Can Silicon Valley’s success be copied in China? Views diverge

Silicon Valley has been seen as the Mecca of science and technology, nurturing many world-class tech companies including Google, Apple and Intel.

Founder and CEO of AllChinaTech, Wu Nan, moderated a panel on the possibility of reproducing Silicon Valley’s success in China, in a live Q&A event on Wednesday in Beijing. The event was co-organized by the University of Maryland Robert H. Smith School of Business and  FTChinese.com.

Speakers included Dr. Anil K. Gupta, Michael Dingman Chair in Strategy and Globalization at the University of Maryland’s Robert H. Smith School of Business; Dr. Huang Can, professor, department head and institute co-director at Zhejiang University; and Benson Tam, founder and chairman of the Venturous Group, a prominent business and investment network.

Dr. Gupta, the main speaker, gave his own analysis on Silicon Valley and what makes it work.

Anil K. Gupta giving has speech. Photo by Ibo Fung.
Dr. Anil K. Gupta giving his speech. Photo by Ibo Fung.

How important are Silicon Valley and China to venture capital?

According to Dr. Gupta, the investment amount in venture capital (VC) was USD 59.8 billion in America in 2015. America accounted for 23% of the world’s total GDP, while its investment amount of venture capital (VC) accounted for 60% of the world’s total in 2015. Over the same time period, China’s numbers for GDP and VC are 19% and 22% respectively. In particular, the VC investment amount from Silicon Valley contributed 50% of the total VC investment of America in 2014.

In other words, China is the second largest economy after America in the world, but it still has a long way to go in terms of VC investment. Silicon Valley is crucial to the VC investment in the U.S.

What is behind the Silicon Valley success?

Dr. Gupta said there are two things that make the Silicon Valley what it is: a pioneering spirit and a solid foundation in electronics. Specifically, three factors have contributed to its success:

Core institutions

The partnership of university, government and industry is essential. The world’s top-tier universities including Stanford, UC Berkeley and UCSF have contributed a lot of talent, and pushed the partnership forward.

Institutions of the U.S. Government, including the Department of Defense and NASA, provide companies with the original VC, and in return, are the initial and primary customers of those companies.

Additionally, there are large corporations including Intel, Xerox, Cisco, Apple and Google, and complementary institutions including VC companies, venture law firms, investment banks, headhunters and marketing firms.

Policy environment

Both the Federal laws and California’s state laws provide Silicon Valley with great legal support. The Federal laws include the Small Business Investment Company Act of 1958, the Revenue Act in 1978 and the Immigration & Nationality Act in 1990. California has a ban on non-compete agreements, and has lax trade secrets laws but tough patent laws.

Socio-cultural environment

It might sound cliché, but Silicon Valley is a dreamland for people who want to change the world. It is a land of the eccentric and the countercultural. It celebrates diversity, meritocracy and jeans. It is a place of Darwinian competition and hyperactive networking, and where there is no stigma in failure.

In a time of globalization, Silicon Valley is going through changes, including larger fund size, greater transparency, delayed IPOs and more collaboration with the traditional-economy companies.

What was discussed in the panel?

Starting from the question if Silicon Valley can be cloned in China, the speakers naturally came to another topic: the globalization of Chinese companies. Also, they voiced their opinions on the recent acquisition of Uber China by China’s largest ride hailing firm, Didi.

Speakers in the penal: Wu Nan, Huang Can, Benson Tam and Anil K. Gupta (left to right)
Speakers in the penal: Wu Nan, Dr. Huang Can, Benson Tam and Dr. Anil K. Gupta (left to right)

1 What are the possibilities of cloning Silicon Valley in China?

Dr. Gupta: Among all factors, it is the socio-cultural environment, or the spirit of Silicon Valley that makes it stand out. Startups and entrepreneurs of Silicon Valley start with a vision to change the world, and many of them eventually realize that goal. This is something hard to clone to any other place of the world. It is also the most important thing for tech hubs outside the U.S. to learn from.

Tam: You can’t clone Silicon Valley in China, and you don’t need to. The tech industry of China has grown into so large a market that cannot be overlooked. China has great companies like Baidu, and popular applications like WeChat. The world will become a power of two: Silicon Valley and China.

Dr. Huang: In fact, the local governments in China have been providing support to the tech companies. With the legal and financial support from the government, tech hubs have been emerging in many Chinese cities including Beijing, Shenzhen and Hangzhou.

Wu: Like Dr. Gupta said in his speech, top-tier universities and government policies are important factors. But China still has something to improve in aspects including VC investment and the protection of patents, which will be the decisive element for Chinese cities to nurture world-class tech hubs.

2 Can Chinese companies go global?

Dr. Gupta: I see tech companies in two types: the technology-led ones and the market-led ones. Most companies of Silicon Valley are tech-led, with the exception that Apple is both tech- and market-led; while many Chinese companies are market-led. That is the reason why there are so many global companies in Silicon Valley and it has been so hard for Chinese companies to go global.

Tam: Indeed, most Chinese companies are market-led. Silicon Valley companies are strong in research, while Chinese companies are strong in development. The support from the government and universities tend to be weaker in China than in the U.S.

Dr. Huang: Among the Chinese companies, Huawei is an exception which has done well in globalizing itself. That’s because the company’s leader started with an eye on the global market as early as the 1990s. But, even for Huawei, its influence has in fact not reached the core of the American market. Let alone other Chinese companies who just think about defeating its competitors in the Chinese market.

Wu: Why not think differently? Do we really need to be so keen on globalization? As long as Chinese companies do well in a certain fields, their influence will go global. For example, DJI has become the world’s leader in the drone market; companies in the virtual reality (VR) field, including Deepoon and Baofeng, can measure their strength against the international giants with their consistent improvement in technology, and low prices of the products.

3 Following Didi’s acquisition of Uber China, does that mean Didi is beating Uber?

Dr. Gupta: Although Didi has acquired Uber China, it does not necessarily mean that Didi is a better company than Uber. In fact, Uber is the creator of the ride-sharing industry and it has proved its business model in many international markets, including China. Uber is more focused on the American market, which makes it possible for other countries to have its own ride hailing companies.

Tam: I think it’s a good thing that Uber China is acquired by Didi. But it’s not a victory for either company. Now Didi and Uber hold the shares of each other. It is the start of a new era: the power of two. China is a market too big to be missed. If companies like Facebook lose the Chinese market, they are actually nurturing potential killers like Tencent.

(Top photo from Pixabay.com)

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AllTechAsia Staff

AllTechAsia is a startup media platform dedicated to providing the hottest news, data service and analysis on the tech and startup scene of Asian markets in English. Write to us: info[at]alltechasia.com.

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