Asian Innovation Hinges On Scaling Up

Since World War II, Asia’s economic success has been driven by a business model that relies heavily on networks of businesses and influential families. But this model – which concentrates power in the hands of relatively few and relies on connections over education or effort – could slow Asia’s development through the next century unless it adapts and innovates.

Short of a radical transformation to a more competitive and popular capitalism – a feature of the Western world – Asia’s scope to innovate within its existing business model depends on how one defines innovation. If, by innovation, we mean the discovery of something new, such as a new technology, product or business model, then Asia may not be well placed to lead the next century. But if we mean an economy driven by scaling up new discoveries into a big mass market – something that big, established firms do well – then there is no need to worry. Asian corporations are perfectly positioned to continue excelling at the scaling-up stage of innovation: The region has plenty of big firms with strong brands and distribution pathways to mass markets.

Small start-up firms are good with discovery because this activity requires agility, flexibility, risk-taking and a culture of experimentation – traits that small firms possess in abundance. By contrast, big established firms are good with scaling up because they have the money, knowledge and influence to develop economies of scale, build trust with consumers and get legislative support from the government. With this playbook, big firms usually end up scaling up new markets. They allow small start-up firms to undertake new discoveries and, when the time is right, move in, acquire the discoveries of others, and use its considerable resources and connections to scale them up and create huge new markets.