The Rust Belt Comes to the Czech Republic
Slavkov was primarily a manufacturing town, yet now it uses high-end technology to create sustainable living.
The "rust belt" is a term used to describe a region of the United States that experienced significant economic decline and population loss in the latter half of the 20th century due to the collapse of the manufacturing industry. However, the Rust Belt phenomenon is not unique to the United States, and similar trends have been observed in other parts of the world, including the Czech Republic.
Explore the experiences of rust belt towns in both the US and the Czech Republic, examining the similarities and differences in their trajectories.
From Silicon Valley to Lancaster
Lancaster, a city in Pennsylvania, is slowly becoming an incubator spot for Silicon Valley tech startups, and this tendency has been around for a couple of years. "We used to call Columbus Cow Town, but now it is more like Tech Town as Intel is moving in with this new semiconductor manufacturing plant. And Google, Facebook (now Meta), and Amazon have campuses there. It has become a start-up hub," said journalist, author, and media entrepreneur Rebecca Fannin.
It is astonishing how Silicon Valley businesses are moving to the depths of the country to build great technology, not staying on the West Coast. For instance, in 2021, a cutting-edge $1.5 million tech hub was set to open in Lancaster with an open space work environment and a diversified network of tech startups, reported Nick Lakin for the Lancaster Guardian. Yet, this is only one of the magnets that attract people to the city to foster technology.
In 2016, McMonagle revealed other vital factors that make Lancaster the best-kept tech secret. For instance, it has a thriving startup scene that attracts tech companies seeking more affordable and livable alternatives than New York or Los Angeles. In particular, the city has a lower cost of living, making it more affordable for startups to operate and attract talent. It has a diversified quality of life, with a more relaxed and less chaotic environment.
On top of that, the city's infrastructure allows businesses quick access to the graduate pool at Franklin & Marshall College and Millersville University. Thanks to a robust entrepreneurial community of supportive startups and mentorship opportunities, networking and making business connections are possible. As a result, the growth and development of Lancaster continuously thrive. In April 2021, the Central Penn Business Journal noticed that Lancaster became a host for several tech startups due to the businesses' nature of sustainability, social impact, and other values.
Lancaster is not an exception
Surprisingly, this tech switch to the Midwest does not only happen in Lancaster but also involves far-flung cities. Fannin noted that cities such as Pittsburgh, Detroit, Cincinnati, and Dayton also went through this transformation to foster tech startups. Nevertheless, it is not the only thing mentioned above that these cities have in common: they are located in the "Rust Belt," a region known for its industrial heritage and significant economic decline in previous years.
"I have seen this innovation transformation, but I wasn't quite familiar with the downsides, so I got in my car and discovered regions by myself," shared Fannin. The Rust Belt industry has changed significantly in the last thirty years, primarily focusing on innovation and high-end technology: It has transformed into a higher-tech manufacturing focus so that you will see AI, robotics, and 3D printing as a part of manufacturing. In other words, as Rebecca pointed out, tech clusters create individual markets.
Transformation behind the Rust Belt
The Rust Belt is going through significant changes, from the industry's decline to the rise of the tech startup markets. So what are some of the inputs into the rust belt in 2023, except for the technology, people, and money?
One of the key drivers is economic diversification, driven by the attraction of new industries, including healthcare, technology, and advanced manufacturing, along with tax initiatives, workforce training programs, and various partnerships. For example, the Brookings Institution, a non-profit public policy organization, highlighted that economic diversification efforts occur in Rust Belt cities to attract new industries and jobs, followed by a culture of hard-working and determined people. No bragging is going on like in Silicon Valley, but a lot of practicality.
At the same time, startups hire freelancers from Upwork UPWK 0.00%↑ and Fiverr FVRR 0.00%↑ to save even more in the early development stage. There are several reasons businesses might consider bringing freelancers into the startup environment, including the cost-effectiveness of the work, specialized expertise, flexibility, and speed.
Another factor that stimulates the growth and transformation of rust belt cities is innovation and entrepreneurship; the New York Times emphasized that companies such as TechTown and Detriot provide essential resources to support local startups. But, mainly, cities are focused on supporting startups with the help of the creation of incubators, accelerators, and co-working spaces. "It is partly venture capital that has increased in the region, and it is also coming in from the coast," added Fannin.
Universities and research institutes also play an integral role in the transformation behind Rust Bell. "This talent that is emerging in the Midwest is booming and has escalated due to the pandemic," clarifies Fannin. Unsurprisingly, midwestern markets encourage tech talent to relocate (even after the pandemic) by offering relocation and associated bonuses.
Moreover, Rebecca noted that remote working trends moved people from the coast due to the high living prices and crowdedness. Simply put, the mindset of people has changed during the pandemic to have a more comfortable and affordable lifestyle, which is why we see the migration of talent into the Rust Belt cities.
The phenomenon of the Rust Belt comes to the Czech Republic
It is not only the United States that goes through this drastic transformation. The Czech Republic could be a vivid example of digital transformation, a country that supports startups. In Slavkov, a rural town similar to the villages in the Rust Belt, LIKO-S, Inc. is located. It is a family-owned business established in the 1990s that became one of the biggest companies in the Czech Republic.
Initially, the corporation started as a glass manufacturer, but over the years, they brought innovation to the table, and now LIKO-S creates modern office spaces using glass partitions.
In other words, Slavkov was primarily a manufacturing town, yet now it uses high-end technology to create sustainable living. It is the Rust Belt of the Czech Republic.
