Part 1: Sweden case study: an active member of the startup countries club

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Normally, when it comes to talk about famous start-up countries in the world, people often refer to Israel, United States, Korea, etc. but only few people know that Sweden is also gradually becoming an attractive place for those who have a passion for starting up a new business.

In the last few years, Sweden has often been mentioned more as a “paradise” for startups. It is a fact that King Digital Entertainment is the developer of the famous game Candy Crush Saga. King Digital Entertainment is a startup company which was founded in 2003, based in Stockholm – the capital of Sweden. In addition to King Digital Entertainment, several other well-known global companies such as H&M, Volvo, Electrolux, IKEA, Spotify, Klarna, and Mojang are all established in this country.

If magnificent Paris, ancient Rome or dynamic London is a “paradise” for tourists, then Stockholm is emerging as a vibrant center, attracting talented startups from all over the world. Stockholm today is named as the “Silicon Valley” of Europe and is widely known as an ideal place for startups in technology. According to a report by a venture capital firm named Atomico, Stockholm is having the second largest billion-dollar startups in the world, ranking the second only after the United States’ Silicon Valley. Spotify and Skype are just two among the most successful startup companies here. In 2016, according to EDCi, Sweden’s capital Stockholm ranked second in total of 60 top European cities in technology.

According to the Organization for Economic Co-operation and Development (OECD), Stockholm is now only defeated by the United States’ Silicon Valley in terms of the number of high-tech companies worth billions of dollars per capita. According to Forbes, Sweden is the most ideal country for companies to start a business.

Sweden is currently one of the tops developed countries with people of high opportunity perception. About 65% of the Swedish aged between 18 and 64 believe that they have the opportunity to open a company at the place where they live, compared with 47% of the Americans with the same age group. According to the OECD, in Sweden, there are 20 startups for every 1,000 employees, while this number in the United States is only 05.

The policy factors that are the main causes of the success of Sweden in the startup world in general

1.Tax policy

In the past, Sweden was an economy that subjects strictly to the government regulation with state monopolies dominating the entire market. In 1990, Sweden began to support newly-established companies, helping these companies somewhat compete with previously-established companies. Old regulations have been loosen and new, more efficient companies could easily replace inefficient ones.

The cause of these changes is partly due to the financial crisis in the 1990s, when the GDP growth of this country was accompanied with high unemployment rate. The Swedish government at that time had to accept to raise the interest rate up to 500% to avoid the currency devaluation situation. In addition, to increase the competitiveness of the economy, the Swedish government has also stopped regulating some industries such as transportation, electricity, telecommunications, railways and domestic air travel. It is these reforms that make it easier to license new companies to operate as well as expel inefficient ones.

A new Competition Act of 1993 was issued in Sweden with the main purpose of preventing major mergers and increasing competition in the market. This law has contributed to the fact that previous monopoly companies find it harder to dominte the entire market, thus enabling many new companies to be established.

The Swedish government have boldly implemented an idea that was very controversial at the 1990s. The idea that time was to reduce corporate taxes to stimulate entrepreneurship. Specifically, the Swedish tax reforms in 1991 have reduced corporate income tax from 52% to 30%. And by 2017, this tax is only 22%, much lower than the rate of 40% of the United States.

Few people know that before the 1990s reforms took place, the Swedish government gave big companies a lot of incentives, especially on taxes. It is tax reforms that make this country’s business playing field significantly balanced. In the 2000s, Sweden continued to have some tax reforms that eliminated inheritance taxes and a tax imposed on wealthy people to encourage their reinvestment.

Studies have shown that the level of government spending per capita often leads to a lower number of startups per worker. One reason for this phenomenon is because income tax reduces profits that expect the company as well as the motivation for them to open up new companies.

(Source: Internet)

2.Social security policy

Sweden’s remarkable start-up achievements are also partly due to the country’s social security benefits. In Sweden, students are fully funded by the university and they can even borrow more money to cover living expenses. It is the reason why any people in this country can afford going college. Moreover, health care in Sweden is also completely free and raising children is greatly subsidized by the Swedish government. Such things make people in that country feel that even if they carry out high-risk business activities, their essential needs are well-guaranteed.

3.Education policy

Another reason for Sweden’s success is the cultural diversity that comes from the influx of immigrants into this country in recent decades. Almost all universities in this country have a mix of students from different parts of the world. This diversity promotes the exchange of new ideas, contributing to finding better solutions to a certain problem. Many Swedish universities have policies to promote the enrollment of international students, and at the same time, to create conditions and mechanisms for “great” business ideas to blossom within these schools.

In addition, in Sweden, creativity capacity receives a lot of concern since the elementary level; creative thinking is nurtured by the freedom of expression, experimentation, freedom of failure and then further testing; Education at all levels encourages thinking, exploring, sharing information and expressing opinions.

4.Several other policies that make a difference in Sweden’s success in supporting technology startups

In the early 1990s, this country allowed people to buy computers at preferential prices. Specifically, at that time, the Swedish government introduced tax incentives for companies specializing in providing desktop computer for employees, provided that these computers were given to all people, from managers to employees who work in cleaning rooms. Sebastian Siemiatkowski, founder and CEO of the famous commercial startup company Klarna states that this is a visionary policy as an explanation for how he could know how to code since he was only 10 years old. Currently, Klarna has an estimated value of 2.5 billion USD.

Sweden is also a country with huge investments in high-speed Internet services. Sweden’s average Internet access rate is only inferior to its neighbor country Norway and South Korea in Asia. For nearly 20 years, Sweden has always been on the list of countries with the fastest Internet speed in the world. This has contributed greatly in helping the Swedish people become digital savvy consumers as well as educating a large groups of excellent engineers and programmers. Sweden’s current Internet usage rate is about 95%. The goal of this country is that by 2020 it will be able to provide 90% of all domestic households access to broadband at a rate of 100Mb/s (60% of people are currently having Internet with this speed at this time).

Sweden currently ranks 5th in technology availability in the 2017 Global Competitiveness Report (The Global Competitiveness Report 2017).

Sweden is still the only country in the world that has a policy allowing employees to take half of a year off to implement startup ideas. Since the end of the 1990s, Swedish employees have been granted by the government with a benefit that no other national staff in the world could has. That policy is named “tjänstledighet,” accordingly, they can quit their jobs for 6 months to open their own start-up company.

One of the most successful startup models thanks to this law is Spotify. Founded in 2006, Spotify has been equitized since 2018 and listed on the New York Exchange with a market capitalization of 24.5 billion USD. Some other companies that benefit from this policy are Skype (acquired by Microsoft in 2011 for 8.5 billion USD) and Mojang (the company that made the Minecraft game, also acquired by Microsoft for the price for 2.5 billion USD in 2014). Although a full-time employee who has worked for at least 6 months at the company has a 6-month period to start a business, the company may also reject the employee’s offer if they hold a very important role in the company and their startup ideas overlap with the idea of the company they are working for.

Part 2: Sweden case study: an active member of the startup countries club

Part 3: Some notable statements about the start-up situation in Sweden

Ryan Vu

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