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1. International competitiveness

The UK cements its position as a global tech leader

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The UK tech sector is a shining light in Europe, but Brexit is forcing the nation to think bigger. It is critical that the UK looks beyond its borders and judges its performance on a truly international scale.

The tech sector has experienced rapid growth over recent years, both across the UK and beyond. At each stage of growth, ecosystems experience shared challenges and find shared strengths. But each ecosystem has qualities unique to its location and culture.

Thanks for our data partner, Startup Genome, for their insights on global startup ecosystems.

Will Shu

Co-founder and CEO, deliveroo

Having contacts across the world has helped Deliveroo’s growth go from strength to strength, expanding to 12 markets since 2015 in Europe, Australia and the Middle East.”

Global connections are key to domestic success

Digital tech companies in London are the most connected in Europe, second only to Silicon Valley for international connections. Twenty-five per cent of entrepreneurs across the world report having a significant relationship with two or more entrepreneurs in London, compared to 33% for Silicon Valley. These connections extend the UK’s market reach and drive innovation in a process that is inherently collaborative.

Physical proximity often aids collaboration, so we must not underestimate the value of domestic networks. But it is increasingly important that UK tech clusters are seen as local nodes within an international web.

Connectedness – whether local or global – drives innovation, and also extends the market reach of all players in an ecosystem. Since the success of firms in the knowledge-based economy is increasingly dependent on their ability to innovate, the importance of these global networks to the performance of the UK tech sector cannot be overstated.

London secures its position as third global startup ecosystem

Compare global ecosystem rankings using the two drop down menus below.

Ranking of the top 20 global tech startup ecosystems by performance

Source: Startup Genome, 2018

FactorRanking
Performance
Funding
Market Reach
Talent
Startup Experience
FactorRanking
Performance
Funding
Market Reach
Talent
Startup Experience

The charts below show the performance of the world's top tech ecosystems. Look at London's performance against the other 19 contenders.

Notes: Startup Genome assessed 55 startup ecosystems in 28 countries and ranked the top 20 by 5 core factors.

London is the second most connected ecosystem in the world

Hover over bubbles on the world map and explore the global connectedness of tech ecosystems. Zoom into Europe or the US to investigate ecosystems and compare London's entrepreneurial relations.

Global connectedness of the top 20 global tech startup ecosystems

Source: Startup Genome, 2018

Selected ecosystem

  • Inbound connections:

    Percentage of entrepreneurs from international ecosystems
    (outside of your country) who report having a significant relationship with 2 or more entrepreneurs in your ecosystem.

    Percentage of entrepreneurs from international ecosystems (outside of your country) who report having a significant relationship with 2 or more entrepreneurs in your ecosystem.
  • Outbound connections:

    Average number of significant relationships startup leaders have with entrepreneurs from Silicon Valley, NYC, London, Berlin, Tel Aviv, Singapore and Shanghai.

    Average number of significant relationships startup leaders have with entrepreneurs from Silicon Valley, NYC, London, Berlin, Tel Aviv, Singapore and Shanghai.
  • International partner:

    Average number of startups from Silicon Valley, NYC, London, Berlin, Tel Aviv, Singapore and Shanghai that helped or received help from startups in your ecosystem. This is another indicator of global connectedness.

    Average number of startups from Silicon Valley, NYC, London, Berlin, Tel Aviv, Singapore and Shanghai that helped or received help from startups in your ecosystem. This is another indicator of global connectedness.
  • International travel:

    Percentage of startup leaders who have traveled 2 or more time to Silicon Valley, NYC, London, Berlin, Tel Aviv, Singapore or Shanghai in the last 2 years.

    Percentage of startup leaders who have traveled 2 or more time to Silicon Valley, NYC, London, Berlin, Tel Aviv, Singapore or Shanghai in the last 2 years.
  • Local meeting:

    Average number of startup leaders from Silicon Valley, NYC, London, Berlin, Tel Aviv, Singapore and Shanghai that entrepreneurs from your ecosystem have met locally (this shows the degree to which entrepreneurs from top ecosystem travel to your ecosystem).

    Average number of startup leaders from Silicon Valley, NYC, London, Berlin, Tel Aviv, Singapore and Shanghai that entrepreneurs from your ecosystem have met locally (this shows the degree to which entrepreneurs from top ecosystem travel to your ecosystem).

In the map above, inbound connections refer to the percentage of tech entrepreneurs who report having a significant relationship with 2 or more entrepreneurs in an ecosystem other than their own. Outbound connections refer to the average number of significant relationships startup leaders have with entrepreneurs from Silicon Valley, NYC, London, Berlin, Tel Aviv, Singapore and Shanghai. The size of the bubble on the map corresponds to these factors.

The global connections of London entrepreneurs bolster the capital’s international market reach

In London, 33% of tech company customers are based outside the UK, compared to 30% in Silicon Valley and 7% in Beijing. 

This chart below shows a strong link between a tech ecosystem’s outbound global connectedness and its overall market reach. There is a compelling argument for UK tech companies to devote more resources to tap into international opportunities, particularly given the UK’s changing relationship with the EU.

While place and physical proximity help networking, global connections are not based on face-to-face meetings alone. Founders and CEOs are building increasingly dispersed networks which are not limited to where they live or work but are shaped by a sense of shared missions, strengths and challenges. These connections may be facilitated by online channels, events, conferences, or trade missions – fleeting meetings that might have a long-term impact on a founder.

Hover over the orange points to see the relationship between Market reach and Global connections for the top 20 ecosystems, and more data on % International customers.

