Silicon Valley of the South Pacific: Grand dream or pipe dream? – Stuff

ANALYSIS: Communications Minister David Clark might see no reason New Zealand cant be the Silicon Valley of the Southern Hemisphere, but others are more than happy to point out some potential problems.

Here are the big ones: the quality of our education system, immigration issues, a high cost of living relative to wages, a lack of engineers, and cultural issues like the tall poppy syndrome and a natural Kiwi aversion to risk.

Others ask what making New Zealand the Silicon Valley of the Southern Hemisphere really means. Does it mean we want the country to grow more $1 billion-plus companies, or is it about creating a society which is proactive about trying to solve problems through technology?

Then there are the various parts of the country that already lay claim to being Silicon Valley-esque: St Georges Bay Rd or Wynyard Quarter in Auckland, Wellingtonians who call their city Silicon Welly, along with Hamilton, Christchurch and Queenstown which have all tried to portray themselves as being potential Silicon Valley locations at different points in time.

The reasons why we cant become the next Silicon Valley are aptly summarised by former Pharmac director Jens Mueller, who has worked in corporate leadership positions in the United States, and is currently a director of Massey Universitys executive development programme.

New Zealand will do clever things, we have the fastest robotic apple-sorting machine, we have very clever husbandry rules, we know every cow by genetics.

The idea of making this a market that is focusing on gadgetry high-impact, short-term rocket-start type development is never going to be successful because it misses the market, it misses the money, it misses the skills.

But even if we can turn New Zealand into a global technology hub, should we?

The timing of this push to embrace a Silicon Valley ethos in New Zealand is odd too: Tesla is currently moving out of Silicon Valley to Arizona, Facebook lost daily users for the first time in its history, Netflix saw US$45 billion lopped off its market capitalisation after subscriber numbers declined, DoorDashs share price sank below its initial public offering (IPO) level, and Kiwi high-flyer RocketLab has seen its stockmarket value plunge, too.

ROBERT KITCHIN/Stuff

David Clark says he sees no reason why New Zealand cant be the Silicon Valley of the southern hemisphere.

Mueller argues we would do better to focus on helping firms that are doing a good trade right now, but could supercharge their offering with help on how to export better or grow.

Nonetheless, the idea of New Zealand becoming a powerhouse of tech unicorns (the title given to privately held companies worth over $1b) is very popular in Wellington and within Government circles.

Last year, the Productivity Commission alluded to the need for New Zealand to build more Frontier Firms, with technology firms likely to make up a big part of that. A recently released Digital Transformation Plan also champions the idea of trying to grow the tech sector to something many times the size of what it is today.

Currently, the New Zealand technology sector is dominated by Xero, which comprises 79 per cent of the New Zealand technology sectors market capitalisation, and 95 per cent of the SaaS sector, according to a report by Clare Capital released last year.

You might see it as a bad sign that much of the technology sectors valuation comes from the rise of just one company, but Callaghan Innovation head of SaaS (Software as a Service) Bruce Jarvis doesnt see it that way.

Xero has grown (from $144m market capitalisation in 2010 to $22.5b in 2021), but the rest of the technology sector has grown too ($274m in 2010 to $5.9b in 2021), it is just that Xeros growth hasnt stopped.

Jarvis argues this is the exponential growth factor that SaaS can unlock.

The internet has reduced the cost of distribution and production, so it costs a similar amount to service one million customers as it does to service 50 million, meaning your costs stay the same as your customer numbers take off.

There are still costs though, and Rush Digital co-founder Danu Abeysuriya says New Zealand is at a disadvantage because it is a high-cost environment.

He says in the startup phase companies survive by keeping their costs low, but in New Zealand things like land, housing, and basic costs of living, are very expensive especially relative to incomes.

Regardless of where you sit in this debate, there is one major constraint most agree is holding us back: People.

Jarvis says capital was once the main barrier to startups scaling up fast, but with increased interest from global venture capital firms he thinks the biggest barrier now is access to skilled personnel.

The only constraint is people. Its not land, its not physical infrastructure.

The shortage of skilled personnel is a big reason why the Government is spending $1m on an advertising campaign to attract skilled technology workers to New Zealand.

