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The distinctiveness and diversity of entrepreneurial ecosystems in China, Japan, and South Korea: an exploratory analysis

Abstract

Entrepreneurial ecosystems at the regional level have been intensively studied in Western countries, but much less so in East Asia. We study five major ecosystems located in Tokyo, Seoul, Beijing, Suzhou, and Chongqing, focusing on the business conditions for information technology (IT) start-ups. Our domain analysis reveals that these entrepreneurial ecosystems differ in various important aspects from leading Western counterparts such as Silicon Valley. Furthermore, we find differences in the growth and internationalization of firms across entrepreneurial ecosystems in China, Japan, and South Korea. Public policy should focus on supporting high-potential start-ups and strengthening the ecosystems’ global outreach.

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Acknowledgements

This research has been supported by a Korea University Future Research Grant and a Korea University Business School Research Grant, by JSPS Kakenhi Grant Numbers 15K17131 and 18K12847, by the European Union’s Horizon 2020 Research and Innovation Programme under the Marie Skłodowska-Curie Grant Agreement No. 645763, and by Research Development Fund RDF15-02-50 awarded by Xi’an Jiaotong-Liverpool University (XJTLU). The China National Science Fund for Young Scholars (71602013), Chongqing Social Science Planning Project (2015PY31), and the Fundamental Research Funds for the Central Universities (106112017CDJXY020003) supported Ying Cheng’s research work in this paper.

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Appendix 1: Overview of focal entrepreneurial ecosystems

Appendix 1: Overview of focal entrepreneurial ecosystems

Silicon valley

Now a somewhat amorphous term, the cognomen “Silicon Valley” has been used traditionally to refer to the region of northern California known as the South Bay, which is the southern portion of the San Francisco Bay Area in the US. Silicon Valley is generally considered to be centered on the city of San Jose in Santa Clara County. However, usage of the term Silicon Valley has expanded to cover municipalities in the southern half of the San Francisco Peninsula and in particular, San Mateo County, plus southern parts of the East Bay in Alameda County and parts of Santa Cruz County. Based on this broader definition, Silicon Valley had a metropolitan population of 3.1 million in 2016 and was home to around 69,000 companies (Founder Institute 2018). In comparison with other start-up ecosystems around the world, Silicon Valley is clearly identified as predominant on a broad range of indicators, including performance (measured by exit value, output and start-up value), funding, market reach, talent and start-up experience (Startup Genome 2017). There are large numbers of start-ups across a variety of industries, including internet businesses, mobile and telecommunications, healthcare, software, computer hardware, and services. It is estimated that around one-third of the value created by global start-up exits is captured in Silicon Valley, and one quarter of the world’s unicorns are based in Silicon Valley and San Francisco (Startup Genome 2017). Almost half of all Silicon Valley start-ups are founded by immigrant entrepreneurs (Founder Institute 2018).

Tokyo

Metropolitan Tokyo is the capital and economic center of Japan. Tokyo has a population of 13.6 million, hosts about 450,000 companies and contributed 921 billion USD to Japan’s GDP in 2014 (Cabinet Office 2017; TMG 2015). In general, the opening and closing rate of enterprises in Tokyo, as well as in Japan in general, has been among the lowest among developed countries over the last 20 years (METI 2017). More than 80% of all entrepreneurs are male. They are on average 42 years old and have almost 20 years working experience. About one-fifth have previous experience as entrepreneurs (Japan Finance Corporation 2016). However, especially for IT-related start-ups, many founders are in their 20s. A recent survey among private start-ups finds that 22 companies are valued at more than 100 million USD, with two unicorns among them (Nikkei Asia Review 2017). Since 2011/2012, the business environment for start-ups has gradually improved due to the takeovers of smaller start-ups by matured large start-ups such as social gaming companies. These acquisitions created a pool of serial entrepreneurs and angel investors who can provide know-how and risk money to new start-up entrepreneurs. The growth of large start-ups also contributed to the expansion of the talent pool, as large start-ups attracted various professionals, such as consultants, accountants, lawyers and marketing specialists, into the ecosystem, thus laying the foundations for further growth.

Seoul

Seoul is the capital and leading urban agglomeration of the Republic of Korea (South Korea). Seoul had a population of about 10.2 million, 820,000 companies and 5.1 million employees in 2016. The regional GDP of Seoul was 357 billion USD in 2016, equivalent to 25% of the national GDP (Seoul Metropolitan Government 2016). The number of start-ups in Seoul is rapidly increasing. There were 55,975 “self-employed creative enterprises” in Seoul in 2015, among which 11,122 were in the IT sector (Ministry of SMEs and Startups 2017). Based on a narrower understanding, there are around 5000 start-ups in the Seoul start-up ecosystem according to recent estimates. E-commerce with a particular focus on mobile internet applications is the largest industry for start-ups, followed by general services and fin-tech (finance) (Ministry of Science, ICT and Future Planning 2015, 2016). Most start-ups in Seoul engage in the B2C sector and focus on “marketplace type” business models directed at general customers. Start-ups that are based on B2B transactions are relatively rare. Recently, some highly visible examples of successful start-ups have emerged. Start-ups are highly concentrated in two areas, which can be regarded as one cluster, as they are only 12 km apart and have a dense human and information exchange in Gangnam (in particular: Teheran-ro) and Pangyo (Korean Startup Ecosystem Forum 2016). The Teheran-ro area is part of a general business and finance district. The Pangyo area is based on an agglomeration of major Korean venture firms. Almost all start-up entrepreneurs in Seoul hold a university degree and approximately 10% of them hold a PhD degree. The proportion of female founders is below 20% (Korean Startup Ecosystem Forum 2016; Ministry of Science, ICT and Future Planning 2016). Most entrepreneurs have considerable professional experience and were in their 30s or 40s when they founded their start-ups. Approximately half of them have previous entrepreneurial experience. Foreign start-up entrepreneurs are very rare (Korean Startup Ecosystem Forum 2016). However, some Korean founders have extensive foreign living experience.

