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A few weeks ago the WSJ published an article about Toronto's growing tech talent pool, arguing that its base now rivals the top US cities, but that it may not be an entirely good thing for the city's ecosystem. I wrote about it here.
This morning venture capitalist Fred Wilson published a post on his blog talking about the necessity of scaling tech companies in lower cost locations. It's a good follow-up to the above article/post.
Here's an excerpt from Fred:
Last week I heard some shocking numbers about salary levels for certain kinds of engineers in the bay area. I checked them out with a few of our bay area portfolio companies and they were more or less corroborated.
The tight technical labor markets in the bay area, NYC, and a number of other regions in the US are making it hard to scale software businesses without burning massive amounts of cash.
He goes on to argue that (startup) companies now need to think about scaling in other/remote locations sooner than they ever have before -- basically as soon as the company hits about 50 engineers (or 100-200 employees).
Many companies are now working with a distributed workforce. Supposedly 2/3 of the global workforce now spends at least one day of the week working remotely. I almost never work from home, but I do get how this is possible.
So what is happening is that engineering talent is spilling over into secondary markets out of necessity. There's an economic imperative to colonize. But I would imagine that, at least initially, most of the economic benefits accrue to the colonizer.
A few years ago I wrote a post talking about "depression babies." In it, I cited a research paper that looked at the impact of macroeconomic shocks on people's willingness to take on financial risk in the future. The term "depression babies" stems from the Great Depression and how it is believed to have impacted risk taking, savings rates, and probably many other things.
I was reminded of this when I read this recent article in the WSJ talking about how the Chinese have started spending -- and taking on the debt -- like Americans, particularly among Chinese under 30. It is the inverse of the depression baby phenomenon. In this case, it is arguably years of economic expansion leading to greater comfort around financial risk.
Here are a couple of figures from the article:
JPMorgan estimates China’s ratio of household debt to gross domestic product will climb to 61% by 2020. That’s up from 26% in 2010 and higher than current levels in Italy and Greece.
The level in the U.S. is about 76%, after falling from 98% in 2006, according to the International Monetary Fund.
By another measure—the ratio of household debt to disposable income—China appears to have already surpassed the U.S. Its ratio reached 117.2% in 2018, up from 42.7% in 2008, according to calculations by Lei Ning, a researcher at the Institute for Advanced Research at Shanghai University of Finance and Economics. The U.S. peaked at 135% in 2007 and dropped to 101% in 2018.
Not surprisingly, the article goes on to talk about how this dramatic increase in household debt might be something to worry about. Maybe. I'm not an economist. But I do think this is designed to boost the Chinese growth machine and I do think it makes them less reliant on other countries -- such as, maybe, the United States.
The Wall Street Journal's recent piece about "Silicon Valley invading Toronto" is, in my view, describing a generally positive outcome.
We are one of the largest cities in North America (the exact ranking depends on where you draw the urban boundaries).
We have more enlightened views around foreign and high-skilled workers (I was given a short window in which to leave the US after I finished my first graduate degree there).
And we have a large and highly educated pool of tech talent (the salary differential discussed in the article looks to be, at least partially, a result of the weaker Canadian dollar).
US companies are gobbling up office space in Toronto. And presumably, this is one of the reasons why 139 new flights were added between Toronto and Francisco over the last two years. (Source: WSJ)
However, I do agree with the remarks from people like Jim Balsillie (Blackberry) and Harley Finkelstein (Shopify) that a better outcome would be the creation of more massively successful Canadian tech companies.
As Finkelstein points out, there's a big difference between 100,000 square feet of space for the HQ of a new and growing Canadian tech company and 100,000 square feet for a new branch or satellite office.
The stats we read in the papers about the number of tech jobs being created in Toronto generally don't speak to composition. Where in the value chain do these people sit? Where is the value accruing?
The intellectual capital is here. And we should be doing everything we can to foster and finance new homegrown ideas and businesses.
Image: WSJ
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