A New Business Supermodel
By David James, Tue Jul 24 00:00:00 GMT 2001

(July 24, 2000) There is a new global business model taking hold, a business supermodel, and it is not found in the planning departments of large corporations or government ministries. It is found in the hearts and guts of young people with dreams of turning new ideas into fortunes, power or just plain respect and recognition.

The supermodel is a great business idea, swiftly and well implemented, that springs from modest beginnings and realizes great commercial success. It is the venture-led business supermodel. Nowhere is the venture-led business supermodel more in evidence than in Asia, where venture-led growth, propelled by new wireless and Internet technologies, is challenging the way business is traditionally done. More important, the new supermodel is helping to lead Asia out of its economic crisis.

Asian Values Tested

A decade ago, the world was in awe of the strong economic growth of many Asian countries, especially those in East Asia and Southeast Asia. Business and government leaders of these countries often credited "Asian cultural values" for their success - the hard work and dedication of their well-educated populations, a "partnership" between business and government, and a high level of discipline throughout their societies.

Alas, there was a dark side to the vaunted Asian cultural values. They justified "crony capitalism," where personal connections led to a heavy burden of unwise loans and business risks and to corruption at high levels of business and government. Moreover, authoritarian governments and bloated bureaucracies were slow to react to changing economic conditions. The result: the Asian economic crisis of the late 1990s.

Possible Dreams

In the past, the dream of talented young people in Asia was to progress to a position of authority in a large corporation - such as a Korean chaebol or a Japanese keiretsu member - or to become a highly placed bureaucrat in a key government ministry. Power and respect, if not riches, would then be theirs. Asian cultural values reinforced the ideal: respect for authority, meritocratic advancement, dedication to one's extended family and employer.

Today, however, Asian entrepreneurs, especially high tech entrepreneurs, are the toast of Asian business communities - Masayoshi Son of Softbank in Japan, Richard Li of Pacific Century CyberWorks in Hong Kong, Azim Hasham Premji of Wipro in India, and many others. Venture capitalists, local and foreign, are investing heavily in Asia. And talented young people with new ideas are bailing out of large organizations and government ministries - or shunning them on graduation from universities - in droves.

"Graduates of Korean universities no longer want to get jobs in the biggest and best chaebols or government ministries," says Jay Eum, a Stanford MBA from Korea who is now a managing director at Dialpad.com, Inc., a provider of Web-based PC-to-Internet telephony in San Jose, California. "Young people like the meritocracy of small companies, and they relish the chance to get rich."

As a result of the shift to a venture-led business supermodel in Asia, new institutions and communities are emerging. In Tokyo, would-be entrepreneurs are flocking to meetings of the Bit Valley Association, a support group for venture companies in the Shibuya section of Tokyo, home to many IT-related startups. (Bit Valley takes its name from Shibuya, which can be directly translated to "bitter" (shibu) and "valley" (ya).) In Seoul, entrepreneurs and technology startups are setting up shop in an area just south of the Han River called "Venture Valley."

"Japan is two to three years ahead of the United States in broadband wireless. Wireless IT breakthroughs will happen first in Japan..." says Paul Slawson.
Asian financial institutions, laws and regulations are rapidly changing to accommodate the venture-led supermodel by providing incentives and greater liquidity for growth. Stock markets are relaxing listing requirements for startups. New Nasdaq look-alikes are appearing, such as the Tokyo's Market of the High-Growth and Emerging Stocks (called "Mothers"), Softbank's Nasdaq-Japan, Hong Kong's Growth Enterprise Market ("GEM"), the Taiwan Innovative Growing Entrepreneurs exchange ("TIGER"), and Korea's KOSDAQ. And businesses are beginning to accept business practices that reward entrepreneurs, such as the granting of stock options to founders and key employees.

Wireless Wonders

For Asia, opportunities for the venture-led supermodel are enormous. The New Economy is not just expanding global markets and astounding progress in technology. It is a powerful explosion of economic creativity unleashed by a shift from establishment-led growth to venture-led growth, all accelerated by wireless and Internet communications and advances in information technology.

The building blocks for the venture-led supermodel are ample in Asia: potential markets, capital and talent. Two-thirds of the world's population is in Asia, and purchasing power in Asia is rising steadily. Markets and infrastructure in Asia are undeveloped, presenting a wide array of possibilities for entrepreneurs. Capital is now more available. And many Asian countries, having cultures that espouse educational attainment and a strong work ethic, boast a reservoir of well-educated hard-working people, especially in areas appropriate to the New Economy: science and technology.

Where are the opportunities? "Many are sensing that IT investment in Asia is the opportunity of a lifetime," says Paul Slawson, general partner and head of Japan, Whitney & Co., a leading American venture capital firm. "Venture capitalists and private equity investment firms like ourselves need to be here to be ahead of the developing IT environment." In the past 12 months, Whitney & Co. has invested approximately $150 million in twelve Japanese IT-related deals, averaging $12.5 million per deal, and plans to put $150 million to work in Japan in each of the next few years. Whitney & Co.'s focus in Japan is the Internet, telecommunications, and tech-enabled financial services.

"The key to global Information Technology development is wireless, and Japan will be in the forefront of this because of its leadership in G3 (third generation) broadband mobile phones," claims Slawson. "Japan is two to three years ahead of the United States in broadband wireless. Wireless IT breakthroughs will happen first in Japan, then will spread to new applications and business models. IT is now about ten percent of the Japanese economy by market cap, compared to one-third of the U.S. economy, but we think IT will grow to 30 percent of Japan's economy in the next five years."
"Graduates of Korean universities no longer want to get jobs in the biggest and best chaebols or government ministries," says Jay Eum.

The story is the same elsewhere in Asia. "Tons of foreign investors have been entering Korea in the past six months, mostly looking at Internet and telecom ideas," says Sandor Hau, managing director of HelloAsia Inc., Seoul, an Internet loyalty and marketing services company. "Everyone has high expectations for the expansion of wireless and broadband opportunities."

Risk and Reward

Notwithstanding the opportunities for the new supermodel in Asia, the question remains whether Asians, raised in cultures that demand unquestioning obedience to authority and traditions, have the will to take the risks required for success.

After all, Confucius said, "The nail that protrudes is hammered down." (Meaning that one who dares to stand out is taught to conform.)

David James is president of Business Strategies International, a San Francisco-based consulting and venture-development firm specializing in Asia-Pacific business opportunities.