While immigration is generally ranked as an area of lesser concern amongst the public (an Ipsos NZ poll in February showed immigration was not even within the publics top five issues of concern), leaders within the technology sector consistently rank it as one of their biggest issues.

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Jarvis says people is the big constraint when it comes to the growth of the Software as a Service sector.

Yet there is a big disconnect between what the technology sector is looking for and what the Government thinks is necessary.

Abeysuriya says the announcement of a border exception for 600 tech workers at the end of last year was a real let them eat cake moment for the industry.

The fact that the press release pitched the deal as an excellent way to finish the year, but provided no analysis of how the figure had been arrived at, only added insult to injury.

You know that story where Marie Antoinette says oh the people are starving, let them eat cake. Its like a really fantastic anecdote for a disconnected leadership.

I feel like immigration is like that, thats their f...ing let them eat cake moment.

Its like, okay, you want a couple of hundred companies to split up 600 employees? At least half of those companies have a market capitalisation of over $1b.

So tell me how that 600 number was derived. Was it calculated from our need, or was it calculated from what you can handle? Because if its from what you can handle then thats a f...ing problem.

DAVID WHITE/STUFF

Danu Abeysuriya says a border exception for 600 workers last year was a real let them eat cake moment.

New Zealand Game Developers Association chairperson Chelsea Rapp has a long list of examples illustrating the same point; that the immigration and border exception system around IT workers has been poorly managed over the past two to three years.

One tech sector worker on a temporary visa in the United Kingdom spent so long waiting to get into New Zealand they ended up qualifying for residency in the UK while they waited (and decided not to take up their job offer here).

Then there are the tech sector workers already in New Zealand on temporary visas who cant get new visas because the immigration system has ground to a halt.

A replacement system was supposed to be in place by November, but it has been delayed until July a decision which leaves these workers, and their status in the country, hanging under a cloud of uncertainty.

The number one issue for games right now is immigration, and I think the biggest issue is not necessarily that our immigration settings are wrong, its that they are uncertain.

Rapp says there are enough qualified graduates, but there are not enough people with the right experience, and this is the gap immigration can fill.

Right now we cant hire anybody from overseas, regardless of what their skills are, because we cant guarantee that theyre going to be able to get a visa through immigration in any meaningful amount of time.

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Chelsea Rapp says immigration is the most important issue facing the gaming industry.

Rapp says it is also hard for fast-emerging sectors to make their case for letting workers in until the sector, or need, becomes more well established.

She says technology trends shift quickly, but immigration rules and bureaucracy do not, and a recent trend in immigration policy to focus on salary makes it much harder for emerging firms like videogame studios to access talent.

I just think that its unfair to say that the requirements should be exclusively salary-based, because I dont think New Zealand studios are ever going to be in a position where they can pay the same amount that American studios pay.

All of this is important because scaling up and grabbing market share before anybody else can is the name of the game in Silicon Valley, and for that you need top engineering talent.

It is no accident that Silicon Valley, Tel Aviv, and Singapore - three globally recognised technology hubs are great generators of top engineers and scientists themselves. Silicon Valley from its proximity to Stanford University, Tel Aviv through the Israeli Governments investments in defence-related technology, and Singapore through its highly competitive education system.

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Technology hubs like Singapore produce a large number of scientists and engineers.

New Zealand expat, and Stanford University data science graduate, Keniel Yao, is a current resident of Silicon Valley. He says there is not only more talent in Silicon Valley, but a higher level of technological aptitude amongst the general population there, especially on a campus like Stanford.

Yao says high schools do a better job of teaching computer science in the US, and the best out of that system then go on to Stanford where computer science is the most popular major.

He says it creates an environment where it feels like almost anybody has the skillset to build anything.

So the question is always about the business viability of the idea rather than technological capacity for it.

Imagine trying to do that in New Zealand right? Youre spending most of your time trying to find an engineer.

ALDEN WILLIAMS/STUFF

Ariki Creative kaihaut Hori Te Ariki Mataki is using his passion of digital design to create opportunities for others who haven't had the chance to learn about the endless possibilities of computers.

However, the skills required to create unicorns also go beyond just pure technical knowledge.

Mueller says New Zealand does not have enough people who are skilled at turning companies into unicorns.