Market reach of the top 20 global tech startup ecosystems

Source: Startup Genome, 2018

London is not the only UK tech cluster with extensive global market reach. Other clusters such as Manchester, Edinburgh and Belfast also show that UK tech is truly global. The ambitions of all UK tech clusters should be firmly set in a global context.

In this chart, outbound connections refer to the average number of significant relationships startup leaders have with entrepreneurs from Silicon Valley, NYC, London, Berlin, Tel Aviv, Singapore and Shanghai. Global customers refer to the percentage of customers outside of the country where the ecosystem is located.

London attracts international talent

London has the fourth most international tech startup workforce in the world, behind Singapore, Berlin and Chicago, with 54% of workers born outside the UK.

Talent dynamics of the top 20 global tech startup ecosystems

Source: Startup Genome, 2018

Click on the labels to toggle through metrics. Drag a box over the chart to zoom in.

The digital tech sector has a higher proportion of non-UK nationals working in it than the rest of the UK economy. This international talent has a higher share of master’s and PhD qualifications compared to UK nationals, and the proportion of workers from outside the UK has grown from 2011 to 2015.

When it come to the digital tech sector as a whole, 31% of the workforce in London were from outside the UK in 2015 compared to 13% for the UK as a whole.

Talent is critical to the international standing of tech ecosystems

Competition is increasingly evident across borders and determined by conditions in each ecosystem.

This chart shows both the quality and availability of talent in global ecosystems. A clear pattern emerges when you compare the salaries of technical talent in each ecosystem against the percentage of experienced developers it boasts.

London sits in the middle, while US cities are in the upper-right of the chart. This indicates that tech firms in London tend to pay less than their US counterparts, which may lead to experienced developers pursuing higher salaries across the Atlantic. Silicon Valley, Boston and Seattle all have average annual salaries of over $95,000 per worker and 80% of their developers are experienced.

At the other extreme sit Shanghai, Bangalore and Beijing, ecosystems where the cost of talent is low and the proportion of tech workers in the early stages of their careers is relatively high.

A high proportion of recent graduates in the tech workforce might suggest an emerging talent ecosystem and possible challenges in hiring more experienced developers. It may also point towards an ecosystem with future development potential. This figure is highest in Beijing at 39% whereas, in London, it stands at 4% perhaps suggesting that the UK capital has a more experienced talent pool.

The UK is a global leader in digital tech investment

The UK was in the top three countries for total capital invested in digital tech companies from September 2016 to August 2017, behind only the US and China. Only the US has a higher number of deals, suggesting that the UK does more small deals than China. This may indicate one of three things:

  1.  The vibrancy of the nation’s startup and scaleup landscape;
  2. Appetite for risk on behalf of tech investors;
  3. Smaller scale, speculative investments in emerging tech, like AI.

Total investment and number of deals in digital tech companies have risen significantly since 2012. From £984 million in 2012, spread over 870 deals to £3.3 billion in 2016 over 2645 deals – both deal count and investment have more than tripled over the four year period. In this period average deal size has increased incrementally – from £1.13 million in 2012, dropping to £0.94 million in 2013, and then steadily rising year-on-year to £1.25 million in 2016.

Investment in digital tech by country

Source: Beauhurst, 2018; Pitchbook, 2018

Investment is not the only measure of tech success – it is notoriously difficult to capture emerging innovation. As seen from the charts the figures can be skewed by a small number of large deals, which may diverge from patterns of activity witnessed over previous years.

That said, inbound investment can act as a litmus test of an ecosystem’s health. This map shows that the UK has a powerful influence on the global stage, reinforcing its position as a global tech leader.

Ambitious tech companies increasingly seek out smart capital. This investment comes hand in hand with support from people who have experienced the challenges of accelerated growth and understand how to help a company develop from initial proof of concept to mass-market growth. International investment acts as a catalyst for global connections – bringing together companies and investors from across the world. This stimulates worldwide network building, which in turn contributes to the emergence of groundbreaking global companies.

Data partners

Data from Startup Genome allows us to create a detailed picture of the dynamics driving global tech startup ecosystems. Startup Genome focuses on collecting measurable and verifiable information from startups and investors, local ecosystem partners, and third-party sources.
Beauhurst is a database of the UK’s fastest-growing startups and scaleups. We used this data to understand investment in digital tech companies in the UK.
Pitchbook provides research and analysis of companies, deals, funds, investors and service providers across the private investment lifecycle. We use this data to explore investment in digital tech internationally.

Sponsor insight

With the digital sector growing twice as fast as the economy as a whole, it is clear that technology is a critical component of UK growth, both now and for the future.

However, EY’s recent Regional Economic Forecast also found that digital tech growth was fastest in the south of the country. Today, we have a once-in a-generation opportunity to reposition the country. Against a backdrop of changing trade dynamics and technology-led disruption, we believe that the UK regions have a critically important role in strengthening the country’s position on a global stage.

The success that London’s tech sector is currently enjoying internationally is a positive story, and one that other regions can learn from. 33% of its tech company customers are based outside of the UK, making it the second most connected tech ecosystem in the world, following only Silicon Valley. But all of the UK’s tech ecosystems now have a vital role to play in driving the country’s international connections and ensuring our continued competitiveness.

So, as we find ourselves faced with a real opportunity to place the UK at front and centre of the international digital tech economy, now is the time for a renewed focus on the digital landscape across the country. Tech Nation provides a platform for the UK’s regions to learn from successful and established ecosystems. It helps forge connections, joins the dots and supports local networks to flourish. We are proud to be part of that journey’s start.

Mark Gregory
Chief Economist
EY UK

Debbie O’Hanlon
Managing Partner
EY UK Regions

Tech Nation 2018 is now open!

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