Harnessing Smart City Technology to Boost Startup Growth and Combat Premature Deindustrialization

In the rapidly evolving digital era, the concept of a smart city has become a primary focus for many governments worldwide, including in developing countries.

Authors: Tuhu Nugraha, Raine Renaldi, Temmy Debora*

In the rapidly evolving digital era, the concept of a smart city has become a primary focus for many governments worldwide, including in developing countries. A smart city leverages information and communication technology (ICT) to enhance the quality of life for its residents, improve public service efficiency, and promote economic innovation. One significant impact of implementing a smart city is its ability to address the challenges of premature deindustrialization and foster a dynamic startup ecosystem.

Deindustrialization is a phenomenon where the proportion of the manufacturing sector in a country’s economy declines, often due to automation, intense global competition, and a shift towards a service-based economy. In Indonesia, the contribution of the manufacturing sector to GDP decreased from 29.3% in 2000 to 18.25% in 2022. Similarly, in Brazil and South Africa, there have been comparable declines, indicating a concerning trend for industry-based economies.

However, amidst these challenges, the creative sector offers significant opportunities. In 2020, creative goods and services accounted for 3% of total global goods exports and 21% of total services exports. Global exports of creative goods increased from $419 million in 2010 to $524 million in 2020, while creative services exports rose from $487 billion to nearly $1.1 trillion during the same period. Developing economies like China have become major players in the export of creative goods, demonstrating the vast potential in this sector.

By leveraging advanced technology and supportive policies, smart cities in developing countries can overcome deindustrialization challenges and seize opportunities in the creative sector. Smart city initiatives can stimulate startup ecosystem growth, create new trade opportunities, and diversify exports, making smart cities a key to a more innovative and sustainable future.

Key Focus Areas for Local Government Development to Drive Innovation and Startup Ecosystems:

Access to Funding

Access to funding is a crucial element in the startup ecosystem. Without adequate funding, many potential startups cannot develop and bring their innovations to market. Smart cities can attract various forms of investment by providing infrastructure that supports innovation, such as robust internet connectivity, coworking spaces, and training programs. For example, city governments can offer initial grants to startups showing high potential in solving city problems and organize pitching events to connect startups with potential investors.

Through government initiatives and collaboration with the private sector, venture capital and angel investors can be attracted to invest in local startups. The government can facilitate investor networks through business forums and technology conferences and provide tax incentives for investors who invest in local startups. A concrete example is Singapore’s co-investment funds program, where the government invests alongside private investors to reduce risk and increase the attractiveness of investing in tech startups.

Government grant programs are also essential in supporting early-stage startups that do not yet have access to significant funding. These grants can be used for research and development, product prototyping, or initial expansion. Additionally, crowdfunding platforms can provide alternative funding for startups needing extra capital. City governments can support this initiative by providing secure and verified digital platforms and educating the public on the importance of investing in local startups. A successful policy example is Estonia’s public crowdfunding campaign with the Funderbeam platform, enabling local startups to obtain funding from international investors.

Supporting Infrastructure

The success of the startup ecosystem also depends heavily on adequate supporting infrastructure. Smart cities must provide affordable and flexible coworking spaces and incubators and accelerators that can guide startups from the ideation stage to product development and marketing. The government can play an active role by repurposing government-owned buildings into coworking spaces, reducing operational costs for startups.

Furthermore, the government can collaborate with private sector or community incubators to create industry-specific clusters that support the startup ecosystem and strengthen the city’s positioning as an innovation hub. These incubators and accelerators can offer comprehensive facilities ranging from workspace and mentoring to investor network access. With such support, startups can grow faster and be better prepared to compete globally.

Reliable and fast internet connectivity is also a prerequisite for supporting digital business activities. The government must ensure that the city’s digital infrastructure can meet the needs of startups, including high-speed internet access throughout the city. Thus, smart cities can create an environment conducive to startup growth and innovation, ultimately enhancing economic competitiveness and the quality of life for residents.

Talent and Education

Collaboration between universities and startups is essential in creating an innovative environment. Universities can play a role in research and product development, while training programs can equip aspiring entrepreneurs and startup employees with the necessary technical and business skills. The government can encourage this collaboration by implementing several concrete policies, such as providing tax incentives for universities and companies that collaborate on research and development projects. A successful case is the Startup India program, where government grants are provided for collaborative projects between universities and industry, resulting in many technology-based startups in the information technology and biotechnology sectors.