Crimson Education founder Jamie Beaton agrees, and says it makes a big difference hearing from people who have personally transformed a company from startup into a multibillion-dollar success.

Entrepreneurs in places like Silicon Valley, and students at top universities in the United States, have ready access to these types of people, and get to hear from them all the time.

That makes you believe you can do anything. It really infects you with this belief that you can keep building, and it makes you dream big, Beaton says.

Startups are against the odds, and you have to really believe that youre seeing something that the market hasnt, and youve got to push and push and push against all this resistance.

Beatons company helps train students to get into top-ranked universities around the world, and he is a big advocate of taking a Singapore-style approach to funding New Zealand students to broaden their horizons and study at elite universities overseas.

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Jamie Beaton believes getting more New Zealanders into elite overseas universities is part of the answer.

Singapore underwrites the cost of citizens who manage to get into highly ranked universities in the United States. In exchange, Singaporean citizens agree to work for a government agency or corporation for six years after they graduate.

Beaton believes getting more New Zealanders educated at top universities overseas would go a long way towards creating the kind of talent pool needed to grow successful startups here.

Mueller says the types of technology skills needed here are more generalised than in large markets like the US, and New Zealand is not a large enough economy to provide employment for those type of specialised skills.

Jarvis says it is important not to focus solely on university education when it comes to trying to generate the skills New Zealand tech firms need.

University education carries a high cost, and some people will choose not to pay it, which will have implications for the diversity of the tech sector that comes out of the other end of it.

Instead, Jarvis is a big fan of focusing more on short-courses that are cheaper and more accessible, but which also can be adapted to fast-moving circumstances in the economy.

The markets the Ferrari, and the traditional education system is the Fergus tractor trying to catch up.

And the gap is getting wider and wider and wider.

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Keniel Yao says there are so many engineers in Silicon Valley that the focus is much more on business viability.

New Zealand expat Richard Ngo is a researcher in artificial intelligence at OpenAI and his CV includes a two-year stint at Alphabets DeepMind project. He sports degrees from both Oxford and Cambridge.

Ngo says we should be careful to look at education tools beyond formal education, and he strongly supports a greater emphasis on activities like hackathons and competitive programming as a way of supporting future tech talent.

Most of the very best engineers and programmers I know were very self-motivated in their learning - we should think about how this can be nurtured.

Mueller says another factor behind Silicon Valley that New Zealand cannot hope to replicate is the size of its market, which makes it easy for companies to try out a product on large number of consumers to see if it works.

Yao says this is very much the reality in the Valley where processes for doing everyday things are continually changing, and people there are continually bombarded with ads to try new services from startups.

There are cultural differences between Silicon Valley and New Zealand too, not all of them good.

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Some people are wary about importing the bad. They point to Silicon Valleys culture of overwork, its lack of diversity, and a gung-ho attitude to business risk.

Hnry co-founder James Fuller, who is originally from London, says there is an attitude in both the UK and the US that people involved in a startup should be burning themselves out with 12 to 14-hour days, and he does not want to see that here.

I dont think anybody wants to live in that kind of a country either. Its about finding that balance.

Instead, he says we should stick with the kind of balance we already have, where there are plenty of hardworking people, but there is a great quality of life to go alongside that too.

Former Lynfield college student Jia Dua also argues that just because we want to become a technology hub, does not mean we have to lose touch with our countrys values.

Dua is now at Duke University on a scholarship, and was part of a team from New Zealand who won the world robotics championship three times.

KEVIN STENT/Stuff

James Fuller says we don't want the kind of startup work culture seen in the US and UK.

You want to be a technology hub or a technology leader, but you want to also identify what is New Zealand known for?

Its known for inclusivity, its known for pushing the boundaries forward. How can we grow upon that in ways that America, even, cant?

Rapp doesnt want to replicate Silicon Valley here, but she is in favour of striving to build a better version of it. A technology hub that is more tolerant of diversity, with a less toxic work culture.

However, she thinks it also wouldn't be a bad idea for us to take a leaf out of Silicon Valleys book when it comes to tall poppies.

In the US you are definitely rewarded for standing out, and here [in New Zealand] Ive had kids tell me stories about how they wont tell their friends that they get good grades because they don't want to stand out.

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Silicon Valley of the South Pacific: Grand dream or pipe dream? - Stuff