Consolidating Government, Society and Innovation
Governments and other regulators are facing the challenge of rapidly changing technological and socio-economic developments. Regulation is still mainly based on pre-internet frameworks and past social structures. Industry-transforming innovations and society-shifting technological disruptions do not fit well into current regulatory frameworks. Most hypergrowth companies have come to face regulation challenges for this reason.
Evidence indicates that companies that have not invested in developing relationships with regulators early enough may face serious growth impediments. Hypergrowth companies have demonstrated two main approaches to this challenge. Some companies have taken very early steps, even in unregulated domains, to invest in shaping legislation with the regulators. Other disruptive firms have built critical mass before engaging in regulatory discussions. This strategy places pressure on regulators and pushes boundaries as a direct call for action.
In the quest of absent or more favourable regulation, companies often use regulation as market-selection criteria. Companies can also expand or transfer to other markets. Some nations or regions may have beneficial regulatory frameworks that help hypergrowth companies grow, or they may have a lack of regulatory obstacles leaving it to companies to pioneer the way. In all of these cases, it is essential that governments keep pace both to protect society and consumers and to fight stagnating legal environments. This may be used to open the door to innovative action and potential economic growth.
Regulation, solution examples
Key Growth challenge
4.1 Taking the early approach
Ensuring long-term growth potential despite changing regulatory frameworks
Engage and invest early in solid relationships with the regulators
Unicorn, Silicon Valley, CEO
“Our company has taken the early approach to regulation. As we had only a headcount of 100, the company established an office in D.C. and had full-time employees discussing with regulators globally in the key markets. This approach has paid off. Other companies might have chosen the approach of first creating critical mass for influence and only then started to engage with the regulators. All internet businesses are currently on the radar of the regulators, even as an industry it is not the most regulated one, yet. Difficulty lies with multiple stakeholders. How do you draw the line on what is acceptable and what is not? For example, if the Chinese government wants to shut down a service vs the US government which would like to keep it running. Many players in the internet industry have been put into the situation where they are required to make decisions between regulators. Many corporate giants have failed with their strategies with regulators and have opened up room for competition. This is the reason why we have selected to engage early. And it has been one of our key solutions to enable hypergrowth.”
4.2 Partnering to fight institutional market barriers
Dealing with trade barriers
Build talent pools and partner with other organizations to overcome trade barriers
Hypergrowth Company, South-East Asia, CEO
“Home markets in South-East Asia are too small for continuous growth and companies are nowadays born global. This requires relatively small companies to have skill sets such as legal structuring and transfer pricing. Asia and MENA have strong regulation on ownership structures and how companies can operate there. How can these trade barriers be reduced so the smaller companies can support economic growth? To manage all the requirements, companies need to have corporate-like skill sets within the firm from very early on. If barriers were lighter, economic growth could serve societal and consumer interests. We have engaged in collaborative action to support the dialogue between fast-growth companies and regulators. We have also been very active in building new talent pools of top university alumni returning to the region. These two factors have contributed to our success in dealing with these barriers.”
4.3 Pushing the boundaries in good coordination with the regulators
Regional regulatory barriers for scaling and expansion
Create a solid process of building critical mass before engaging in discussions with the regulators
Technology, MENA, CEO
“MENA is not one growth market; it is several markets. Regulation and contractual models are different in all countries. What we have learned time and time again is that the existing regulation is not designed for innovation and new solutions. But usually it is not about the regulators wanting to decrease the business opportunities. We have learned to push barriers after we are certain that we are not doing something illegal. Governments are not positioned to prepare legislation which would be ready for new innovations. Usually they support any ideas which create value. And that is a business case to be sold to the government. Our solution has been to identify potential showstoppers early to avoid resources going to waste. Then we start trying a model out. If it works, usually the regulators are interested in engaging into discussions. We have used this approach successfully. Fragmentation of political field in MENA requires a lot of effort to push the legislation forward by doing. As an example, we entered a new market in MENA. We knew that what we were doing was in the undefined area but within the legal barriers. As the company captured market share, the minister called and asked for consultation. And then we were positioned very well to help shape new regulation into a new domain.”