Japan and South Korea know the way to compete with China and US
As part of this, policymakers worldwide are striving to foster their own versions of Silicon Valley. They have invested to create ecosystems abundant with ambitious startups backed by venture capital investors. Their ultimate aim is to see these firms develop into what are known as scale-ups and compete in global markets.
But if governments – from Berlin and Brussels to Ho Chi Minh City – are to find their edge, I argue they should follow a model closer to Seoul's or Tokyo's playbook than that of Silicon Valley.
South Korean and Japanese policymakers have long understood that the proliferation of startup activity should not be an isolated aim. In our 2025 book, Startup Capitalism, my colleague Ramon Pacheco Pardo and I revealed that the approach of these countries sees national champion firms like Samsung and Toyota use startups as resources to help them compete internationally.
As the head of a government-backed startup center in Seoul told me, a key aim of South Korean government policy for startups is to 'inject innovative DNA' into the country's large firms. Policies attempt to embed startups into the fabric of lead firms, and do not try to disrupt their competitive positions.
For this objective, the Silicon Valley playbook is sub-optimal.
US government policy has enabled venture capital investment through regulatory changes and has ensured that talented people are free to challenge their former employers.
Classic examples include the so-called 'traitorous eight' who left Shockley Semiconductor Laboratory in 1957 to found Fairchild Semiconductor.
A more recent example is Anthony Levandowski, who left Google's self-driving car project to start his own company, Otto, in 2016. The competition was so close that Google sued Uber – as it had acquired Otto – in 2019 over the trade secrets Levandowski allegedly used to develop his self-driving truck company. Uber eventually paid Google a 'substantial portion' of the $179 million it was awarded initially in arbitration.
The Japanese and Korean formula is distinct. Each of South Korea's 17 Centers for the Creative Economy and Innovation, established about ten years ago to drive innovation and entrepreneurship, has one of the country's large firms ( chaebol ) as an anchor partner. The chaebol 's industrial focus – whether it's shipbuilding, electronics or heavy machinery – is reflected in the focus of the startups engaging with that center.
The startups work on issues 'that keep the large firm up at night' and, in return, the startups have unparalleled access to distribution channels, marketing and proof-of-concept testing. While the centers have not produced volumes of globally competitive scale-ups, they have delivered on the aim of injecting innovative ideas and talent into large companies such as Hyundai, LG Electronics and SK Group.
In Japan, tax incentives encourage big businesses to acquire startups. The 'open innovation tax incentive' allows a 25% deduction from the price of the acquisition. The aim here is to encourage Japan's national champion firms to integrate startups into their core businesses. In 2024, for example, Toyota integrated high-tech wheelchair startup, Whill, into its mobility services offering.
Various government initiatives also aim to provide coaching and mentoring for startups around raising venture capital funding and sharpening a pitch for demo day. In Japan and Korea, these initiatives embed big business throughout.
In J-Startup, an initiative aimed at creating a cohort of so-called unicorns (startups valued at over $1 billion), the Japanese government involves industrial leaders as judges who help select applicants for the program. These people then act as coaches and mentors to the startups. Japan's lead firms are, in return, exposed to innovative technologies and startup culture.
In a similar way, South Korea's K-Startup Grand Challenge connects participating foreign startups with the country's chaebol for proof-of-concept development. The government cites partnership and licensing agreements between the parties as an important outcome of the program. Through these connections, Korea's big businesses have another mechanism for accessing innovative ideas and talent from abroad.
Governments that want to compete with China or the US cannot continue on their existing path. They need to do something different, and Japan and South Korea's approach offers an alternative.
These approaches are not without downsides. There is, of course, the risk of well-resourced corporations operating 'kill zones' around their business lines. This might involve early low-value mergers and acquisitions, or even copying their products in a bid to eliminate them.
The central position of large firms to the economy also means that the innovation agenda of startups is set by incumbent firms. This fosters complementary products, and not those that disrupt – and ultimately improve – domestic firms or technologies. There's also the worry of perceived corruption.
But I argue that pursuing a half-committed strategy is riskier. If governments maintain a wall between big business and startups, believing this is essential to minimise corruption and that large firms will innovate just as startups will scale-up into larger firms, they risk underwhelming outcomes on all levels.
We may see flailing productivity in the sectors in which countries have excelled. And scale-ups will fail to materialise while populations of 'zombie startups', that simply stagnate while propped up on state largesse, increase.
Startups should be considered as resources to boost nationwide industrial capabilities, not efforts aimed at seeding a country's answer to Silicon Valley's Google or OpenAI.
Robyn Klingler-Vidra is the vice dean for global engagement and an associate professor in political economy and entrepreneurship, King's College London .
This article is republished from The Conversation under a Creative Commons license. Read the original article.
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