Japan and Korea Innovate by Integrating Startups with Large Conglomerates
A Unique Twist on the Silicon Valley Model
Critical Insights
Unlike the U.Svernment, which often adopts an anti-large startup stance, Japan and Korea must take the opposite approach. Their economic strategies focus on integrating startups with established giants to leverage the strengths of both and ensure long-term success and competitiveness in the global market.
Policymakers in Japan and Korea are customizing the Silicon Valley innovation model to better align with their unique economic structures, recognizing that a direct transplant of the model is not feasible.
In both Japan and Korea, large conglomerates (keiretsu in Japan and chaebol in Korea) play a central role in the economy, controlling significant market share and resources.
Programs supported by the governments of Japan and Korea actively promote collaboration between startups and these large conglomerates, fostering a mutually beneficial relationship that drives innovation and economic growth.
Japanese and Korean policymakers are increasingly concerned that their national champions, such as Samsung, could fall behind without innovation. The Silicon Valley model, where brilliant ideas from individuals disrupt entire industries, doesn't necessarily fit these countries' unique economic landscapes. While Silicon Valley has excelled in frontier technology, it has lost its manufacturing edge.
Policymakers worldwide are adapting the Silicon Valley model to suit their own economies. In Japan and Korea, large conglomerates like Japan's keiretsu and South Korea's chaebol dominate. Rather than disrupt these giants, policymakers in Tokyo and Seoul encourage startups to collaborate with them. This approach fosters an open innovation model where small firms and big conglomerates work together, supported by the government. This collaboration is designed to drive innovation in tomorrow’s technologies.
Critics argue that chaebols and keiretsu stifle competition, but Japanese and Korean policymakers believe these conglomerates have been crucial to their countries' economic success. Book called, Startup Capitalism, explores how Japan and Korea foster this collaboration between startups and conglomerates, showing that government support for this model has become deeply ingrained despite frequent political changes.
Startups gain access to expertise, mentoring, and sales channels that would be challenging to develop independently. Programs like Korea's K-Startup Grand Challenge and Japan's J-Startup help bridge resource gaps, with large firms participating as judges, coaches, and potential partners. The Japanese and Korean governments act as matchmakers between entrepreneurs and leading conglomerates, providing startups with capital and exit strategies through institutions like the Korea Venture Investment Corporation and the Japan Finance Corporation.
For larger companies, collaborating with startups provides access to new ideas and products. Policymakers worry that without innovation, their national champions could suffer the same fate as Motorola or Nokia. By working with startups, conglomerates can develop new products and improve existing ones. This collaboration aims to boost the economy, create quality jobs, and ensure manufacturing capabilities for future technologies.
We can expect the Japanese and Korean model of startup-conglomerate collaboration to become more widespread. As governments shift towards industrial policy and economic nationalism, they are adopting strategies similar to those long practiced by Tokyo and Seoul. While Silicon Valley remains influential, its version of startup capitalism is no longer the only model.