Furthermore, the government can build innovation centers or science parks adjacent to major campuses. These innovation centers provide shared research facilities, workspace for startups, and mentoring programs from academics and industry practitioners. A successful example is Tecnopuc in Brazil, a technology park near Pontifícia Universidade Católica do Rio Grande do Sul (PUCRS), which has become an incubator for many technology startups and fosters synergy between academia and industry.

The government can also support international talent exchange programs by facilitating work visas for researchers and professionals from abroad who want to work in local startups or universities. A concrete example is Chile’s Startup Chile program, which attracts international talent to live and work in Chile, providing mentoring and funding opportunities for local startups. This program has supported over 2,000 startups from 85 countries, with a total valuation of over USD 2 billion and created thousands of jobs in Chile.

Startup Chile is a successful example of how the right government policies can drive economic growth and innovation. By implementing these policies, the government can create an environment that attracts local and international talent, which in turn will encourage the growth of startup ecosystems and innovation in developing countries.

Promotion and Marketing

The visibility of local startups needs to be increased through media, events, and online platforms. One effective way to achieve this is by branding the city as a hub of innovation and entrepreneurship. The city government can organize major events such as technology conferences, startup fairs, and pitching competitions involving national and international media. Additionally, dedicated online platforms that showcase local startup profiles, success stories, and investment opportunities can help attract the attention of investors and tech companies.

Branding the city as an innovation hub is not only about promotion but also about creating a supportive ecosystem. For example, the government can introduce tax incentive programs for tech companies and startups that invest in the city. Additionally, building partnerships with universities and research institutions to create innovation hubs can strengthen the city’s image as a technology center. The government can also support digital marketing campaigns targeting global investors and tech companies by highlighting the city’s competitive advantages and infrastructure.

A successful example of city branding as an innovation hub can be seen in Bangalore, India. Known as the “Silicon Valley of India,” Bangalore has attracted global attention by hosting major events like the Tech Summit and running startup accelerator programs in collaboration with major tech companies like Microsoft and Google. The local government has also provided tax incentives and supported strong technological infrastructure, attracting thousands of startups and tech companies to operate in the city.

The result of effective branding is the rapid growth of the startup ecosystem in Bangalore, which has not only contributed to the local economy but also positioned the city as a major player in the global technology industry. This success story shows that with the right branding strategy and adequate infrastructure support, a city can attract investment, create jobs, and drive sustainable innovation. By adopting a similar approach, cities in developing countries can build strong startup ecosystems and contribute to national economic growth.

Data and Measurement

Collecting data on the startup ecosystem and setting clear performance indicators are essential to measure the impact of ecosystem development initiatives. Variables typically measured include the number of new startups founded, startup survival rates, the amount of funding received by startups, and the number of jobs created by these startups. Additionally, indicators such as startup revenue growth, the number of patents filed, and the rate of technology adoption and innovation are important variables for understanding the dynamics of the startup ecosystem.

Regular evaluation of these variables can provide a comprehensive picture of the health of the startup ecosystem. The government and other stakeholders can use this data to assess the effectiveness of support programs and initiatives that have been launched. For instance, if data shows that startup survival rates are still low, there may be a need for increased mentoring programs and business support. Feedback from stakeholders, including startups, investors, and educational institutions, is also valuable for identifying barriers and opportunities for improvement.

Moreover, other measurable variables include the level of collaboration between startups and universities and industries, as well as the contribution of startups to local economic growth. Data on the networks and partnerships formed between startups and other entities can show how well the ecosystem supports innovation and growth. By regularly measuring these variables and conducting periodic evaluations, the government and stakeholders can continuously improve their programs to support a more effective and sustainable startup ecosystem.

Considering these points, smart cities in developing countries can create a conducive environment for startup growth, drive innovation, and ultimately enhance economic competitiveness and the quality of life for residents. Smart city initiatives are not only solutions to the challenges of premature deindustrialization but also keys to a more innovative and sustainable future.

*Raine Renaldi, President ID-Opentech Group, Chairman Indonesia Smart City Provider Alliance

*Temmy Debora, CEO and Founder Nakama.id, & part of Chain Reaction Web 3, AI incubator

Tuhu Nugraha
Tuhu Nugraha
Digital Business & Metaverse Expert Principal of Indonesia Applied Economy & Regulatory Network (IADERN)