Everyone knows how issues work in Silicon Valley. Good people with nice concepts disrupt entire industries: Uber and public transport, Tesla and car-making, even Microsoft and the office itself. Older incumbents received’t, and may’t, adapt with the occasions—and they also disappear, changed by the companies of in the present day and tomorrow. It’s the best way tech hubs are alleged to work.
Besides that not all do.
The Silicon Valley mannequin is tied intently to the financial mannequin of the U.S.—and so troublesome to duplicate elsewhere. Silicon Valley excels in some elements of frontier expertise however misplaced its manufacturing edge way back.
Around the globe, policymakers are tweaking the concept of Silicon Valley to raised match the idiosyncrasies of their very own economies and carve out a novel benefit in key international markets.
Look to Japan and Korea for examples. Giant conglomerates dominate the economies of each international locations, whether or not Japan’s keiretsu or South Korea’s chaebol. Officers in Tokyo and Seoul don’t see the purpose of startups disrupting massively profitable and internationalized firms to the purpose that they disappear.
As an alternative, they need startups to work with giants like Hyundai, Samsung, SK, Sony or Toyota. It’s an occasion of David assembly Goliath: an open innovation mannequin the place small companies and large conglomerates work collectively, aided by the federal government. This method helps policymakers innovate within the design and manufacturing of tomorrow’s applied sciences.
Critics typically accuse chaebols and keiretsu of stifling competitors. However Japanese and Korean policymakers don’t wish to work towards the conglomerates which have helped their international locations turn out to be two of the richest and most innovate economies on this planet.
For a forthcoming ebook, titled Startup Capitalism, we studied how each Japan and Korea tried to foster this collaboration between startups and conglomerates. Authorities assist for this “David and Goliath” relationship survived Japan and Korea’s frequent modifications in political management; it’s now a part of the material of each economies.
However why is that this the case?
To start with, startups get entry to experience, mentoring, and gross sales channels that they’d discover troublesome to develop on their very own. Managers in a conglomerate like LG and Nissan have many years of expertise of their core enterprise sectors. Startup founders, typically, don’t—as an alternative counting on connections from VC backers or their very own private networks
Applications resembling Okay-Startup Grand Problem, anchored by Seoul’s Ministry of SMEs & Startups, or J-Startup, led by Tokyo’s Ministry of Economic system, Commerce and Business, assist to bridge this asymmetry in assets and entry. Giant companies be a part of these authorities packages as judges, coaches, and would-be companions for startups. The Japanese and Korean governments thus act as matchmakers between entrepreneurs and main conglomerates. (The U.S. coverage method, as an alternative, is to solely assist startups.)
By participating in these packages, Japanese and Korean startups additionally get entry to capital and, typically, exit methods. Seoul and Tokyo pour billions of taxpayer {dollars} into supporting entrepreneurs through establishments just like the Korea Enterprise Funding Company or the Japan Finance Company. Connecting these startups with chaebol or keiretsu that in any other case might not learn about their concepts or merchandise makes it simpler for the large companies to determine whether or not to spend money on their smaller counterparts.
So, startups clearly profit from working with conglomerates. However what do bigger firms get out of this?
The second benefit of this open innovation mannequin is that the keiretsu and chaebol get entry to new concepts and merchandise. A number of Japanese and Korean policymakers instructed us that they had been fearful that their nationwide champions would possibly go the best way of Motorola or Nokia, former innovation powerhouses that received left behind. Working along with startups is a method that huge conglomerates can develop new merchandise and enhance present ones.
Finally, Japan and Korea need startups and conglomerates to work collectively to enhance the financial system. They see startups as drivers of innovation and progress in high quality jobs; conglomerates assist these smaller companies obtain that.
Conglomerates additionally present manufacturing chops wanted to make future applied sciences at scale. Silicon Valley way back outsourced the manufacturing of key applied sciences, like semiconductors, elsewhere. Bringing these manufacturing talents—that supply high quality jobs and contribute to clusters of expertise—again onshore is a key intention of the U.S.’s multi-billion-dollar CHIPS Act.
Actually, it appears this mannequin of startups working along with massive firms is now getting picked up in different elements of the world. Within the AI sector, Microsoft is working with smaller companions like ChatGPT developer OpenAI and France’s Mistral. Each Amazon and Google have invested in builders like Anthropic; China’s huge tech firms are additionally shopping for massive stakes within the nation’s AI startups. The Biden administration and the Von der Leyen Fee are each pushing startup-big agency collaboration as a part of their respective industrial insurance policies.
We should always count on the Japanese and Korean mannequin of startup-big agency collaboration to turn out to be extra widespread. Governments are turning in the direction of industrial coverage and financial nationalism, and away from laissez-faire liberalism—in different phrases, nearer to the insurance policies lengthy espoused by Tokyo and Seoul.
Silicon Valley isn’t useless. However its model of startup capitalism isn’t the one recreation on the town anymore.
The opinions expressed in Fortune.com commentary items are solely the views of their authors and don’t essentially replicate the opinions and beliefs of Fortune.
