Governments all over the world are hustling. European policymakers, for instance, are keen to spice up the area’s industrial relevance in a world the place the US and China dominate cutting-edge 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 worldwide are striving to foster their very own variations of Silicon Valley. They’ve invested to create ecosystems plentiful with bold startups backed by enterprise capital buyers. Their final goal is to see these companies turn into what are referred to as scale-ups and compete in world markets.
But when governments – from Berlin and Brussels to Ho Chi Minh Metropolis – are to search out their edge, I argue they need to comply with a mannequin nearer to Seoul or Tokyo’s playbook than that of Silicon Valley.
South Korean and Japanese policymakers have lengthy understood that the proliferation of startup exercise shouldn’t be an remoted goal. In our 2025 e book, Startup Capitalism, my colleague Ramon Pacheco Pardo and I revealed that the strategy of those international locations sees nationwide champion companies like Samsung and Toyota use startups as assets to assist them compete internationally.
As the top of a government-backed startup centre in Seoul informed me, a key goal of South Korean authorities coverage for startups is to “inject innovative DNA” into the nation’s giant 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’ group of workers.
Wayne Miller / Magnum Images
For this goal, the Silicon Valley playbook is sub-optimal. US authorities coverage has enabled enterprise capital funding by means of regulatory adjustments and has ensured that gifted individuals are free to problem their former employers. Traditional examples embody the so-called “traitorous eight” who left Shockley Semiconductor Laboratory in 1957 to discovered Fairchild Semiconductor.
A newer instance is Anthony Levandowski, who left Google’s self-driving automotive mission to begin his personal firm, Otto, in 2016. The competitors was so shut that Google sued Uber – because it had acquired Otto – in 2019 over the commerce secrets and techniques Levandowski allegedly used to develop his self-driving truck firm. Uber ultimately paid Google a “substantial portion” of the US$179 million (£134 million) it was awarded initially in arbitration.
Injecting revolutionary DNA
The Japanese and Korean method is distinct. South Korea’s 17 Centres for the Inventive Financial system and Innovation, established about ten years in the past to drive innovation and entrepreneurship, every have one of many nation’s giant companies (chaebol) as an anchor companion. The chaebol’s industrial focus – whether or not it’s shipbuilding, electronics or heavy equipment – is mirrored within the focus of the startups participating with that centre.
The startups work on points “that keep the large firm up at night” and, in return, the startups have unparalleled entry to distribution channels, advertising and proof-of-concept testing. Whereas the centres haven’t produced volumes of worldwide aggressive scale-ups, they’ve delivered on the goal of injecting revolutionary concepts and expertise into giant firms like Hyundai, LG Electronics and SK Group.
In Japan, tax incentives encourage large companies to amass startups. The “open innovation tax incentive” permits a 25% deduction from the worth of the acquisition. The goal right here is to encourage Japan’s nationwide champion companies to combine startups into their core companies. In 2024, for instance, Toyota built-in high-tech wheelchair startup, Whill, into its mobility companies providing.
Varied authorities initiatives additionally goal to supply teaching and mentoring for startups round elevating enterprise capital funding and sharpening a pitch for demo day. In Japan and Korea, these initiatives embed large enterprise all through.
In J-Startup, an initiative geared toward making a cohort of so-called unicorns (startups valued at over US$1 billion), the Japanese authorities entails industrial leaders as judges that assist choose candidates for the programme. These individuals then act as coaches and mentors to the startups. Japan’s lead companies are, in return, uncovered to revolutionary applied sciences and startup tradition.
In the same manner, Korea’s Ok-Startup Grand Problem connects collaborating international startups with the nation’s chaebol for proof-of-concept growth. The Korean authorities cites partnership and licensing agreements between the events as an essential consequence of the programme. By way of these connections, Korea’s large companies have one other mechanism for accessing revolutionary concepts and expertise from overseas.
Samsung Electronics is the biggest chaebol in South Korea.
Sybillla / Shutterstock
Governments that wish to compete with China or the US can’t proceed on their current path. They should do one thing totally different, and Japan and South Korea’s strategy affords another.
These approaches will not be with out downsides. There’s, after all, the chance of well-resourced companies working “kill zones” round their enterprise strains. This would possibly contain early low-value mergers and acquisitions, and even copying their merchandise in a bid to remove them.
The central place of huge companies to the economic system additionally signifies that the innovation agenda of startups is ready by incumbent companies. This fosters complementary merchandise, and never people who disrupt – and in the end enhance – 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 preserve a wall between large enterprise and startups, believing that is important to minimise corruption and that enormous companies will innovate simply as startups will scale-up into bigger companies, they threat underwhelming outcomes on all ranges.
We might even see flailing productiveness within the sectors wherein international locations have excelled. And scale-ups will fail to materialise whereas populations of “zombie startups”, that merely stagnate whereas propped up on state largesse, enhance.
Startups must be thought of as assets to spice up nationwide industrial capabilities, not efforts geared toward seeding a rustic’s reply to Silicon Valley’s Google or OpenAI.
