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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 need 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 have invested to create ecosystems considerable with bold startups backed by enterprise capital buyers. Their final goal is to see these corporations grow to be what are referred to as scale-ups and compete in international markets.
But if governments – from Berlin and Brussels to Ho Chi Minh City – are to seek out their edge, I argue they need to observe 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 corporations like Samsung and Toyota use startups as assets to assist them compete internationally.
As the top of a government-backed startup centre in Seoul instructed me, a key goal of South Korean authorities coverage for startups is to “inject innovative DNA” into the nation’s massive corporations. Policies try and embed startups into the material of lead corporations, and don’t attempt to disrupt their aggressive positions.
For this goal, the Silicon Valley playbook is sub-optimal. US authorities coverage has enabled enterprise capital funding by regulatory adjustments and has ensured that gifted persons are free to problem their former employers. Classic examples embrace 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 challenge 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 finally paid Google a “substantial portion” of the US$179 million (Pound 134 million) it was awarded initially in arbitration.
The Japanese and Korean formulation is distinct. South Korea’s 17 Centres for the Creative Economy and Innovation, established about ten years in the past to drive innovation and entrepreneurship, every have one of many nation’s massive corporations (chaebol) as an anchor accomplice. The chaebol‘s industrial focus – whether or not it is 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. While the centres haven’t produced volumes of worldwide aggressive scale-ups, they’ve delivered on the goal of injecting modern concepts and expertise into massive firms like Hyundai, LG Electronics and SK Group.
In Japan, tax incentives encourage massive companies to accumulate 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 corporations to combine startups into their core companies. In 2024, for instance, Toyota built-in high-tech wheelchair startup, Whill, into its mobility companies providing.
Various authorities initiatives additionally goal to offer teaching and mentoring for startups round elevating enterprise capital funding and sharpening a pitch for demo day. In Japan and Korea, these initiatives embed massive enterprise all through.
In J-Startup, an initiative aimed 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 corporations are, in return, uncovered to modern applied sciences and startup tradition.
In an analogous method, Korea’s Okay-Startup Grand Challenge connects taking part overseas startups with the nation’s chaebol for proof-of-concept improvement. The Korean authorities cites partnership and licensing agreements between the events as an necessary end result of the programme. Through these connections, Korea’s massive companies have one other mechanism for accessing modern concepts and expertise from overseas.
Governments that need to compete with China or the US can’t proceed on their current path. They have to do one thing completely different, and Japan and South Korea’s strategy presents an alternate.
These approaches should not with out downsides. There is, after all, the chance of well-resourced companies working “kill zones” round their enterprise traces. 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 corporations to the economic system additionally implies that the innovation agenda of startups is about by incumbent corporations. This fosters complementary merchandise, and never those who disrupt – and finally enhance – home corporations or applied sciences. There’s additionally the concern of perceived corruption.
But I argue that pursuing a half-committed technique is riskier. If governments keep a wall between massive enterprise and startups, believing that is important to minimise corruption and that giant corporations will innovate simply as startups will scale-up into bigger corporations, they danger underwhelming outcomes on all ranges.
We may even see flailing productiveness within the sectors by which 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 ought to be thought-about as assets to spice up nationwide industrial capabilities, not efforts aimed toward seeding a rustic’s reply to Silicon Valley’s Google or OpenAI.