52%

Gender equality 14%

Government 39%

Environment 31%

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Buildingculturalself-confidenceOne-fifthofthebusinesseshousedinStJohnsInnovationCentrewhichwasthefirstaccreditedEuropeanBusinessandInnovationCentre(BIC)intheeastofEnglandandisoneofeightintheUKproviderelevantservicestoinnovators,suchaspatentandotherlegaladvice,accountancyservicesandmarketingservices.TherearesimilarBICschemesinplaceacrossFrance,Spain,Italy,Portugal,Ireland,Germany,BelgiumandAustria.21

MessrsPrabhu,CowenandGillbelievethatinnovationecosystemsemergewherelikeminded,visionaryyoungpeople(andtheyseeinnovationasintrinsicallyyouth-led)congregate,wheretheyhavewhatMrCowencallstheculturalself-confidencetoturnideasintoaction.Whiletechnologyhasenabledcheap(orfree)communicationaroundtheworld,democratisingvoiceandvideoconferencecalling,eachexpertsayssuccessfulinnovationcannotflourishwithoutface-to-faceinteraction.

SuccessfactorsBeyondtheabilitytomakeconnectionsfacetoface,whataretheelementsofasuccessfulecosystem?MrCowenlists:Accesstocapital,abilitytofail,amixofarroganceandrivalry,culturalself-confidence,andthenbeingattherightplaceattherighttime.Youneedadecentregulatoryenvironmentthatwontblocktoomanythings,andthen

peopleonthefundingsidewhohavevision,andthatsprettyrarebecausefunders,bynature,arerisk-averse.

MrWarneragreesthatgovernmentscanhelptolowerbarrierstoinnovationbyencouragingbalancedrisk-takingandprovidingfinancialincentivestoentrepreneurialism,suchasmatchingprivateinvestmentinstart-upsresearchanddevelopmentandprovidingtaxincentivesforfundingstart-ups.

Whileaccesstocapitalanddifferentfundingvehiclesisessential,combiningfinancingwithsomeformofcommercialmentorshipwoulddomoretoensurethatitisusedwiselyandthatpastmistakesbypreviousstart-upsarenotrepeated.

Oneofthebasiccharacteristicsofayoungentrepreneuristhattheyhavehadnoexperience,saysMrWarner.TakeMarkZuckerberg,Imeanheisauniquecase,butheneverranacompanybeforeFacebook;hisentry-levelpositionisrunningamulti-million-dollarcompany.Tofostermentorshipandcommunity,tosupportco-workingspaces,clusters,whereentrepreneurscaninteractwithoneanotherandexchangeideasandtalkaboutmistakesthattheyvemadeisreallyuseful.

21http://www.ebn.be/DisplayPage.aspx?pid=10

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ImplicationsforgovernmentsMrGilladdsthatgovernmentsmustlearntorecognisewhichentrepreneursaremostlikelytoflourishandtochannelresourcestothem.ThetrickforgovernmentsandIfullyacceptitsareallydifficultoneistostrikethebalancebetweentryingtoletasmanyflowersbloomaspossibleandrecognisingthosewhicharereallynotgoingtobloomandtostopfeedingthatpotplant,hesays.

Theissueoflabourconcentrationisalsoapressingone,asMrCowenbelievesinnovationecosystemswillremainthepreserveofcities,withmoresatelliterelationshipsfromentrepreneurswhoarebasedoutsideofcitiesbutreliantonthem.Heexplains:Itllbeaprettysmallnumberof[innovation]hubsinmostcountries,andpeoplewillhave

asatelliteexistence,perhapsbecauseitscheaper,butthatsonlypossibleonceyouvereallybuiltupyourtiestothedominant[innovationecosystem]centre.Thishasseriousimplicationsforcityandtownplanners,withissuesrelatingtourbansprawlsuchashigh-densityliving,infrastructureoverloadandincreasedcrimeratesalreadypresentinmanycountries.Thiscouldalsocauseissuesoftalentconcentration,withsomecitiesdeprivingotherareasinthecountryofworkerswithnecessaryskillsandintensifyinginequalitybetweendomesticpopulations.

