Asia's Startup Incubators

As some of our readers may already know, Matthews Asia is headquartered in San Francisco and just north of Silicon Valley, home to some of the world's largest technology corporations as well as a hotbed for tech startups. The rise of Silicon Valley has been bolstered by its connections to nearby Stanford University as well as to the emergence of the area's venture capital industry on Sand Hill Road since the 1970s. This energy and entrepreneurial culture has helped create many innovative ventures that have disrupted traditional businesses.

In my conversations with government officials at various science parks throughout Asia, Silicon Valley is still the main reference for the creative environment they wish to build. Nations have tried to replicate its success by following a recipe that fosters partnerships between universities and industries. They have built science parks for specific industries near a research university and provided financial incentives for companies to relocate there. Today, according to UNESCO (the United Nations Educational, Scientific and Cultural Organization), there are more than 400 science parks worldwide. The U.S. tops the list with more than 150 parks, followed by Japan with 111. China, which began developing science parks in the mid-1980s, now has approximately 100.

Billions of dollars have been spent worldwide to build science parks but perhaps none can claim to have the same robust, unique and multi-faceted ecosystem that Silicon Valley has built. History has also shown that attempts to recreate the Silicon Valley phenomenon have met with little success. To be successful, I believe innovative firms need an ecosystem with their own local flavor. One of the critical ingredients to achieving this is the development of venture capital for earlier stages of enterprises, also known as incubators. Over the past decade, we have seen incubators sprouting up across Asia. More recently, in an interesting turn of events, many Silicon Valley incubators have been setting their sights on Asia as low-cost smartphones are creating a mobile generation in which many users are accessing the Internet for the first time through handsets rather than personal computers.

While the trend is exciting, it is too soon to assess the impact of these new ecosystems for startups. But over the long term, having a vibrant startup community is critical for the development of innovative sectors within Asia. If successful, this development may bode well for countries that are moving toward service-oriented economies as well as for Asia's technology investors.

Jerry Shih, CFA

Research Analyst

Matthews Asia

The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews does not accept any liability for losses either direct or consequential caused by the use of this information. 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.

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