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Prospects for Venture Capital in Asia
Faruq Ahmad, MBA ’76, reports dramatic changes in Asian venture capital investment.
On Becoming an IT Powerhouse
The book traces how six regions of Asia—South Korea, Taiwan, Hong Kong, Singapore, China, and finally India—transformed themselves into major participants in the information technology industry since the 1970s. The editors list these similarities:
- All adopted growth-positive development policies; China and India later than the others.
- All invested in educating scientists and engineers.
- All acquired information technologies from foreign entities.
- Their governments actively promoted IT industries, which helped new firms take advantage of nearly universal standards and growing demand for products in the relatively open U.S. market.
- All exercised strategic openness to the outside world not only through trade but also through licensing, investments by multinational corporations, and flows of people to and from other countries, including students seeking advanced U.S. degrees.
- All had linkages with the United States such as students coming to the United States for advanced degrees, often staying to work and, for some, then returning home; extensive trade in goods and services; direct investments; and payments for technology.
- Their universities focused on producing trained people, rather than on producing new technology.
- The financial systems of these countries changed, diminishing the role of banks and expanding the role of stock markets. All sought to develop venture capital industries, although the results were mixed.
An excerpt from Making IT: The Rise of Asia in High Tech, edited by Henry S. Rowen and William F. Miller, both professors emeriti of the Stanford Business School, and by Marguerite Gong Hancock, associate director of the Stanford Project on Regions of Innovation and Entrepreneurship, ©2007 Stanford University
Economic Growth
Asia’s Future as High-Tech Innovator
There is a growing belief in scientific and technical circles that Asia is not only a place for making things but also a place where important technologies will be created—perhaps soon. The regions we studied are establishing the requisites for this. They have able, well-trained people, have or are developing needed institutions, and have researchers with personal experience and connections in productive research establishments around the world.
The American experience supports the view that the core need for having innovative science-based industries is having excellent universities, and these are in short supply in much of Asia. Dr. Morris Chang, chairman of Taiwan Semiconductor Manufacturing Co., is quoted to this effect: “I wish Taiwan had a world-class university.” According to a recent survey of the world’s top 500 universities by Shanghai’s Jiao Tong University, Asia has none in the top 100 outside of Japan. The New York Times Higher Education Supplement rates Asian universities higher, with 8 in its top 100 outside of Japan: Beijing University (17), National University of Singapore (18), Hong Kong University (39), Indian Institute(s) of Technology (41), Hong Kong University of Science and Technology (42), Nanyang University (50), Tsinghua University (62), and the Chinese University of Hong Kong (84). This is not very many for a region with 40 percent of the world’s people.
The problem is not with the quality of the students; rather, it is with the organization of their university systems and the research support provided. On the whole, they are over-regulated. In some, faculty members are civil servants; there is too little peer review for promotions and research grants (using foreign as well as domestic peers); and there is too little competition for faculty and students among them. As a result, many talented students have gone abroad for graduate studies and stayed; many first-rate academics from Asia are found in U.S. and European universities; others have moved to careers in business; and governments have tended to allocate research funds preferentially to research institutes rather than universities. Given the importance of graduate students in advancing science, this is a dubious allocation of resources. The U.S. experience has been that linking advanced research with graduate education helps both teaching and research.
There is currently a strong interest in all the Asian countries we have studied in having more collaboration between academic institutions and industry. At the same time, there is strong interest in moving the technology base of the countries to higher value-added products. These two objectives are somewhat in conflict. Too strong faculty-industry ties can lead faculty and graduate students away from the creation of new technologies. In top U.S. universities, the criteria for promotion of faculty are based solely on teaching and contributions to leading-edge research. Collaborations with industry and commercial work are not included.
One indicator of change is the large and growing numbers of scientists and engineers with advanced degrees. The number of PhDs granted in Korea from 1986 to 1999 increased by 4 times, in Taiwan by 5 times, and in China by about 50 times (from 100 to 200 to more than 7,000). There is increased spending on research and development as well as growth in the number of scientific publications and their quality, as measured by citations.
On the commercial side, there is a high and rising level of patents in Japan, Korea, and Taiwan; the beginning of international patenting from China; and a shift toward net zero in the balance of royalty and license payments with the United States. The number of Taiwanese firms with R&D centers had risen to 39 by 2003. Singapore has recruited a stellar group of biologists from around the world, and many foreign firms have set up R&D centers in China—supposedly over 600 in number. There is a question about what activities are actually taking place in these centers; many currently seem to be designing products for the domestic market rather than doing research or leap-ahead development, but this is likely to change.
China has great ambitions in science and technology, and given its accomplishments, they are likely to be realized—although the timing is uncertain. Between 1995 and 2000, its spending on R&D more than doubled. It still was only 1 percent of GDP but was growing at 10 percent a year, and the government says it wants to increase that share. In the year 2000, China ranked 8th in the world in scientific papers (3 percent of the world total) compared with its rank as 15th in the world 5 years earlier. This is not to assert that China’s capacities are up to those of the industrialized countries. This will not likely happen soon, but China is on the move.
A creative Asia will have mixed impacts. The generation of new ideas can benefit everyone. It also gives its creator an industrial advantage—as Silicon Valley has demonstrated—in being a pioneer. What should not be in doubt is that the United States and every other nation will face new opportunities for collaboration as well as significant challenges in competition with the rise of an innovative Asia.