This week my youngest daughter is going overseas for a month long summer school. When I was her age, I went east to France, she is going east to China. I have no doubts that the 21st Century will be the Asian Century and I encouraged her to go rather than going to Europe, even with a cheap Euro. This decision was reinforced by an article in Forbes about innovation and technology transfer. The theme of the piece is what made Singapore successful. The writer begins with a question what did Lee Yuan Yew, the patriarch of Singapore, think was the most important invention in the twentieth century.
Yew is quoted as saying it was “air conditioning,” something the author dismisses as not accounting for Singapore’s eight-fold increase in output and eighteen fold increase in exports. The reason he believes Singapore is successful is”nations that pursue government-driven efforts to acquire other nations’ technologies tend to improve their ranking in the world economic league table. Meanwhile nations that leave everything to laissez-faire consistently drop down the league table. Singapore is a classic example of the former; Singapore’s former imperial master, the United Kingdom, an example of the latter.” I couldn’t agree more.
It was a Bell Labs transistor that launched Sony in the 1950s. Sony transformed a transistor, originally planned for hearing aids, into first the TR55, then by miniaturizing components into the very successful TR63. What enabled a small company with five employees, as Sony was then, to enter into a licensing agreement with the renowned Bell Labs was funding from MITI (the Ministry of International Trade and Industry), to the tune of $25,000, about $220,000 in current dollars.
Last year, Bloomberg Business listed South Korea as the most innovative country in the world.
An article in Forbes by Alan McGlade , “Why South Korea Will Be The Next Global Hub For Tech Start Ups” explained why foreign venture capital funds were setting up shop in South Korea: “to fully understand the Korean venture capital industry, it is critical to recognize the important role of the government in promoting and supplementing private fund-raising and investment in the venture capital market. In 2013, South Korean President Park Geun-Hye announced the desire for a more “creative economy” and launched the new Ministry of Science, ICT and Future Planning. For 2014, the ministry’s budget increased to more than (USD equivalent) 12 billion, with over two billion going directly into fostering growth for the startup ecosystem along with elimination of many restrictions on the venture industry’s activities.”
The story of government involvement with startups in Japan and South Korea is dwarfed by that of China in the last 30 years, enterprise zones, government targeting and funding of industries. Wanxiang started as a Town and Village Enterprise, an agricultural tool maker using metal from old weapons discarded by the Peoples Liberation Army. They are now the world’s’ largest motor parts supplier and China is the world’s’ largest manufacturer of automobiles.
This brings me to what the approach is in the US. There are programs run by most federal government agencies called Small Business Innovation Research Grants. These programs give small businesses, in two phases, $250,000 and $750,000 to help startups move to the next level and hopefully become commercially successful. About one in five of those that apply win funding, and many States match that funding if it is obtained. It was SBIR funding that catapulted Lasik eye surgery into being the number one medical procedure, (find information here), it was SBIR funding that created fast recharging systems for electric vehicles. There are now over 20,000 fast charging systems across the country. The rationale behind this funding is not first and foremost to target an industry sector, the rationale is that if a technology or product becomes commercially successful, it will be cheaper for the government to purchase it for its own needs in the open market, or they need it for various mission purposes or policies. The leading players in the US, as the author in the Forbes story about Singapore points out are investors in the laissez-faire market, many of whom avoid high risk early startups and if they do provide funding, they want a quick and profitable exit. In the early 2000s Wanxiang began buying American motor parts companies. The car industry was in a slump, parts manufacturers were not profitable. They ploughed money into these companies, invested in upgrading technologies, improving quality, weathered the downturn and years of losses. Now, Wanxiang owns that industry sector.
When I hear people say we need to get government out of the way of business, my reply is you are nuts, we need to get government more into business, especially startup businesses. If we don’t, my advice to young people, is the same as that which I gave to my daughter “Go East Young Man/Woman.”
image credit: Jon Wick
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Peter Doyle is an award winning media marketing, news and documentary producer using rich media to accelerate innovation and commercialization. Check me out at https://www.linkedin.com/in/peterjdoyle