Amazing statistic from the UK BA about the allocations of UK Tier 2 (General) Work Permits for 2011 to date. In the 3 months since April 2011 there have been 7200 certificates of sponsorship on offer but only 2645 (37%) of them have been consumed.

It does make you wonder about the value of the extensive reviews and tinkering with the system. The quota and limits were announced with such fanfare over the new immigration controls and how the quota system would make a profound change. Yet the economic circumstances in the UK mean employers aren’t submitting applications at anything close to the quota levels.

The moral of this story? The state of the economy remains the simplest and most effective means of regulating migration.

One of the most fascinating areas to watch in the global war on talent is around startups and entrepreneurs. These individuals and fledgling companies are the jewels that skilled migration programs are theoretically designed to attract. Superpowers such as the USA are fighting ferociously to remain leaders in innovation, with China in particular aggressively pushing filing of new patents. Beijing is finding that investment alone won’t buy success. This post examines some emergent trends in policies for encouraging entrepreneurship and incubating startup ventures.

1. Birds of a feather flock together.

Silicon Valley is the epicenter of technology startups. Partly this is due to the American cultural lean towards entrepreneurship, but it is also a self fulfilling prophecy. Everyone from micropreneurs and hotshot developers through to famous venture capitalists benefit from hanging around with like minded people. If you are planning the next Facebook there is no better place to make it happen faster. Yet American policy is preventing foreign startups from joining the party.

Yet other locations are also carving out a niche within high tech such as Berlin with emerging music technology. London is trying to build on top of the so-called Silicon Roundabout at Old Street by creating the East London tech cluster.  The message for governments here is clear – leverage the success and reputation of your existing community. Guaranteed they are keen to help!

2. To attract bees, you need pollen.

Israel have been matching VC money (both foreign and homegrown) since 1993. Ireland copied this model in 2010 and launched Innovation Ireland with over $700 million up for grabs over the next 5 years… and startups all over the world started paying attention. It is a canny way for the Irish to expand on the “Silicon Isle” success they had attracting high tech companies with tax breaks and skilled workers.

There is an interesting parallel with software development where over the last 10 years many new software companies would choose opensource technology because they avoided license costs. in 2008 Microsoft launched Bizspark to combat this. This program gives new businesses the whole suite of developer and productivity tools for nothing and has attracted over 30 000 registrations in 2 years. If governments want to compete then you have to provide the resources (tax incentives, funding, low operating costs, skilled labour, access to markets) to help new businesses gain traction.

3. If you don’t offer it, someone else will.

Countries like Australia have trumpeted their skilled migration policies – yet everyone has their own story of the cab driver who was a qualified doctor back home. The UK ironically is talking of an Entrepreneur Visa at the same time as they are scrapping the Tier 1 visa. The Highly Skilled Migrant Permit was hugely successful in Britain because it gave skilled workers the chance to enter and then choose how they contributed to the economy (whether by permanent work, contracting or starting their own business). As long as they met the earnings levels they could extend the visa.

One of the big drivers behind the startup visa campaign in the US is the understanding within the startup community that people will go home to Singapore or Bangalore to start their new venture. This was exacerbated by the financial crisis. Barack Obama higlighted this in his 2011 State of the Union address:

“Others come here from abroad to study in our colleges and universities.  But as soon as they obtain advanced degrees, we send them back home to compete against us.  It makes no sense.”

He is giving voice to the longstanding agitation within the USA for a Startup Visa and also to introduce policies for US employers to hire foreign students on graduation. Indeed Australia built an $18 billion foreign student education sector largely on the promise that students can get a job after their degree and thus residency. It is a promise unfulfilled as a result of the shortsightedness of politicians.

A number of influential and highly successful American startup veterans have joined in support of the Startup Visa campaign to raise awareness and influence policy (of course they have a website!). This demonstrates an acute understanding - from the same people who have already succeeded on the journey – that attracting foreign entrepreneurs is of key strategic importance to the USA.

