The role of universities and other higher education facilities as innovation incubators needs to be more strongly supported | via SMH Malcom Malden

Brain drain is more a practical reality

Today’s detailed look by Good Weekend magazine at the emergence of a large, interconnected community of Australian information technology entrepreneurs on the US west coast raises the inevitable question: is there a way to stop the brain drain?

The answer is more complicated than you might think. Australia should, of course, do more to foster innovation, and its commercial development. Links between higher education, research and development and the capital markets need to be reinforced.

Last night’s $US100 billion-plus listing of Facebook, a company begun by Mark Zuckerberg at Harvard University, is a reminder of what is possible, and what is at risk as Asian governments build their own R&D machinery, and changes the Labor government has made to drive more R&D funding down to smaller companies are a step in the right direction.

Australians with talent will always have very good reasons to fly out, sometimes for good, however. Lamenting the fact that Australians travel to Silicon Valley or San Francisco’s burgeoning high-tech precinct to further their IT careers is a little bit like worrying that our best golfers and tennis players move overseas to compete on a global circuit.

When it comes to attracting the best IT talent, America has several things going for it that Australia doesn’t. One is market depth: its home consumer end-market is 311.6 million strong, 14 times larger than Australia’s. Its GDP is $US14,600 billion, outpacing Australia by a similar multiple, and its capital markets are deeper and more willing to risk capital in start-ups than its economic weight suggests.

The sheer size of the northern hemisphere markets, and the US market in particular, offers two things. Easier developmental funding, and, when the product is developed, a deeper customer base. Australia can’t overcome that easily.

An innovation survey that the Gillard government released half way through last year highlighted another long-term issue. Australia’s innovation tends to be second-hand: an adaption or development of primary innovation, rather than a ground-breaking ”invention”.

In the IT industry and other technology-driven sectors this is also a reflection of reality, however. The US is the heartland of the IT boom and the main incubator of new IT ideas and start-ups, partly because the IT revolution is founded on intellectual property that US citizens own. The rest of the world can make money using it, but it’s an inherently less rewarding proposition.

Australia is still doing reasonably well in the R&D league tables. Last year’s innovation report put Australian research and development spending by businesses in 2008-09, the last year for which a global comparison was available, at 1.35 per cent of GDP. That was below the OECD average of 1.63 per cent, but it still put Australia in 12th spot out of 33 nations, up from 14th place a year earlier.

And Australian businesses at least excelled as innovation ”modifiers” – companies that take products and processes that already exist, and develop, modify and market them. Almost two-thirds of Australian companies rated highly on this measure in the innovation survey, compared with 23.8 per cent in Germany, 41.2 per cent in Japan, and 19.1 per cent in Britain, for example.

Can we do better? Of course. Might we produce a Silicon Valley effect of our own? Perhaps – it has happened before: Finland got one, for example, when Nokia surged to global leadership in mobile phones (a lead it then lost as Apple’s iPhone ushered in a smart-phone revolution that Nokia had failed to anticipate).

One thing that is clear is that the role of universities and other higher education facilities as innovation incubators needs to be more strongly supported – and in this area, there is new threat, not just to smaller economies like Australia’s, but to the traditional brain-drain magnet, the US: the odds are reasonably short that the next Mark Zuckerberg is studying now at a university in China.

China’s R&D spending has been expanding for several years at a compound rate of about 10 per cent a year, about four times faster than America’s. Last year it overtook Japan to be the world’s second-biggest R&D spender. The US is still spending roughly three times as much, but by 2008 only four of the top 10 private sector recipients of patents in the US were American. Five of the others were based in Japan, and the other, Samsung, was Korean.

America’s share of global university enrolments also fell from 20 per cent to 13 per cent between 1990 and 2010. China’s share of enrolments doubled in the same time, to 15 per cent, part of a conscious R&D seeding strategy that emphasises science and engineering degrees that feed the innovation pipeline. Last year they accounted for 40 per cent of all degrees in China, compared with 12 per cent in the Group of Seven industrialised nations (the US, Germany, France, Britain, Japan, Italy and Canada).

