Where in the world should British startups turn towards now?
Zain Ali, 26 March 2024
The UK’s digital industry has weathered Brexit blues to dominate the rankings of European tech. By some estimates, London’s tech scene now ranks second only to Silicon Valley. For centuries, the UK capital has been an entrepot for the global service sector, and it remains a magnet for money and talent.
Size isn’t everything, and UK tech’s international posture is also distinctive. Britain is now the destination of choice for American venture capital.
Tides that come in will also go out. British tech companies have a habit of spreading their wings way beyond their own shores. Unicorns like Revolut, Deliveroo and Checkout.com have now expanded as far afield as Kuwait, Singapore and Pakistan.
Yet the raw numbers show some limits to UK tech’s global inclinations.
Challenging the rich world bias
Despite political rhetoric, UK plc is not, as a rule, blazing trails in far-off lands. The biggest markets for UK digital exports in 2021 were the United States, Germany, Ireland, the Netherlands and France.
UK tech’s trading partners closely mirror those of the wider economy. British tech companies, just like those in the ‘old’ economy, prefer to trade with close neighbours and traditional allies in advanced economies. Clearly, opposites don’t always attract.
Subscribers to the gravity theory of trade would see this as inevitable, and perhaps that’s true. Nonetheless, UK startups shouldn’t shy away from countries with different developmental profiles.
The government agrees. Its 2023 International Technology Strategy promotes investment in emerging economies to close the international ‘digital divide’.
Top 5 emerging destinations for UK tech
Slowly but surely, UK startups are heeding the call. As emerging markets’ tech scenes bloom, British companies are shifting spending and hiring talent away from the West. Likewise, investors in frontier economies are now claiming their own slice of London’s pie.
Let’s take a walk through UK tech’s most promising growth destinations.
India
UK tech leaders have found many kindred spirits in the world’s most populous nation. Anyone who works in a London startup will know how much the sector relies on Indian talent. Lingering images of India as an outsourcing zone for cost-cutting Western firms are sorely outdated.
The close ties between the two nations are reflected in investment flows in both directions. The much-vaunted free trade agreement may not have (yet) materialised. But India is now the UK’s second-biggest source of digital services imports.
In 2018, the British government kicked off the UK-India Tech Partnership by making residents of tech crucibles Bangalore and Pune eligible for the Super-Priority Visa (SPV). This has since been extended to a further six cities.
In the same vein, the recently closed UK-India Young Professionals Scheme has given young Indian workers a route to working in the UK.
Few UK startups have stepped beyond investment and recruitment to formally expand into India’s enormous market. However, with the Indian VC ecosystem projected to hit a volume of 3.5 billion USD next year, the tipping point must be close.
Brazil
South America’s largest country is striving to become a regional tech powerhouse.
As part of its industrial policy, the federal government is investing BRL 300 billion in bleeding-edge sectors like biotechnology and semiconductors. They also aim to see 90% of industrial businesses digitalised by 2030 from a current baseline of 23.5%.
Ever since setting up a UK-Brazil Tech Hub in 2018, the UK has shown strategic interest in Brazil’s digital shift.
Brazil is also one of five countries to feature in the UK’s Digital Access Programme (DAP). This state-funded consortium remedies exclusion gaps in underserved communities in developing countries.
These schemes have rolled the pitch for collaboration between British and Brazilian startups. In 2023 alone, the UK exported £287 million worth of telecommunications, computer and information services to Brazil. The new BRAEXP digital trade hub for export services has helped to make these flows seamless.
Money is flowing in the other direction, too. The Double Taxation Agreement signed last year has allowed companies like fintech Aarin to start planning to expand into Europe via London. In 2020, Brazilian startups got the chance to work with UK universities like Imperial College through the Brazil-London Incubation Programme.
The connections sprouting between these two nations are a bright spot in Britain’s quest to find its post-Brexit trading role. Brazil’s huge human potential should be at the forefront of global-leaning UK startups.
Our webinar from 2021 shines some light on how to approach doing business in South America.
Indonesia
The third-fastest growing economy in the G20 isn’t yet on most UK tech firm’s radars, but it should be.
Indonesia’s young, tech-savvy population has let its digital economy leapfrog the usual stages of development. Jakarta and Bandung now boast thriving tech milieus that could prove very valuable to Western founders and investors.
In late 2021, Jakarta incubator Endeavour teamed up with the UK-Indonesia Tech Hub to launch a mentoring programme. The project has since identified 88 viable startups, some of whom have gone on to score significant seed funding.
Since then, relations have only trended up. UK civil servants have directly appealed to Indonesian skilled workers to come to the UK. A joint trade committee has been convened, and a roadmap has been agreed to ramp up investment.
The private sector is now tentatively mobilising in response. UK fintech unicorn Wise has already started operating in Indonesia. A tranche of British agritech startups is now preparing to launch in the South East Asian market.
As ASEAN’s digital economy creeps towards the USD 1 trillion mark, Indonesia will become a natural entry point for Western firms.
Ukraine
Amidst the horror of war, Ukraine’s startup scene has proved strikingly resilient.
Despite its relatively low GDP, the nation’s skilled workforce is the stuff of legend. High-profile names like GitLab, Preply and Grammarly were all founded by Ukrainian expats.
Back home, over 240,000 tech specialists are still holding their nerve and working through the invasion. A slew of international investment schemes have provided them with much-needed seed funding. Of these, the UK Ukraine TechBridge is one of the widest-reaching.
As part of the programme, startups are currently pitching to British VCs for seed funding. Many more Ukrainian citizens will receive targeted skills training directly from UK tech leaders.
At present, Ukraine may seem too risky to formally expand into. However, there is a strong moral and business case for continued collaboration.
South Africa
Blessed with relatively good infrastructure, South Africa is now a significant investment destination.
The UK’s International Trade Department has exerted itself to build bridges between the two nations. The British High Commission’s UK-South Africa Tech Hub touches a notably broad swath of the South African economy. Its alumni include fintechs, medical AI firms and even food service businesses.
UK tech firms are increasingly attuned to the opportunities on offer in Africa’s southernmost reaches. London-headquartered VC firm Bleinheim Chalcot has now set up offices in Cape Town, as has small cybersecurity firm Kocho.
Despite current political instability, South Africa’s appeal to UK investors seems undimmed. With an 11% increase in internet users between 2016 and 2021, we see big things happening in this extraordinary part of the world.
Go (Global) South, Young Startup
These five nations are the only tip of the iceberg. Firms that grow beyond their typical export markets are likely to be rewarded, whichever region they turn to.
The numbers speak for themselves. Forrester predicts that growth in technology spending in 2024 will be concentrated in Asia Pacific. Since 2018, Latin America’s startup scene has grown in enterprise value by almost 5% in just 5 years. In 2021, mobile technology and services made up 8% of Sub-Saharan Africa’s total GDP.
While these markets are flush with opportunities, they do present challenges for British firms. Regulatory environments can differ dramatically between neighbouring countries in the developing world. Similarly, doing business without offending cultural norms can take intensive preparation.
These are all risks to be mitigated rather than reasons to shelve global expansion plans. They hammer home the importance of a coherent strategy for market entry.
The first step is knowing when to make your move. Read our guide to timing your market entry for some practical pointers.