Czech Startups: Overview
LIKO-S is one of few manufacturers in the Czech Republic that has succeeded in the global marketplace. There are also other representatives to who we talked and discovered all the business insights!
Creative Dock is a vivid example of a company that started as a startup and became a thrilling corporation. "Martin Pejsa started Creative Dock eleven years ago, and before that, he worked for large corporations such as Vodafone and was a team leader of more than 1,000 people. Eventually, he sold his apartment and started everything from scratch with two partners on Badeniho Street near the Prague Castle," said Tomáš Kolder, Marketing and PR Manager at Creative Dock.
Crucial milestones in the development of the startup were the first ventures for Raiffeisen Bank in 2012 and Home Credit China in 2014, as well as expanding to Munich, Germany, in 2015, along with other significant achievements, noted Kolder. All of these could only be done with a fantastic team behind it and the inspiring leadership of Pejsa. As of 2023, Creative Dock is a leading independent venture corporation in Europe and the MENA region with a diversified portfolio of activities.
Twisto is another Czech startup that has a great story behind it. "We started Twisto to make it easier for people to shop online, delivering a simple and safe payment. "Buy now. Pay in 14 days "after receipt of goods," shared Michal Šmída, founder and CEO of Twisto. It is not surprising that this business model became highly successful as most Czechs prefer to pay only when receiving physical goods.
When the company started, there were several competitors around the globe, including Klarna and PayPal, yet Twisto retained its strong spirit. To differentiate from the competition, the company had an interesting approach when choosing the name: "The name of our company was conceived in a rather unconventional way - in a KFC restaurant back in 2013 over a popular wrap called Twister. The base of the word "twist" was a perfect fit for our philosophy," shared Šmída. The twist here is that Twisto is not a usual banking system.
The company's growth and development were followed by certain milestones, including the development of the credit score tool Nikita, with the help of which Twisto onboards and verifies new customers. Another milestone, highlighted by Šmída, was the Polish market expansion and the attraction of foreign investors. Now, you can use Twisto even in brick-and-mortar stores or multinational merchants.
i&i Prague is a bio-innovation center with which we had the opportunity to chat, and their story was truly inspiring. "We founded the bio-innovation center in 2017, and we wanted to show that there are interesting ideas in the field of Life sciences in the Czech Republic that deserve the attention of investors. Thanks to our close cooperation with the Institute of Organic Chemistry and Biochemistry of the CAS and its technology transfer office IOCB Tech, we knew international companies' and investors' expectations when assessing scientific projects," said Martin Kovalčík, PR Manager at i&i Biotech Fund.
The essential milestone for the development and growth of i&i Prague happened in 2021 when the company established the i&i Biotech Fund (i&i Bio), strengthening its business model. Kovalčík noted that "the Fund invests in unique ideas in drug development, diagnostics, and medical technologies. It targets early-stage scientific startups that often build on decades of research and have the potential for breakthrough discoveries."
The power of incubators in the Czech Republic
In the United States, innovation and entrepreneurship are leading factors in stimulating the growth and success of tech startups. But how is it in the Czech Republic?
StartUp Yard is one of the few accelerators in the Czech Republic that invests time and money in startups. "We founded it in 2011 to create a support organization for first-time founders in the Czech Republic. The startup community was still in its infancy, with no accelerators," explained Cedric Maloux, founder of StartUp Yard.
By 2023, StartUp Yard had significant milestones that it had achieved over the past years. For example, they have invested in founders in 21 Central and Eastern European countries. "Even though we are not a school, we support our founders in everything they need to master as a founding team," concluded Maloux.
Czech vs. US startups: who wins the battle?
There is an ongoing debate about whether a Czech tech startup will rule the world or be a national brand. According to the StartUp Yard, newly emerging businesses in the United States have a higher potential: "The United States is still better placed in terms of market size and access to financing. This is probably why successful Czech startup founders enter the US market if they want to grow globally."
At the same time, Creative Dock has a different opening regarding the Czech potential in the global market: "The number of Czech startups considering foreign expansion has been growing due to the growth of digitalization, automation, and the interconnectedness of individual economies. According to the Startup Report, nearly 80% of Czech startups plan to expand abroad, which is impressive," emphasized Kolder.
Startups driven by technology are much more successful abroad, yet the US market still comes into the picture as something big, scary, and undiscovered. "Czech startups may also be more challenging to get a foothold in the US because competition is extremely high. Despite this, several Czech startups have succeeded, such as STRV or Productboard," concluded Kolder.
Kovalčík shared the idea of Creative Dock, emphasizing that the Czech Republic will also gradually become fully integrated into the advanced European countries where we belong in innovation and investment: "The i&i family (i&i Prague + i&i Bio) is trying to contribute to that through its approach."
Some people are still debating whether Czech startups have more significant potential than US ones. For instance, Šmída believes that it is unclear which startups have a greater chance to mature: "While the US market offers a vastly different scale and opportunities for growth, at the same time, there is a much bigger competition. In Europe, there is more market fragmentation across the EU states, and it's more difficult to scale up. Still, there is also less international competition, allowing local winners to be created."
The Czech Republic has much to offer regarding the future of tech startups, and we can expect to see even greater innovation and collaboration within the Czech startup community. With its rich history of engineering and scientific excellence, the Czech Republic is well-positioned to become a hub of technological innovation, and we can look forward to exciting developments in the years to come.
