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FROM INDUSTRIAL POLICY TO ENTREPRENEURSHIP POLICY: ASIA’S GOVERNMENTS EMBRACE START-UPS – July 02, 2002

In the 1970s and 1980s, international economists met a new creature—the Asian Tiger. The Asian Tigers were national economies—especially those of Taiwan, Korea, Singapore and Malaysia—that boomed thanks to government-led industrial policies and booming export markets. When combined with Japan’s tremendous prosperity, the experience of the Asian Tigers led many to predict that Asian economies would soon dominate the world.

It didn’t quite work out that way. Japan’s economy has collapsed into a decade-long recession. Other Asian economies are performing better, but they all face slowing rates of economic growth. Meanwhile, China has emerged as a regional economic power, forcing other regional players to consider new economic models. Entrepreneurship is one approach that’s getting more consideration. It was the topic of a recent workshop held in Hong Kong and sponsored by the Hong Kong Productivity Council www.hkpc.org. and the Mansfield Center for Pacific Affairs www.mcpa.org.

The Entrepreneurship in Asia Workshop brought together experts from nine countries to assess economic conditions in the region, and to discuss new strategies for promoting economic growth and prosperity. The overriding theme for most participants concerned stalled economic growth. While China’s economy booms, other parts of the region are slowing down. For example, Singapore’s economy shrank 2.2% last year, the largest decline since its Independence. Hong Kong, long the region’s entrepreneurial leader, is suffering from record rates of unemployment and little growth in the economy. The situation facing other regional economies, like Korea and Taiwan, is not so dire, but most regional leaders recognize that a new economic approach is needed.

Until recently, many Asian governments embraced a model that has been called developmentalist. This model relied on government intervention as well as a heavy emphasis on manufacturing and export-oriented industries. It worked superbly for many years as the Asian Tigers enjoyed decades of rapid economic growth. Yet, today, the old approaches no longer seem to work as well. Meanwhile, China is taking a page from the old playbook as its manufacturing and export sectors boom thanks to lower labor costs and other competitive advantages.

As leaders grapple for answers, entrepreneurship offers one potential solution. All of the countries in the region can point to impressive entrepreneurial histories. In Japan, companies like Sony and Nissan can be traced back to the work of single founder or small group of founders. Similarly, Taiwanese business leaders have prospered not only at home, but also overseas. For example, a good portion of Silicon Valley’s leading entrepreneurs hail from Taiwan. According to research by Berkeley’s Anna Lee Saxenian, Chinese (mainly Taiwanese) executives led 20% of Silicon Valley’s high technology start-ups in the 1990s. Finally, Hong Kong has long been viewed as one of the world’s most entrepreneurial places.

The challenge is not to get entrepreneurial activity started, but to restart a tradition that has been somewhat neglected. Singapore offers a classic example. Its current institutions do not encourage new business starts. State control of the economy is still strong; the education system rewards rote learning over creative thinking; and the overall business culture is tilted away from risk-taking. Not surprisingly, Singapore (along with Japan) ranks near the bottom of cross-national comparisons of entrepreneurial activity undertaken by the Global Entrepreneurship Monitor project www.gemconsortium.org. In contrast, Korea ranks near the top in terms of entrepreneurial activity.

While it is too soon to proclaim a consistent trend in embracing entrepreneurship among key Asian nations, all of the region’s governments are undertaking new policies to encourage entrepreneurs and to support small and medium-sized enterprises. Among the new and interesting initiatives are:

Small is Beautiful: Several of the leading Asian economies are dominated by multinational corporations or large local firms or networks of firms (known as keiretsu in Japan or chaebols in Korea). These large conglomerates have fostered economic growth, but may also have had the effect of limiting opportunities for smaller firms. Some Korean experts contend that the collapse of Korea’s chaebols during the 1997-1998 economic crisis may have helped stimulate higher levels of start-ups and economic growth over the past several years. According to this view, talented managers left the large firms and succeeded in building new companies. Uncovering new niche opportunities for small firms is one approach being considered across the region. In Thailand, the Ministry of Commerce is making a major push to increase exporting among Thai small and medium-sized enterprises. These firms have traditionally focused heavily on the domestic market alone.

Training: The Asian economies represented at the Entrepreneurship Workshop can capitalize on some of the world’s best science and engineering talent and training capabilities. But technical training is not enough; entrepreneurial training is also needed. In a recent interview, Singapore’s Deputy Prime Minister Lee Hsien Loong, described the need for a “change in mindset” among Singaporeans. He is proposing changes in the educational system so that students “become familiar with ideas of entrepreneurship.” Singapore is not alone in this effort; many of the major governments in the region are seeking to expand youth entrepreneurship education and to better link business training into existing science and technical training programs.

Capital Access: As in the West, Asian entrepreneurs often face challenges accessing outside capital, especially as their firms grow beyond the initial start-up stage. Governments in the region have sought to respond with a panoply of government-loan programs, but few of these initiatives effectively serve fast-growing companies. Lots of interesting initiatives that focus on seed equity investments are being started or are under consideration. For example, Malaysia has set up a venture fund to invest in companies that locate in the Multimedia Super Corridor, a proposed cluster of IT-related businesses. Malaysia and other key regional players, like Hong Kong, have also established NASDAQ-like exchanges where smaller firms can more easily attract outside investors.

While interest in entrepreneurship is growing among Asian political leaders, the ultimate direction and pace of change is uncertain. Successful entrepreneurship policies require a light touch from government and a heavy reliance on market forces. Asian governments have been reluctant to embrace such approaches in the past. If they are to succeed on this new path, Asian governments must learn not only to rely on the leadership of entrepreneurs, but to also start acting like entrepreneurs themselves.


This NCOE Update article was written by National Commission on Entrepreneurship on 2/28/2005

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