The race to become Asia's Silicon Valley

Asia is gradually establishing itself at the forefront of the global innovation frontier. Across the geographical region, entrepreneurs and start-ups are building their success on tools and services tailored to the needs of a deep base of consumers and businesses stretching from the Middle East all the way to south-east Asia.

The list of successes is growing day by day. Messaging app WeChat has become China’s largest social network, closing in on WhatsApp and Facebook Messenger for active users worldwide. India’s demonetisation programme has accelerated the development of local e-payment platforms such as PayTM, while in Indonesia, bike-hailing apps such as Go-Jek help people beat Jakarta’s infamous traffic jams.

For Iran, the US trade embargo has long forced local entrepreneurs to develop their own path to e-commerce with local platforms such as DigiKala, which replicates the Amazon model and is now the largest online supermarket in the Middle East.

Start-up ecosystems

The rise in these ventures is cementing the development of start-up ecosystems across the continent, from Tel Aviv to Singapore, where researchers, entrepreneurs and venture capitalists are joining forces across a number of different fields of research, from the Internet of Things (IoT) to artificial intelligence (AI), robotics and industrial automation.

At the same time, local governments are increasingly willing to capitalise on their pool of tech-savvy talents to turn the page on their successful history as hubs of cheap labour and low value-added manufacturing, to upgrade the profile of their economies. Among others, the Taiwanese government unveiled an ‘Asian Silicon Valley’ plan in late 2016 to boost the rise of local start-ups; in India, prime minister Narendra Modi launched the ambitious Start-up India programme in mid-2015. They all share the same dream: laying the foundation for an Asian Silicon Valley and replicating its growth trajectory.

“Today there is plenty of capital around and everybody wants to be an entrepreneur,” says Anjana Vivek, founder director at VentureBean Consulting and a leading figure in the start-up community in Bangalore, India’s most dynamic centre for innovation.

Bangalore is only one of Asia’s hotspots. It appears alongside Singapore, Tokyo, Shanghai and Tel Aviv in the global top 10 for active innovation centres in a ranking where the original US Silicon Valley retains an undisputed leadership, according to a 2016 study by consultancy Capgemini. The study defines innovation centres as “corporate attempts to thwart digital disruption”, by leveraging local ecosystems of start-ups, venture capitalists, accelerators, vendors and academic institutions that these hubs provide.

“The US and Europe have traditionally been viewed as dominant forces in innovation and technology but Asia could soon surpass the US for number of innovation centres built and operated,” says Eric Turkington, director at Fahrenheit 212, part of the Capgemini Group.

More patent applications

Asia’s emergence as a leading hotbed of innovation is underscored by its position as a world leader in patent applications, a key indicator of technological and scientific breakthroughs. The region now accounts for more than half (56%) of the world’s total patent grant, according to Capgemini. Between 2005 and 2015, Europe’s share of global patent grants fell from 24% to 13%.

There is a trend towards innovation centres focusing on a single technology or advancement, which is particularly true of AI. Capgemini figures show the number of new centres focused on AI is up from one in July 2015 to nine in October 2016, with four of these based in Asia. 

China is becoming a powerhouse of R&D, with leading internet companies such as Tencent (which owns WeChat) and Baidu setting up AI R&D centres and the government endorsing the industry with plans to create a $15bn AI market by 2018. Elsewhere, entrepreneurs are creating start-ups built on a well-established set of skills – for example, Israel is leveraging its military know-how to become a hub for cyber-security technologies.

Causing a disruption

Disruptive research and abundant capital are key components for the rise of dynamic start-up ecosystems, but not the only ones. “Looking for the next Silicon Valley is like looking for human life on another planet – it took a unique set of macro and micro factors for the Silicon Valley to get started in California 50-plus years ago and then to nurture it to growth,” says John Evans, managing director of Bangkok-based consultancy Tractus.  

If Silicon Valley has developed a community of researchers, entrepreneurs and venture capitalists for more than 50 years, Asian countries still have a steep learning curve ahead. “Capital alone is not enough,” says VentureBean’s Ms Vivek. “People don’t know how to transform ideas into business models, and who to get in touch with.”

Besides, Indian bureaucracy remains a challenge, despite national programmes such as Start-up India being aimed at streamlining the development of Indian enterprises, as these changes take years to produce tangible effect, adds Ms Vivek.

Taiwan pushes IoT

Other countries, such as Singapore, lack a big market to resell its innovations to, unless the Asean Economic Community succeeds in integrating a still-fragmented market of 622 million people. Japan and South Korea seem to have almost all the necessary macro and micro elements in place to develop their own Silicon Valleys, from a deep base of talented engineers to big markets, plenty of capital and solid institutional frameworks. However, they tend to be conservative societies still dominated by large family conglomerates, according to Tractus’s Mr Evans.

“Taiwan has got all the right factors in place to excel, except for the fact that it lacks a big market,” he adds. “But it has got China next door. Perhaps Taiwan misnamed the Asian Silicon Valley plan. What it is really doing is creating an innovation centre, a start-up hub for advanced manufacturing. It’s more focused on hardware than software, and on software supporting that hardware. It is already really good at that, and the Chinese demand for automation, robotics and related software will grow hugely in the next decade.”

The Taiwanese government pledged to invest T$11.3bn ($371.4m) in 2017 to develop the initiative in the north-western municipality of Taoyuan and increase the country’s share of the global IoT market to 4.2% in 2020 and 5% in 2025, from 3.8% in 2015.

Dozens of cities, regions and countries across Asia are trying to replicate the stellar success of the Silicon Valley model, most of all in today’s economy where fields such as the IoT or AI are highly prosperous. 

The intense economic development they have experienced is driving demand for innovation and many of them have already gathered a critical mass of research, entrepreneurs and capital. Time will tell when – and where – this combination of factors will bring about a disruption to the norm.