Governments around the globe are hustling. Eu policymakers, as an example, are keen to spice up the area’s commercial relevance in a global the place the USA and China dominate state-of-the-art applied sciences. They wish to transfer past the adage that “the US innovates, China replicates and the EU regulates”.
As a part of this, policymakers international are striving to foster their very own variations of Silicon Valley. They’ve invested to create ecosystems plentiful with bold startups sponsored by means of challenge capital traders. Their final purpose is to look those companies grow to be what are referred to as scale-ups and compete in international markets.
But when governments – from Berlin and Brussels to Ho Chi Minh Town – are to seek out their edge, I argue they will have to practice a fashion nearer to Seoul or Tokyo’s playbook than that of Silicon Valley.
South Korean and Eastern policymakers have lengthy understood that the proliferation of startup job will have to no longer be an remoted purpose. In our 2025 ebook, Startup Capitalism, my colleague Ramon Pacheco Pardo and I printed that the way of those nations sees nationwide champion companies like Samsung and Toyota use startups as assets to assist them compete across the world.
As the top of a government-backed startup centre in Seoul instructed me, a key purpose of South Korean authorities coverage for startups is to “inject innovative DNA” into the rustic’s massive companies. Insurance policies try to embed startups into the material of lead companies, and don’t attempt to disrupt their aggressive positions.
The ‘traitorous eight’ workforce of staff.
Wayne Miller / Magnum Footage
For this goal, the Silicon Valley playbook is sub-optimal. US authorities coverage has enabled challenge capital funding thru regulatory adjustments and has ensured that gifted individuals are loose to problem their former employers. Vintage examples come with the so-called “traitorous eight” who left Shockley Semiconductor Laboratory in 1957 to discovered Fairchild Semiconductor.
A more moderen instance is Anthony Levandowski, who left Google’s self-driving automobile challenge to start out his personal corporate, Otto, in 2016. The contest used to be so shut that Google sued Uber – because it had received Otto – in 2019 over the business secrets and techniques Levandowski allegedly used to expand his self-driving truck corporate. Uber sooner or later paid Google a “substantial portion” of the USA$179 million (£134 million) it used to be awarded first of all in arbitration.
Injecting leading edge DNA
The Eastern and Korean formulation is distinct. South Korea’s 17 Centres for the Inventive Economic system and Innovation, established about ten years in the past to power innovation and entrepreneurship, every have probably the most nation’s massive companies (chaebol) as an anchor spouse. The chaebol’s commercial center of attention – whether or not it’s shipbuilding, electronics or heavy equipment – is mirrored in the focal point of the startups attractive with that centre.
The startups paintings on problems “that keep the large firm up at night” and, in go back, the startups have exceptional get admission to to distribution channels, advertising and marketing and proof-of-concept trying out. Whilst the centres have no longer produced volumes of worldwide aggressive scale-ups, they have got delivered at the purpose of injecting leading edge concepts and ability into massive firms like Hyundai, LG Electronics and SK Crew.
In Japan, tax incentives inspire large companies to procure startups. The “open innovation tax incentive” lets in a 25% deduction from the cost of the purchase. The purpose this is to inspire Japan’s nationwide champion companies to combine startups into their core companies. In 2024, as an example, Toyota built-in high-tech wheelchair startup, Whill, into its mobility services and products providing.
More than a few authorities projects additionally purpose to offer training and mentoring for startups round elevating challenge capital investment and polishing a pitch for demo day. In Japan and Korea, those projects embed large industry all through.
In J-Startup, an initiative geared toward making a cohort of so-called unicorns (startups valued at over US$1 billion), the Eastern authorities comes to commercial leaders as judges that assist make a choice candidates for the programme. Those folks then act as coaches and mentors to the startups. Japan’s lead companies are, in go back, uncovered to leading edge applied sciences and startup tradition.
In a similar fashion, Korea’s Okay-Startup Grand Problem connects collaborating international startups with the rustic’s chaebol for proof-of-concept building. The Korean authorities cites partnership and licensing agreements between the events as crucial end result of the programme. Via those connections, Korea’s large companies have any other mechanism for gaining access to leading edge concepts and ability from out of the country.
Samsung Electronics is the most important chaebol in South Korea.
Sybillla / Shutterstock
Governments that wish to compete with China or the USA can’t proceed on their current trail. They wish to do one thing other, and Japan and South Korea’s way provides another.
Those approaches aren’t with out downsides. There may be, after all, the danger of well-resourced firms working “kill zones” round their industry traces. This may contain early low-value mergers and acquisitions, and even copying their merchandise in a bid to get rid of them.
The central place of enormous companies to the financial system additionally implies that the innovation time table of startups is about by means of incumbent companies. This fosters complementary merchandise, and no longer those who disrupt – and in the long run give a boost to – home companies or applied sciences. There’s additionally the fear of perceived corruption.
However I argue that pursuing a half-committed technique is riskier. If governments take care of a wall between large industry and startups, believing this is very important to minimise corruption and that giant companies will innovate simply as startups will scale-up into higher companies, they possibility underwhelming results on all ranges.
We would possibly see flailing productiveness within the sectors during which nations have excelled. And scale-ups will fail to materialise whilst populations of “zombie startups”, that merely stagnate whilst propped up on state largesse, build up.
Startups will have to be thought to be as assets to spice up national commercial features, no longer efforts geared toward seeding a rustic’s solution to Silicon Valley’s Google or OpenAI.
