We all know how Silicon Valley works. Brilliant individuals with big ideas disrupted entire industries: Uber and public transportation, Tesla and car manufacturing, even Microsoft and the workplace itself. Established businesses will not and cannot adapt to the times, so they disappear and are replaced by the companies of today and tomorrow. This is how a technology center should work.
But not everyone does.
The Silicon Valley model is closely tied to the U.S. economic model, making it difficult to replicate elsewhere. Silicon Valley excels in some aspects of cutting-edge technology, but has long since lost its manufacturing edge.
Around the world, policymakers are adapting the concept of Silicon Valley to better fit the characteristics of their economies and create unique advantages in key global markets.
Take Japan and South Korea as examples. Large conglomerates dominate the economies of both countries, whether they are Japanese conglomerates or Japanese conglomerates. company Or Korean Chaebol. Officials in Tokyo and Seoul believe there is no need for startups to disrupt highly successful international companies until they disappear.
Instead, they want startups to partner with giants like Hyundai, Samsung, SK, Sony or Toyota. It’s an example of David meeting Goliath: an open innovation model where small companies and large conglomerates work together with help from the government. This approach helps policymakers innovate in the design and manufacturing of future technologies.
Critics often accuse chaebols and conglomerates of stifling competition. But policymakers in Japan and South Korea don’t want to confront the conglomerates that have helped both countries become the world’s richest and most innovative economies.
For the upcoming book titled entrepreneurial capitalism, We examine how Japan and South Korea are working to promote collaboration between startups and conglomerates. Despite frequent changes in political leadership in Japan and South Korea, government support for this David versus Goliath relationship remains. It is now part of the economic fabric of both countries.
But why is this so?
First, startups gain access to expertise, mentorship, and sales pipelines that they would be hard-pressed to develop on their own. Executives at conglomerates such as LG and Nissan have decades of experience in their core businesses. Startup founders often don’t do this, relying instead on connections from venture backers or their own personal networks
Programs such as the “K-Startup Grand Challenge” sponsored by the Ministry of Small and Medium Enterprises and Startups in Seoul or the “J-Startup” led by the Tokyo Ministry of Economy, Trade and Industry can help bridge asymmetries in resources and access. Large corporations join these government programs as judges, coaches, and potential partners for new startups. The Japanese and Korean governments therefore act as matchmakers between entrepreneurs and leading conglomerates. (In contrast, the U.S. policy approach is to support only new ventures.)
By participating in these programs, Japanese and Korean startups also receive funding and often an exit strategy. Seoul and Tokyo invest billions in taxpayer funds to support entrepreneurs through institutions such as Korea Venture Capital Corporation or Japan Financial Corporation. Linking these startups to chaebols or conglomerates, whose ideas or products may not otherwise be understood by larger companies, makes it easier for larger companies to decide whether to invest in their smaller peers.
Thus, new ventures clearly benefit from partnering with conglomerates. But what do big companies get from it?
The second advantage of this open innovation model is that company and chaebol Get new ideas and products. Several Japanese and South Korean policymakers told us they worry that their national champions could go the way of Motorola or Nokia, two former innovation giants that were left behind. Partnering with startups is a way for large conglomerates to develop new products and improve existing ones.
Ultimately, Japan and South Korea want startups and conglomerates to work together to improve their economies. They see startups as drivers of innovation and quality job growth; conglomerates help these small businesses achieve this goal.
Conglomerates also provide the manufacturing capabilities needed to manufacture future technologies at scale. Silicon Valley long ago outsourced the production of key technologies like semiconductors elsewhere. Bringing back home the manufacturing capabilities that provide quality jobs and talent is a key goal of America’s multibillion-dollar Chip Act.
In fact, this model of startups partnering with large companies now seems to be being adopted in other parts of the world. In the field of artificial intelligence, Microsoft is working with smaller partners such as ChatGPT developer OpenAI and France’s Mistral. Amazon and Google have both invested in developers like Anthropic; China’s big tech companies are also buying large stakes in the country’s artificial intelligence startups. Both the Biden administration and the von der Leyen Commission are pushing for startups to partner with big companies as part of their respective industrial policies.
We expect that the Japanese and Korean model of startups partnering with large companies will become more common. Governments are moving toward industrial policy and economic nationalism, away from laissez-faire liberalism—in other words, closer to the policies long pursued by Tokyo and Seoul.
Silicon Valley is not dead. But its entrepreneurial capitalism is no longer the only game in town.
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