The economic spoils for the victor are quite simply massive… the chance to have home grown companies like Intel, Yahoo, Sun Microsystems or Google. The Wall Street Journal reported in 2010 that immigrants were twice as likely to start a new business. The NY times quoted Vivek Wadhwa‘s (Harvard, Duke)  research which showed 25% of American high tech startups from 1995 to 2005 were founded or co-founded by immigrants. These companies employed more than 450 000 workers!

4. A broad definition of success and skill.

One of the main issues with the popularity of skilled migration programs is they assume governments can somehow legislate for increases in innovation, talent and business generation. They are viewed by governments as economic levers.

“bring in more renewable energy engineers”

“bring in richer, better educated migrants”

“less asylum seekers”

“we won’t bring in anyone who would need to learn our language”

Governments continue to assume there is a formula for success. Or that there is a broadly defined type of person who can match it. Neither Bill Gates, Richard Branson, Henry Ford, Walt Disney, Coco Chanel nor Frank Lloyd Wright received university degrees before making their fortunes. Indeed a large part of Americas success is the belief that anyone can rise to the top and the green card lottery is a wonderful example of this in action.

Countries that chop and change their policies with each election or economic fluctuation pay a higher price than they realise for this. Australia felt the flipside of this in 2010/2011 as international students grew tired of regular changes to visa policies. Similarly the UK made wholesale changes to the Tier 1 HSMP scheme in 2006 dashing the hopes of thousands of immigrants who had shaped their lives around getting permanent residency. These changes were ruled unlawful in a judicial review and had to be recast, but the message conveyed to skilled migrants around the world has persisted.

It is the consistent and transparent approach to attracting residents of countries like Canada that rightly earn their reputation as desirable locations to emigrate to (They even have a refugee from Google). Research In Motion, creators of the Blackberry, were founded by a Turkish immigrant to Canada who dropped out of university to start the company. The progressive attitude of Canada is encapsulated by the Canadian Immigration Minister, Jason Kennedy, who recognised “…skilled trades people who don’t have university degrees or who have very limited English or French language proficiency typically cannot make it through the points grid, but we have a huge and growing need for such…people”.

Countries which look at a broad picture migrants and move beyond the sole focus on economic status and educational attainment will reap greater rewards.

Globalisation in action

There is a not so hidden agenda behind this push, particularly within developed economies, into attracting new business creators. Developed countries have an urgent need to stay at the forefront in innovation, simply because they are losing the battle in traditional industries. It is not enough to expect metrics based migration to solve the problem. A comprehensive commitment to building a honeypot is required to attract these most valuable migrants.

I’ve noticed both on Twitter, through enquiries on www.contractortaxation.com , calls from recruitment agents and a number of enquiries from clients that are bidding or have won contracts that Saudi Arabia (and the Middle East in general) is currently a serious focus for international companies. Might have something to do with the slow recovery (or even double dip recession) evident in Western Europe and the USA, meaning companies are now looking further afield for clients and projects. A trend I think we’ll see more of in the coming years as the balance of economic power shifts slightly.

The increased number of enquiries might also have to do with the Saudi government putting a number of big projects out to tender to international companies. The government is encouraging private sector growth to lessen the kingdom’s dependence on oil and increase employment opportunities for the swelling Saudi population. The government has begun to permit private sector and foreign investor participation in the power generation and telecom sectors. Riyadh in particular has been able to increase its spending on job training, education and infrastructure.