Australia, the US and other Western governments are aware of the long-term challenge that Asia’s rise as an R&D powerhouse presents.

The ability of northern hemisphere governments to respond has been compromised by the global financial crisis and the debt overhang and economic slump it has caused, however.

Australia is in better shape: but with the major parties politically committed to a rapid return to a budget surplus, a concerted push is still in the mail.


Brain drain: why young entrepreneurs leave home | via SMH

by Asher Moses

“WE’VE created crack for women,” says 20-year-old entrepreneur Nikki Durkin of her online fashion startup 99dresses. The trouble is, Australian financiers don’t want to get the habit. Ms Durkin’s aim is clear: “I want to build a billion-dollar company.” But she says Australia won’t let her, so she’s joining thousands of other Australians pursuing their dreams in the US. Over in Silicon Valley, failure is celebrated and seen as a chance to learn, but Ms Durkin, who grew up in Sydney, had the opposite experience in Australia when she had to shut down her site to tweak her idea. 

“In Australia failure’s seen as a bad thing . . . generally I think it’s a bit of tall poppy syndrome happening,” she says. Ms Durkin has been an entrepreneur since she was 15, when she was pulling in $500 a week designing and selling t-shirts online. Now she’s developing 99dresses – an “infinite wardrobe” allowing people to trade clothes with each other.

Ms Durkin has just spent three months in Silicon Valley being mentored at the number one startup accelerator in the world, YCombinator. Out of about 60 entrants, she was a favourite among the venture capitalists. She’s about to close a round of funding and move to the US.

There are more than 65 technology startups in Silicon Valley that were created by Australians, and this number is growing rapidly. Many who feature in a major video series launching on on Monday are highly critical of both the government and the venture capital industry in Australia. They say Australia is asleep at the wheel and risks being left behind.

“They’re moving to the US, they’re getting a green card, and they’re not coming back,” says Matt Barrie, the Sydney-based CEO of global online outsourcing site

As Facebook prepares to go public tomorrow at a valuation of up to $US104 billion, the opposition communications spokesman, Malcolm Turnbull, says figuring out why Australia earns so little of its GDP from its own ideas is “the issue that keeps me up most at night”.”It keeps me up at night because I think we should do better. It keeps me up at night because I don’t have any straightforward answers to it,” he says. 

The Communications Minister, Stephen Conroy, refused a request for an interview and did not respond to questions. “They’re just not listening to us, we’re all just jumping ship and going overseas and putting offices there as opposed to trying to work within our own country,” says Eddie Machalaani, 33, who with Mitch Harper, 29, created e-commerce platform BigCommerce.

Australia ignores its innovators at its peril. “Mitch and Eddie might be the next Bill Gates or Steve Jobs and that’s something that the country can really celebrate,” says Larry Bohn, the US venture capitalist who invested $15 million in BigCommerce. According to the Aussie expat network Advance, about 15,000 Australians work in the San Francisco Bay Area alone – a large portion working for tech companies. Mr Barrie has been an external lecturer at the University of Sydney for 10 years. “Pretty much all of the top guys from every year of my class . . . are actually in Silicon Valley right now doing companies.”

Only $120 million – out of $1.8 trillion funds under management in Australia – was invested by Australian venture capital firms last year. US investors are picking up the slack. “We’ve invested slightly over $100 million in Australia in three companies – Atlassian, Ozforex, 99Designs . . . and there is no upper limit,” says Richard Wong, a partner with the large US venture capital firm Accel Partners. Adrian Turner, an Australian entrepreneur who has lived in the Valley for the past 12 years, says if Australia doesn’t invest in technology-based businesses in parallel to capitalising on the commodities boom, we’re “going to be left behind globally in a way that’s irreversible”.

“There’s a whole range of things that has to be done and part of them is incumbent on the private sector, part of it is incumbent on the government. Right now both parties are absolutely asleep at the wheel.”