How to turn a country into a technology magnet

Most countries still compete on technology investment with the tools of the industrial age: tax breaks, special economic zones, cheap land and polished investment pitches. 

But technology companies no longer come simply in search of land or lower taxes. An engineering centre, an AI lab or a product team cannot operate in isolation.  

It needs engineers, universities, capital, digital infrastructure, predictable regulation, and access to markets. 

That creates a paradox.

Large technology companies are reluctant to enter markets without an ecosystem. Yet ecosystems rarely develop without large technology companies. 

It is the classic chicken-and-egg problem — but at the level of a country. 

Platform companies, such as Amazon, Yango, and Airbnb, know this problem well.  

A marketplace needs sellers to attract buyers, but sellers will not join without buyers. A ride-hailing platform needs drivers to attract passengers, while drivers need passengers to make joining worthwhile. 

Once critical mass is reached, however, the economics change. Every new participant increases the value of the network and makes it more attractive to the next. 

The same logic can be applied to countries. 

The economics of platforms can be reduced to a simple logic: the value of the platform, after accounting for the costs of running it as well as the subsidies it receives, should ideally be a net positive. 

In short: Perceived value – perceived costs + subsidy > 0 

A participant tends to only join if the expected value of participation exceeds the cost. 

For a country, the calculus is almost identical; for a company to put down roots in a location, the total perceived value of investing in that market must be a net positive, after the perceived costs of entry, and the value of governmental benefits. 

Perceived value of the country – perceived cost of entry + government support > 0  

Three priorities for governments 

This suggests three priorities for governments that want to attract technology companies: increase the value of being in the country, reduce the cost of entering and operating there, and use public incentives to strengthen the ecosystem rather than merely subsidise individual companies. 

The first question is therefore not: What tax break can we offer? It is: Why should a technology company be here at all? 

Smaller economies cannot compete with the United States, China or India on domestic market size.

But they can compete on speed, talent, regional access and the ability to test and deploy new technologies quickly. 

Government itself can even become part of that value proposition. 

Rather than asking what incentive to give a technology company, governments should ask what difficult problem they can give it to solve. 

Transport. Energy. Healthcare. Education. Public services. 

The state does not have to be merely the regulator of a technology market. It can also become its first major customer. 

Uncertainty is the most expensive tax 

The second challenge is harder — and often more important. 

For a technology company, the cost of operating in a country is not simply the corporate tax rate.  

It is the cumulative burden of licences, visas, bank accounts, hiring rules, data regulation, procurement procedures, waiting times, and having to explain the same business model separately to five different government agencies. 

In technology markets, speed matters. 

A country’s competitive advantage therefore depends not only on how low its taxes are, but on whether the rules are clear, consistent and executed quickly. 

Companies can adapt to strict regulation. They can adapt to higher taxes. 

What is much harder to price is uncertainty: not knowing which rule applies, who makes the decision or how long that decision will take. 

Bureaucratic friction is a tax. Uncertainty may be the most expensive tax of all.An investor does not experience the tax authority, immigration service, sector regulator and other public bodies as separate institutions.  

From the outside, they are all one state. When those institutions fail to communicate with one another, businesses pay the price in time and money.  

And in a world where a product can change in a week, a government that needs months to decide can itself become a competitive disadvantage. 

It is therefore not enough for every ministry or agency to consider itself efficient in isolation. Businesses should not have to connect government institutions to one another. 

If the state wants to behave like a platform, its institutions must operate as one system — so seamlessly that companies barely notice the boundaries between them. 

Subsidise the network, not the company 

The third task is to rethink subsidies.

Platforms often subsidise one side of a market in their early stages to reach critical mass. 

Ride-hailing provides a simple example. Passengers will not use a platform if there are too few drivers and waiting times are too long. Drivers will not join if there are too few passengers and too little demand. 

A platform may temporarily subsidise drivers. More drivers reduce waiting times. Shorter waits attract more passengers. More passengers generate more trips, which in turn attract more drivers. 

At some point, the network begins to reinforce itself. 

Government incentives should follow the same principle. 

The purpose of public support should not simply be to increase the number of companies present in the country.  

It should help create conditions that attract more companies that are increasingly self-reliant. The best subsidy does not buy presence. It buys a network effect. 

In practical terms, this means supporting the connections a company creates around itself: engineering talent, suppliers, startups, university programmes, research capabilities and new investment. 

That leads to a very different investment policy. 

Fifty representative offices of global companies may create less long-term value than three major engineering centres around which skills, startups, suppliers and universities begin to cluster. 

The real test is whether each successive investor becomes easier to attract. 

The first company may require significant effort. The second should be easier. The third should come partly because the first two are already there. 

That is what a national network effect looks like. 

If every new investor still requires a minister, a bespoke tax break, a special permit and months of manual intervention, there is no ecosystem. 

There is only an endless hunt for the next company. 

When the country stops chasing 

In the technology economy, the winners will not necessarily be countries with the lowest taxes. 

Nor will they be those offering the largest subsidies.

They will be the countries where technology companies, capital, universities, government and talent begin to attract one another — without constant intervention from the top. 

A country is not simply a product that must be marketed more aggressively to investors. 

A country is a platform. And perhaps the clearest sign that the platform is working is when the government no longer needs to ask: How do we attract the next technology company? 

Because the companies already there are doing part of that work for it. 
 

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The author is a public policy and government affairs expert advising global technology companies across the Middle East and Asia. He previously served as a Senior Adviser in the Administration of the President of Azerbaijan, where he worked on economic policy, e-government, and innovation. This article is part of his forthcoming book, The Permission Economy, which explores how businesses grow and navigate complex institutional environments in emerging markets.