Last updated: 20:49 / Tuesday, 17 December 2013
By Matthews Asia

Entrepreneurship in Asia

Entrepreneurship in Asia

We have witnessed the rise of many successful entrepreneurs in Asia over the past few decades. One criticism of their success, however, has been that their businesses often were developed through “copying” or learning from Western businesses. It is true that their businesses have not been as revolutionary as some Western businesses have been. There is nothing inherently wrong with this, nor should it be surprising at Asia’s current stage of economic development. But we do not believe this model will always be the case.

Many policymakers in Asia have made innovation a national, strategic priority. In the past two decades, they have narrowed the gap in research and development (R&D) with their Western peers through rising R&D spending in academia and increasing technology transfer by attracting knowledge-intensive foreign direct investments (FDI), which taps a pool of more highly educated workers. The effort has given rise to numerous research hubs equipped with good infrastructure and skilled workers. Driven by the explosion in Internet penetration and rising personal income, private sectors have become more active and funding for start-ups is increasing as more angel and venture capital communities develop.

R&D Funding

Since the early 1990s, greater emphasis on science and engineering has significantly improved the overall quality and quantity of such professionals in Asia. This effort increased Asia’s share of global R&D expenditure to 32% in 2009, up from 24% in 1999.

This increase was supported by both growing GDP and increased spending for R&D, with results most evident in China and South Korea.  The rising amount of funding going into the sciences, predominantly in China, Taiwan and South Korea, has led to more students pursuing related higher education degrees. The number of science and engineering degrees earned in China and Taiwan more than doubled between 2000 and 2008, and accordingly, the increase in such graduates has raised Asia’s labor supply of scientists.

Industrial Policies
Governmental development policy has generally built up good infrastructure and created an educated and knowledgeable labor force. Taiwan, South Korea and Singapore have had success after their respective governments focused on developing specific sectors like semiconductors, automotives and airlines. In the past decade, less mature Asian economies have utilized methods like public procurements and technology funds to implement their industrial policies aimed at boosting local innovation. Increasingly, they are also using FDI to achieve their objective by increasing technology transfer.

However, traditionally, instead of developing a network of local suppliers, foreign companies have sourced from the same suppliers due to a lack of scale or due to trust and quality. As a result, governments have increasingly offered various financial incentives for foreign multinational corporations to conduct R&D in Asia’s science parks. Today, according to UNESCO, there are over 400 science parks worldwide. While the U.S. and Japan top the list with more than 110 centers each, China—which did not start developing science parks until the mid-1980s—already has approximately 100.

As a result, U.S. multinational corporations are increasingly allocating R&D projects to their foreign affiliates in Asia Pacific ex-Japan, whose R&D project value grew more than seven-fold from 1997 to 2010. These activities are driving the rise of hubs equipped with technology infrastructure and well-educated labor pools across Asia, which is a precondition of start-ups' creation and expansion.

Through this link you may access the full report “Entrepreneurship in Asia”, by Jerry Shih, CFA, Research Analyst, Matthews Asia

The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change.  It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquid­ity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.