We all know what happens in Silicon Valley. Brilliant individuals with great ideas are disrupting entire industries: Uber and public transit, Tesla and auto manufacturing, even Microsoft and the world of labor itself. Older, established firms are unwilling and unable to adapt to the times – and in order that they disappear and are replaced by the businesses of today and tomorrow. This is how tech hubs are purported to work.
But not everyone does that.
The Silicon Valley model is closely linked to the US economic model and is due to this fact difficult to copy elsewhere. Silicon Valley is a frontrunner in some areas of high technology, nevertheless it lost its edge in manufacturing way back.
Policymakers around the globe are evolving the Silicon Valley concept to raised suit the characteristics of their respective economies, thereby gaining a singular advantage in key global markets.
Examples include Japan and Korea. Large conglomerates dominate the economies of each countries, whether Japan’s Keiretsu or South Korea the chaebol. Those in charge in Tokyo and Seoul see no point in startups disrupting extremely successful and internationally lively firms to such an extent that they disappear from the market.
Instead, they need startups to partner with giants like Hyundai, Samsung, SK, Sony or Toyota. It’s an example of David’s fight against Goliath: an open innovation model where small firms and huge corporations work along with government support. This approach helps policymakers innovate in developing and manufacturing the technologies of tomorrow.
Critics often accuse chaebols and keiretsu of hindering competition, but politicians in Japan and Korea are unwilling to work against the conglomerates which have helped their countries change into two of the richest and most revolutionary economies on this planet.
For a forthcoming book entitled Startup capitalism, We have examined how each Japan and Korea have tried to encourage this collaboration between startups and conglomerates. Government support for this David versus Goliath relationship has survived the frequent changes in political leadership in Japan and Korea and is now a part of the material of each economies.
But why is it like that?
First, startups gain access to expertise, mentorship, and distribution channels that they might struggle to construct on their very own. Managers in a conglomerate like LG and Nissan have a long time of experience of their core business areas. Startup founders typically do not have such experience – they rely as an alternative on connections from VC backers or their very own personal networks.
Programs similar to the K-Startup Grand Challenge, run by the Ministry of SMEs and Startups in Seoul, or J-Startup, run by the Ministry of Economy, Trade and Industry in Tokyo, help bridge this asymmetry in resources and access. Large firms take part in these government programs as judges, advisors and potential partners for startups. The Japanese and Korean governments thus act as intermediaries between entrepreneurs and leading conglomerates. (The US policy approach, against this, is to support only startups.)
By participating in these programs, Japanese and Korean startups also gain access to capital and sometimes exit strategies. Seoul and Tokyo pour billions of taxpayer dollars into supporting entrepreneurs through institutions similar to the Korea Venture Investment Corporation or the Japan Finance Corporation. By putting these startups in contact with chaebol or keiretsu that may not otherwise learn about their ideas or products, it makes it easier for the large firms to determine whether to speculate of their smaller competitors.
Startups clearly profit from working with large corporations. But what do larger firms get out of it?
The second advantage of this open innovation model is that the Keiretsu And chaebol Gain access to latest ideas and products. Several Japanese and Korean politicians told us they were anxious that their national flagship firms could go the best way of Motorola or Nokia, former innovation drivers which were left behind. Collaborating with startups is a method for big conglomerates to develop latest products and improve existing ones.
Ultimately, Japan and Korea want startups and conglomerates to work together to enhance the economy. They see startups as engines for innovation and growth in high-quality jobs; conglomerates help these smaller firms achieve this.
Conglomerates even have the manufacturing capability needed to mass produce future technologies. Silicon Valley outsourced the production of key technologies similar to semiconductors way back. Bringing this manufacturing capability – which creates high-quality jobs and helps develop talent – back to the country is a key goal of the multi-billion dollar CHIPS Act program within the USA.
In fact, this model of collaboration between startups and huge firms now appears to be being adopted in other parts of the world. In the AI ​​sector, Microsoft is working with smaller partners similar to ChatGPT. Developer OpenAI and France’s Mistral. Both Amazon And Google have invested in developers like Anthropic; China’s large technology firms are also acquiring large stakes within the country’s AI startups. Both the Biden administration and the Von der Leyen Commission are promoting cooperation between startups and huge firms as a part of their respective industrial policies.
The Japanese and Korean model of collaboration between start-ups and huge firms is anticipated to change into more widespread. Governments are increasingly turning to industrial policy and economic nationalism, distancing themselves from laissez-faire liberalism. In other words, they’re moving closer to the policies that Tokyo and Seoul have long advocated.
Silicon Valley just isn’t dead. But its version of startup capitalism is not any longer the just one on the market.
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