CollaboratingbeyondbordersGettingtheconditionsrightwithinanecosystemisvital,butMrWarnersayspolicymakersalsoneedtothinkbeyondtheirborders.Theriseofmicro-multinationalsstart-upsbuilttotargetaglobalratherthandomesticorregionalmarketnecessitatesgreatercollaborationbetweeninnovationecosystemsaroundtheworld,hesays,whichiswhyheisattemptingtoestablishaChamberofCommerceforInnovationEcosystems.

Whenastart-upisfoundedandhasitsR&DinTelAvivbutwithinsixmonthsitsheadquartersinNewYorkorEuropeandsuppliesaglobalmarket,thencertainlywehavetothinkbig.Essentiallytheseentrepreneursareworkingonaglobalscale(soweshouldtoo),headds.

Theflatworldistheconnectedworld,whichhighlightstheimportanceofpolicymakersbridgingthedividebetweendigital-richanddigital-poorlocationsandcommunitieswheretheyexist.

Byloweringbarrierstoentry,nurturinginnovationandcollaborationwhereitorganicallyoccursandbypromotingthesuccessesofdomesticentrepreneurs,countriescanfosteranentrepreneurialculture.Withthisinplace,thepotentialfortransformingthehighnumbersofunemployedintoproductive,engagedmarketparticipantsishigh.

Ofcourse,educationpoliciesneedtokeeppacewiththeknowledgeandskillsrequiredforyoungpeopletoparticipateintheemergingthird-waveindustrialrevolution.Tosomeextent,MrGillsays,thesectorsdrivingeconomiesreflecttheeducationsystemsandtypesoflearningineachcountry.TheWesternideaseconomyarguablyreflectsthesubtleshiftawayfromroteandtick-boxlearningtowardsmorecreativeandproblem-solvinglearning.However,changingeducationpoliciesmaypromptpoliticallydifficultdecisionswithanageingelectorate.Tosomeextent,businessleadersandrolemodelentrepreneurscanlendsupporttogovernmentsintheirambitiontocreateamodernworkforceforthefuture.

The proliferation of global communication networks is a huge enabler for entrepreneurs and their employees across the world, with the potential to affect the capacities and productivity of companies in all sectors, be they agriculture, manufacturing or professional services.

Fostering innovation for the global community

Thetrickforgovernmentsistostrikethebalancebetweentryingtoletasmanyflowersbloomaspossibleandrecognisingthosewhicharereallynotgoingtobloomandtostopfeedingthatpotplant.David Gill, ManagingDirectorofStJohnsInnovationCentre

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AvirtuouscircleofinnovationAsidefromtheeconomicgainsofsupportingentrepreneursandincreasingcross-bordercollaboration,thesoftpowerbenefitsofathrivingdomesticinnovationecosystemcanbuoyMrCowensculturalself-confidenceandbecomeavirtuouscircleofinnovationtomeetthecurrentandfutureneedsoftheglobalcommunity.

Theeconomicpotentialofentrepreneursistremendous,sounderstandinghowandwhyinnovationecosystemsemergeandwhatcanbedonetoensurethattheyflourishmustbeapriority.Asuiteofinterventions,deployedacrossthecyclefromeducationtoemployment,isneededtoachievelasting,substantivechange.Governments,businessandacademiamustworktogethertotacklethischallenge.Globaleconomieswillfailtoflourishunlessmoreentrepreneursareencouragedtobuildtheirideasintosuccessfulbusinesses.

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Policymakersshould:

Increasecross-bordercollaboration

Buildinnovationcentres(asopposedtoresearchfacilitieswhichtypicallylackcommercialfocus)thatfacilitatetheinnovationsofothers

Createplaceswhereyoungpeoplefeeltheyhaveculturalself-confidenceandwheretheycanmeetfacetoface,asexpertssaythatiswhensuccessfulinnovationsemerge

Ensureafriendlyregulatoryenvironment

Lowerbarrierstoinnovationbyencouragingbalancedrisk-takingandprovidingfinancialincentivestoentrepreneurialism(suchasmatchingprivateinvestmentinstart-upsresearchanddevelopmentandprovidingtaxincentivesforfundingstart-ups)

Recommendations for creating successful innovation ecosystems

Reformeducationpoliciestokeeppacewiththeknowledgeandskillsrequiredforyoungpeopletoparticipateintheemergingthird-waveindustrialrevolution

Promotethesuccessesofdomesticentrepreneurstofosteranentrepreneurialculture

Recognisewhichstart-upsaremorelikelytosucceedandchanneltheresourcestotheminsteadoftryingtosupportasmanystart-upsaspossible.

