We all know how things work in Silicon Valley. Brilliant individuals with big ideas are disrupting entire industries: Uber and public transportation, Tesla and automobile manufacturing, even Microsoft and the workplace itself. The oldest incumbent operators are unwilling and unable to adapt to the times and therefore disappear, replaced by the companies of today and tomorrow. This is how tech hubs are supposed to work.
Except that’s not the case for everyone.
The Silicon Valley model is closely tied to the US economic model and is therefore 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 reshaping the idea of Silicon Valley to better fit the particularities of their own economies and carve out a unique advantage in major global markets.
Look to Japan and Korea for examples. Large conglomerates dominate the economies of both countries, whether Japan’s or Japan’s. keiretsu or South Korea chaebol. Officials in Tokyo and Seoul see no point in startups disrupting successful, international companies to the point of making them disappear.
Instead, they want start-ups to collaborate with giants like Hyundai, Samsung, SK, Sony or Toyota. It’s a bit like David meets Goliath: a model of open innovation where small businesses and large conglomerates work together, with help from the government. This approach helps policy makers to innovate in the design and manufacturing of tomorrow’s technologies.
Critics often accuse chaebols and keiretsu of stifling competition. But Japanese and Korean leaders don’t want to work against the conglomerates that have helped their countries become two of the world’s richest and most innovative economies.
For an upcoming book, titled Startup Capitalism, We studied how Japan and Korea have tried to foster this collaboration between startups and conglomerates. Government support for this “David and Goliath” relationship has survived frequent changes in political leadership in Japan and Korea; it is now part of the fabric of both economies.
But why is this the case?
For starters, startups have access to expertise, mentorship, and sales channels that they would struggle to develop on their own. Executives at conglomerates like LG and Nissan have decades of experience in their core industries. Startup founders typically don’t, relying instead on connections from venture capital backers or their own personal networks.
Programs such as K-Startup Grand Challenge, supported by the Ministry of SMEs and Startups in Seoul, or J-Startup, led by the Ministry of Economy, Trade and Industry in Tokyo, help fill this gap. asymmetry in resources and access. Large companies join these government programs as judges, coaches and potential partners of startups. The Japanese and Korean governments thus play the role of intermediaries between entrepreneurs and the main conglomerates. (The US policy approach is instead to only support startups.)
By participating in these programs, Japanese and Korean startups also gain access to capital and, often, exit strategies. Seoul and Tokyo devote billions of dollars of taxpayer money to supporting entrepreneurs through institutions like the Korea Venture Investment Corporation or the Japan Finance Corporation. By connecting these startups with chaebol or keiretsu that might not otherwise be aware of their ideas or products, larger companies can more easily decide whether to invest in their smaller counterparts.
So, startups clearly benefit from working with conglomerates. But what do big companies get out of it?
The second advantage of this open innovation model is that keiretsu And chaebol Japanese and Korean companies have access to new ideas and new products. Several Japanese and Korean politicians told us they feared their national champions would meet the same fate as Motorola or Nokia, former innovation giants who have been left behind. Collaborating with start-ups is one of the ways large conglomerates can develop new products and improve existing ones.
Ultimately, Japan and Korea want startups and conglomerates to work together to improve the economy. They see startups as engines of innovation and quality job creation; conglomerates help these small companies achieve this.
Conglomerates also provide the manufacturing skills needed to manufacture future technologies at scale. Silicon Valley has long outsourced the production of key technologies, such as semiconductors, elsewhere. Bringing these manufacturing capabilities, which provide quality jobs and help create talent hubs,back on land is one of the key goals of the multibillion-dollar U.S. CHIPS Act.
In fact, it seems that this model of collaboration between startups and large companies is now being adopted in other parts of the world. In the AI sector, Microsoft works with smaller partners like ChatGPT OpenAI developer And The Mistral of France. Both Amazon And Google have invested in developers like Anthropic; China big tech companies are also buying large stakes in the country’s AI startups. Both the Biden administration and the Von der Leyen Commission are encouraging collaboration between startups and large companies as part of their respective industrial policies.
The Japanese and Korean model of startup-corporate collaboration is likely to become more widespread. Governments are moving toward industrial policy and economic nationalism, away from laissez-faire liberalism—in other words, toward the policies long advocated by Tokyo and Seoul.
Silicon Valley is not dead, but its version of start-up capitalism is no longer the only one in vogue.
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