Everyone knows how issues work in Silicon Valley. Sensible people with nice concepts disrupt entire industries: Uber and public transport, Tesla and car-making, even Microsoft and the office itself. Older incumbents gained’t, and may’t, adapt with the instances—and they also disappear, changed by the corporations of at this time and tomorrow. It’s the way in which tech hubs are alleged to work.
Besides that not all do.
The Silicon Valley mannequin is tied carefully to the financial mannequin of the U.S.—and so troublesome to copy elsewhere. Silicon Valley excels in some facets of frontier expertise however misplaced its manufacturing edge way back.
All over the world, policymakers are tweaking the thought of Silicon Valley to higher 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 nations, 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 corporations and massive conglomerates work collectively, aided by the federal government. This strategy 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 nations turn into two of the richest and most innovate economies on this planet.
For a forthcoming e-book, titled Startup Capitalism, we studied how each Japan and Korea tried to foster this collaboration between startups and conglomerates. Authorities help 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 a substitute counting on connections from VC backers or their very own private networks
Packages comparable to 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 corporations be 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 strategy, as a substitute, is to solely help 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 could not learn about their concepts or merchandise makes it simpler for the massive corporations to resolve 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 may go the way in which of Motorola or Nokia, former innovation powerhouses that bought left behind. Working along with startups is a method that large conglomerates can develop new merchandise and enhance current ones.
In the end, 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 corporations 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.
In actual fact, 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 large 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 anticipate the Japanese and Korean mannequin of startup-big agency collaboration to turn into 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.