As a result international companies are increasingly looking at Saudi Arabia as a place to pitch their services. If the bid is successful then the next step is working out how to staff the project. Whether to look at hiring locally to support the staff you have brought in from overseas or to move your staff on mass into Saudi Arabia. Both options bring about their own problems with the foremost among them being how you employ them? It is extremely difficult as a foreign company to open a company in Saudi Arabia (as with most Middle Eastern countries) so the only option is to use a locally based Contractor Management Company. They can sponsor your Work Permits (where necessary) and payroll your staff locally. The Work Permit process is not cheap! From $2,000 USD upwards (these are largely government charges) something you need to take into consideration. They also charge an ongoing monthly management fee per individual. There are only a small number of companies that are able to provide these services, if you’d like to speak to someone about them http://contractortaxation.com/?q=contact

On the heels of Wolseley uprooting to Switzerland http://www.thisislondon.co.uk/standard-business/article-23884845-timing-off-as-wolseley-takes-a-tax-break-in-switzerland.do apparently 1/5 big corporations have are considering leaving the UK http://www.telegraph.co.uk/finance/economics/7962524/Tax-regime-drives-20pc-of-big-businesses-to-consider-leaving-UK.html and it’s hardly fairly easy to see why. Why pay 28% Corporation Tax when you can move to Ireland and pay 12.5% or Switzerland and pay 10% (depending on Canton)? Add to this the ridiculous amount of red tape,  a lack of transparency from HMRC, the Tier 2 Work Permit caps and the threat of regulation.

Further, the recent increase in the higher rate of personal income tax (to 50%) has also resulted in a mass exodus of high income earners. Reportedly 1 in 4 hedge fund managers have already moved to Switzerland, http://www.ft.com/cms/s/0/19d6e46c-cd97-11df-9c82-00144feab49a.html?ftcamp=rss.

It is understandably that the government need to claw back some of the massive debt they inherited from the Labour Party but surely driving away international organisations, higher income earners and any potential high income earners is not necessarily the right way to go about this. It would appear that the only beneficiary of this sort of legislating is the Swiss Cantons tax coffers.

Big business and its employees are not going to pay the bill for the mismanagement of the economy by the previous administration when they can just as easily pack up and move to Switzerland. Morally reprehensibly as it may be (particularly given that many of them are in part responsible for the current situation) this is the reality and unless the government acts to retain these organisations the UK is going to find it infinitely more difficult to crawl out of this economic situation.

If Vince Cable the Business Secretary believes the caps are liable to effect British Business, with companies moving their projects offshore http://www.telegraph.co.uk/finance/economics/8009872/Number-10-attacks-Vince-Cable-over-immigration-cap-claims.html  and John Cridland deputy director-general of the CBI saying in the same article: “The interim cap is causing serious problems for many firms. The figures used were artificially low as they were based on numbers at the height of the recession in 2009.”As firms are gearing up for growth, some are finding that they are only able to use a handful of non-EU specialist staff.”

and Chris Huhne the Energy Secretary further criticising the cap: http://www.globalvisas.com/news/more_friendly_fires_attack_coalition_s_immigration_cap2630.html 

and Boris Johnson saying much the same thing: http://www.bbc.co.uk/news/uk-politics-11275354

Why are these caps being imposed and who exactly will benefit from them?

These aren’t opinions coming from the labour party but from within the government itself.  The general consensus at least from a business perspective is that this cap and the mooted changes to the Tier 2 Work Permit system will negatively affect the economic recovery. So why exactly impose it? Reason being that part of the government’s pledges to the electorate was that they would reduce net migration. A veritable political hot potato. The interesting statistics to note are that of non-EU migration numbers  the majority of visas issued are for students http://www.bbc.co.uk/news/uk-11094468  rather than Tier 2 or Tier 1. The other non-EU figure of note is the Inter Company Transfer figure, another area that to date has not been targeted by the MAC.

The UK and more notably London is an international business centre, attracting the brightest and the best, both companies and workers. Does the average British voter really want these businesses to move overseas? Talented individuals generating income and paying tax elsewhere? If the system truly is ‘out of control’ then why not attack the areas that are being exploited; students visas, illegal immigrants and ICT’s? The answer it would seem is that reducing the number of Tier 1 and Tier 2 visas is simply easier to impose. Reduce net migration and be able to say that they have fulfilled their promise to the electorate. Visionary politicking.