Beijing

Beijing is the capital of China and the country’s political, cultural, and educational center, with around 25 million inhabitants and a GDP of 378 billion USD in 2016. Beijing’s economic success and its role as the country’s seat of government give rise to its status as the most entrepreneurial and innovative region in China, with the highest density of start-ups. Beijing had around 468,000 high-technology enterprises, including 24,000 start-ups in 2015 (Beijing Statistics Bureau 2016; Startup Genome 2017). These new ventures cover various industries but most notably electronic IT, space science, optoelectronics, life sciences, new materials, renewable energy, artificial intelligence, medicine science, and ecological science (Beijing Science and Technology Commission 2017). A number of industry agglomerations have emerged in Beijing, with perhaps the most significant being in the mobile internet industry. The creation of ZSP in Beijing in 1988 (China’s first science park) was an important step in the promotion and development of the city’s entrepreneurial ecosystem. Initially located in the vicinity of the Chinese Academy of Science, Tsinghua University and Peking University, ZSP has now expanded across each district of China’s capital (Zhongguancun Science Park 2008–2018). There are 16 widely dispersed “sub-parks” but with concentrations of activity mainly to the north-west and south-east of the city center that host many Chinese industry leaders in the mobile internet industry. Within ZSP, there are 21,800 high-technology enterprises and 254 listed Chinese enterprises (Zhongguancun Science Park 2017–2018). In 2016, more than 40 start-ups were valued at above 1 billion USD in Beijing (Zhongguancun Science Park 2017). In the same year, 800 new ventures in Beijing successfully achieved IPO status. The average age of a start-up founder in Beijing is 32, the fifth youngest in the world. In terms of founder demographics, 28% are women and 23% are immigrant founders (Startup Genome 2017).

Suzhou

Suzhou is an ancient city on the lower reaches of the Yangtze River in the province of Jiangsu. Suzhou has been an important center for China’s silk industry since the Song Dynasty (AD 960-1279) and continues to hold that prominent position. Suzhou has attracted numerous foreign enterprises, many of which are located in SIP (SIP China-Singapore Suzhou Industrial Park 2015, 2016). Suzhou had a population of 13.1 million and GDP of 236 billion USD in 2016. In the same year, there were 161,000 enterprises located in Suzhou, including 41,000 in SIP. Suzhou also benefits from its close proximity (less than 40 min by high-speed rail) to central Shanghai, one of China’s most important commercial and financial centers. There were 4133 national high-technology enterprises in Suzhou in 2016, particularly in the renewable energy, new materials, and pharmaceutical industries (Suzhou Statistics Bureau 2017). SIP is densely populated largely by biotech and nanotech firms. As a result, SIP and Suzhou in general is a leading base for innovation and entrepreneurship in China. In SIP, there were 1700 start-ups in 2005 and more than 11,000 in 2015 (Suzhou Statistics Bureau 2016). The average age of a start-up founder in Suzhou is 35. In terms of founder demographics, it is estimated that less than 10% are women or immigrant founders (Suzhou Statistics Bureau 2016–2017).

Chongqing

Located on the upper reaches of the Yangtze River, Chongqing is Southwest China’s biggest industrial and commercial center, and a comprehensive transportation hub. Metropolitan Chongqing had a population of 30.5 million, 2.15 million registered business entities and a GDP of 270 billion USD in 2016 (Chongqing Municipal People’s Government 2017). As early as 2010, the Chongqing Municipal Government began to support micro-enterprises, among which cultural and creative entrepreneurs, and IT technicians were the key support targets. This policy has been among the first in China and resulted in an increasing number of new business registrations in Chongqing. According to the Chongqing Science and Technology Commission, the local government guide fund (fund-of-funds) had invested in 256 high-technology companies between 2008 and 2016. These start-ups covered a wide range of 18 industries, with the highest number of investment cases in the internet and IT industries, followed by the manufacturing and medical and health care industries. According to recent survey data, 92% of start-up owners in Chongqing have a university degree (91% domestic and 9% overseas). 66% of the entrepreneurs are male. Their average age is 38 years and their average working experience is 12 years. 31% have previous entrepreneurial experience (Chongqing Science and Technology Commission 2016; COSMO Innovation Works 2017).

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Hemmert, M., Cross, A.R., Cheng, Y. et al. The distinctiveness and diversity of entrepreneurial ecosystems in China, Japan, and South Korea: an exploratory analysis. Asian Bus Manage 18, 211–247 (2019). https://doi.org/10.1057/s41291-019-00070-6

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Keywords

  • Entrepreneurial ecosystems
  • IT start-ups
  • Domain analysis
  • China
  • South Korea
  • Japan