Businessleadersandentrepreneursshould:

Combinefinancingwithcommercialmentorship

Supportthegovernmentincreatingamodernworkforceforthefuture

Takeadvantageofopportunitiesindevelopingcountries,insteadoffocusingtoomuchontryingtosolvefirst-worldproblems.

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David GillisManagingDirectorofStJohnsInnovationCentreinCambridge,UK.HeisanacademiccollaboratorattheUniversityofCambridgeInstituteforManufacturing,anon-executivedirectorofUKBusinessIncubationLtdandamemberoftheDepartmentforBusinessAccesstoFinanceExpertGroup.Heisalsotheco-authorofanumberofanalysesofinnovation(intheUS,Israel,GermanyandtheUK),businessincubationandfinanceforgrowthfirms.

Avner WarnerisDirectorofInternationalEconomicDevelopmentatTelAvivGlobalCityAdministration,leadingstrategyandimplementationforstrengtheningthecityspositioningasaglobalinnovationhub.Hisprofessionalexperienceisasanattorneyinthefieldofemergingandestablishedtechnologycompanies,M&Aandventurecapital.

About this report

BarclaysalsoconnectedtheEIUwithQuid.QuidisaSiliconValleystart-upthathascreatedaglobalintelligenceplatformusedbytheworldsleadingorganisationsandgovernmentsforstrategicdecisionmaking.QuidisbackedbyinvestorsincludingPeterThielandNiklasZennstrom.

Quidsoftwarebringstogetherdata,algorithmsandvisualisationtoolsthatallowuserstouncoverhiddenrelationshipsandinsightsfromtheworldsinformationstreams.

Inthecontextofthisstudy,QuidindexedandstructuredhundredsofthousandsofglobalnewsdocumentsonglobalinnovationineightgeographiestheUK,US,France,China,India,Nigeria,IsraelandBrazil.Byutilisingnaturallanguageprocessingandnetworktheory,Quidvisualisedthetopicsofconversation,extractedkeyentitiesandevents,torevealtrendsintheglobalconversationaroundinnovation.Byanalysinglanguage,Quidrevealedadata-drivencomparisonofthefootprintofinnovationfactorsandtheirsentimentineachecosystem.

SumonSadhu,DanielHoughton,DanielPedrazaandHamletAbayafromtheQuidIntelligenceTeamperformedthisanalysis.

Barclays approached The Economist Intelligence Unit (EIU) in November 2013 to investigate how innovation ecosystems have developed around the world and how policymakers and business leaders can support these ecosystems and remove barriers for entrepreneurs.

Tyler CowenistheHolbertC.HarrisChairofEconomicsandGeneralDirectoroftheMercatusCenter(auniversityresearchcentrethatfocusesonthemarketeconomy)atGeorgeMasonUniversityinFairfax,Virginia.HewritesregularlyfortheNewYorkTimes,isco-authorofthepopulareconomicsblogTheMarginalRevolutionandrecentlypublishedhislatestbook,AverageisOver.

Jaideep PrabhuisJawaharlalNehruProfessorofBusinessandEnterpriseattheJudgeBusinessSchooloftheUniversityofCambridge,UK.TheprofessorshipwasestablishedbythegovernmentofIndiawithanendowment.HeisalsotheDirectoroftheCentreforIndia&GlobalBusiness(CIGB).

Inadditiontowide-rangingdeskresearchandQuidscontribution,thisreportisalsobasedonfourexpertinterviews.Ourthanksgotothefollowinginterviewees:

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BarclaysisatradingnameofBarclaysBankPLCanditssubsidiaries.BarclaysBankPLCisauthorisedbythePrudentialRegulationAuthorityandregulatedbytheFinancialConductAuthorityandthePrudentialRegulationAuthority(FinancialServicesRegisterNo.122702).RegisteredinEngland.Registerednumberis1026167withregisteredofficeat1ChurchillPlace,LondonE145HP.

January2014.

barclays.com/entrepreneurs

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