I recently read a CNBC article entitled "Is Singapore the next Silicon Valley?" Funny enough I’ll be speaking at the Harvard Asia Business Conference on "recreating Silicon Valley in Asia" tomorrow. I often get asked if we can succeed in recreating Silicon Valley in Asia, but to be honest I don't believe that’s entirely the right question to be asking.
We can’t fault Asians for framing the question this way. After all, Asian countries have experienced tremendous economic growth over the last half-century largely employing copycat strategies from the west. But the reason this made sense is that our relative advantages evolved over time in a similar sequence. When cheap labor is your only edge, then base manufacturing makes sense as a good place to start. After you’ve built up some capabilities, it makes sense to move up the chain into higher end manufacturing and eventually into services demanded by a knowledge economy. (I often point this out to North Korean officials when they pitch me on the latest high tech facility they’ve dreamed up).
But at each step along the way, Asians have tailored these strategies and optimized them for the local landscape. Deng Xiaoping led economic reform not with a total western style makeover, but instead adopted “socialism with Chinese characteristics”. And in the same way, rather than trying to recreate Silicon Valley in Asia, we should be focusing on how to create “innovation with Asian characteristics”.
Certainly that would include some features of Silicon Valley and the broader entrepreneurial ecosystem of the US, including a more rounded, interdisciplinary education system and a legal structure that protects entrepreneurs in bankruptcy, but rather than playing catch up, Asia could create centers of innovation that in some ways exceed what is taking place in Silicon Valley. What are some of Asia’s strengths that would allow for this?
At Amasia we have spent quite a bit of time understanding what top startups out of the Valley want from Asia, and these probably give a clue as to where our unfair advantage lies and how we can leverage those to create innovation centers throughout the region.
1. Market Access: Some of the largest and fastest growing markets in the world are in Asia. China will soon boast the world’s largest economy, Korea has one of the worlds only two handset makers that matter, and though largely ignored, Asean faces incredible growth (10% vs 7.5% in China) with a population larger than the EU and much more favorable demographically. Success in Asian business depends on relationships, so companies that are based in the region can build defensible Asian positions but also compete in the more transactional west.
2. Manufacturing: While there is much talk about the shale revolution and cheaper robotics eventually bringing back higher end manufacturing to the US, our view is that this process will take some time to mature. In the meantime, the big data revolution is requiring more companies to have some sort of hardware solution to solve the data acquisition layer of their product, even if their core offering is really 95% software. The overwhelming majority of sensors that will power the advent of big data are manufactured in Asia.
3. Outsourcing: Technology is allowing teams to communicate across geographies more fluidly than ever before, and outsourcing centers in India and the Philippines allow startups from anywhere in the world to leverage a lower cost basis earlier in a company’s life cycle.
Let’s use what’s unique about our region to shoot higher than “recreating silicon valley in Asia”. Let’s create “innovation with Asian characteristics.”