Japan, Korea twist Silicon Valley model through conglomerate-startup connections

Besides that not all do.

The Silicon Valley mannequin is tied carefully to the financial mannequin of the U.S.—and so tough to duplicate elsewhere. Silicon Valley excels in some facets of frontier know-how however misplaced its manufacturing edge way back.

Around the globe, policymakers are tweaking the thought of Silicon Valley to raised match the idiosyncrasies of their very own economies and carve out a novel benefit in key international markets.

Look to Japan and Korea for examples. Giant conglomerates dominate the economies of each nations, whether or not Japan’s keiretsu or South Korea’s chaebol. Officers in Tokyo and Seoul don’t see the purpose of startups disrupting vastly profitable and internationalized corporations to the purpose that they disappear.

As an alternative, they need startups to work with giants like Hyundai, Samsung, SK, Sony or Toyota. It’s an occasion of David assembly Goliath: an open innovation mannequin the place small corporations and massive conglomerates work collectively, aided by the federal government. This strategy helps policymakers innovate within the design and manufacturing of tomorrow’s applied sciences.

Critics usually accuse chaebols and keiretsu of stifling competitors. However Japanese and Korean policymakers don’t wish to work towards the conglomerates which have helped their nations grow to be two of the richest and most innovate economies on the planet.

For a forthcoming guide, titled Startup Capitalism, we studied how each Japan and Korea tried to foster this collaboration between startups and conglomerates. Authorities assist for this “David and Goliath” relationship survived Japan and Korea’s frequent adjustments in political management; it’s now a part of the material of each economies.

However why is that this the case?

To start with, startups get entry to experience, mentoring, and gross sales channels that they’d discover tough to develop on their very own. Managers in a conglomerate like LG and Nissan have many years of expertise of their core enterprise sectors. Startup founders, typically, don’t—as a substitute counting on connections from VC backers or their very own private networks

Applications comparable to Ok-Startup Grand Problem, anchored by Seoul’s Ministry of SMEs & Startups, or J-Startup, led by Tokyo’s Ministry of Economic system, Commerce and Trade, assist to bridge this asymmetry in assets and entry. Giant corporations be a part of these authorities applications as judges, coaches, and would-be companions for startups. The Japanese and Korean governments thus act as matchmakers between entrepreneurs and main conglomerates. (The U.S. coverage strategy, as a substitute, is to solely assist startups.)

By collaborating in these applications, Japanese and Korean startups additionally get entry to capital and, usually, exit methods. Seoul and Tokyo pour billions of taxpayer {dollars} into supporting entrepreneurs by way of establishments just like the Korea Enterprise Funding Company or the Japan Finance Company. Connecting these startups with chaebol or keiretsu that in any other case might not find out about their concepts or merchandise makes it simpler for the massive corporations to determine whether or not to put money into their smaller counterparts.

So, startups clearly profit from working with conglomerates. However what do bigger corporations get out of this?

The second benefit of this open innovation mannequin is that the keiretsu and chaebol get entry to new concepts and merchandise. A number of Japanese and Korean policymakers advised us that they had been nervous that their nationwide champions would possibly go the way in which of Motorola or Nokia, former innovation powerhouses that obtained left behind. Working along with startups is a method that massive conglomerates can develop new merchandise and enhance current ones.

Finally, Japan and Korea need startups and conglomerates to work collectively to enhance the economic system. They see startups as drivers of innovation and development in high quality jobs; conglomerates assist these smaller corporations obtain that.

Conglomerates additionally present manufacturing chops wanted to make future applied sciences at scale. Silicon Valley way back outsourced the manufacturing of key applied sciences, like semiconductors, elsewhere. Bringing these manufacturing skills—that provide high quality jobs and contribute to clusters of expertise—again onshore is a key intention of the U.S.’s multi-billion-dollar CHIPS Act.

In truth, it appears this mannequin of startups working along with giant corporations is now getting picked up in different elements of the world. Within the AI sector, Microsoft is working with smaller companions like ChatGPT developer OpenAI and France’s Mistral. Each Amazon and Google have invested in builders like Anthropic; China’s massive tech corporations are additionally shopping for giant stakes within the nation’s AI startups.  The Biden administration and the Von der Leyen Fee are each pushing startup-big agency collaboration as a part of their respective industrial insurance policies.

We should always count on the Japanese and Korean mannequin of startup-big agency collaboration to grow to be extra widespread. Governments are turning in the direction of industrial coverage and financial nationalism, and away from laissez-faire liberalism—in different phrases, nearer to the insurance policies lengthy espoused by Tokyo and Seoul.

Silicon Valley isn’t useless. However its model of startup capitalism isn’t the one sport on the town anymore.

The opinions expressed in Fortune.com commentary items are solely the views of their authors and don’t essentially mirror the opinions and beliefs of Fortune.