asia entrepreneurship update - 2009 · summary asia is the growth engine of the world economy its...

EE-402T: Entrepreneurship in Asian High TechIndustries

Asia Entrepreneurship Update - 2009

Stanford UniversityMarch 31, 2009

Richard B. Dasher, Ph.D.

Director, US-Asia Technology Management Center

Executive Director, Center for Integrated Systems

Stanford University

March 31, 2009 Richard B. DasherStanford University

Welcome!

Weekly public lecture / panel discussion series presentedby the US-Asia Technology Management Center<http://asia.stanford.edu>

Through 6/02/09

Mission: new information on entrepreneurship in Asiahigh-tech industries

Opportunities and trends

Yearly: the last 12 months or so

Some by region (country), some by business area

Today: Dasher’s perspectives into this theme

Background, highlights of 2008

What to watch for over the next year


Important info for students registeringfor course EE-402T

Available for credit to Stanford students

EE-402T “Entrepreneurship in Asian High-TechIndustries”

Credit requirements: see Syllabus

On-site attendance at seven (7) of nine (9) sessions --weekly sign-up sheet at auditorium

Comments on eight (8) of nine (9) sessions

Submit comments by email within two weeks of session

To Prof. Dasher <rdasher at stanford dot edu>

With cc to Dilys Sun <dilyssun at stanford dot edu>


Request for today, 3/31

To everyone: students and visitors

Please fill out demographic survey and leave withSakiko or with me

For students registering, the survey is your on-site attendance record for 3/31/09 In addition, you will need to submit comments on the

content within two weeks


Outline

Background:

The Crash of 2008

What does the crash mean for Asia’s role in the worldeconomy?

Entrepreneurship, reconsidered

Conditions for entrepreneurship in selected Asianeconomies

Outlook for Asia entrepreneurship under severeworld economic conditions


Summary

Asia is the growth engine of the world economy Its growth brings opportunities especially suited to

entrepreneurs

Entrepreneurship patterns differ between the U.S.and Asia

2008 will be a volatile year

In all Asia countries, China is an implicit factor inpolicies and strategies to promoteentrepreneurship

Copied from 4/01/08 “Update”


Troubled Waters Ahead?

China bubble…

Olympic disappointments

Political problems: UTube…?

Slowdown in U.S. consumer spending

Industry clustering > rich versus poor gap

Copied from 4/01/08 “Update”


What we didn’t foresee: Q4 crash

World Bank, CQR 3/17/09


Understanding the impact of the crash:Asia’s pre-crash role

1. Asia: an engine of world economic growth

2. Especially interesting: new, young, middle class

Early adopters of new technologies and products

3. Asia had also become the crossroads of a world-scale supply chain

Components made all over Asia > assembly in China >ultimate sale in US, Japan, EU


GDP, standard and PPP calculations,2007

$65.44 trillion$54.35 trillionWorld

#13 1.20 trillion#13 0.97 trillionKorea (Rep. of)

#4 3.09 trillion#12 1.17 trillionIndia

#2 7.06 trillion#4 3.28 trillionChina

#5 2.73 trillion#3 3.30 trillionGermany

#3 4.28 trillion#2 4.38 trillionJapan

#1 $13.81 trillion#1 $ 13.81 trillionUnited States

World Bank database 9/10/08,PPP 10/17/08


Predicted GDP growth

AeACompetitivenessSeries, China’s15-Year S&TPlan, April 2007


Asia growth includes rapid increase inconsumption

China example

Retail sales oflarge retailers(blue line) is stillaround 12% year-on-year, end2008

Consistentlygreater than GDPgrowth (est. Q4@ 6.5%, notshown)



Intra-Asia trade supportsglobal supply chain

0

10

20

30

40

50

Korea Thai Ind'sia

China: import growth from East Asia (% chg in $s)

20042005

China trade balance:Surplus with U.S. isabout 1/2 offset by tradedeficit with other Asia

Export growth to Asiahas been a major factorin recent Japaneseeconomy strength

(Chart based on WB East AsiaUpdate, 3/06)


But, one quick result of 2008 crash:drop in international trade



Some serious concerns at present

Rise of protectionism G20 signed agreement in November 2008 to avoid

protectionist measures

Since then, 17 of the 20 countries have implemented 47measures that restrict trade at the expense of othercountries (WB study, announced 3/17/2009)

Will domestic consumption be sufficient to returnto growth? (not just US, what about elsewhere?) Decline in confidence may lead to over-saving behavior

-------------

Where does entrepreneurship fit into this picture?

Entrepreneurship, reconsidered


Entrepreneurship: more than justentrepreneurial qualities

Basic concept of entrepreneur: (for example)Schumpeter “agent of creative destruction” Research & education tend to focus on timeless

qualities or historical case studies

(Latent) entrepreneurs may be found anywhere

Entrepreneurship: factors in achieving successas an entrepreneur Pretty useless unless bring in discussion of business

opportunity, as well -- same solution does not alwayswork

Add range of options for interacting with (capitalizingon) a particular opportunity in a particular environment


Characteristics of a good entrepreneur

Passion and skills to make a change Vision of an opportunity

Planning ability to bring the opportunity to reality

Passion for the vision Willingness to take risk in order to achieve that goal

Willingness to change existing institutions in order toachieve goal

Leadership, charisma to execute plan

Ability to be flexible without losing big vision

Team-building skills

Commitment to venture more than to self


Factors to be added in studyingentrepreneurship

Analysis of business environment(s) Structure and dynamics of institutions and culture

In order to see challenges and options for entrepreneurs

Analysis of business opportunities Likely areas of opportunity in particular environments

Effects of time-limited phenomena (the crash, etc.)

To help entrepreneurs identify / create and evaluateopportunities

Implementation options To find ways to overcome the challenges of particular

environments

Paradigms of management (which vary by firm size)

Exit options

Conditions for entrepreneurship inselected Asia economies


Business environment: Ease of doingbusiness (rankings out of 181 economies)

11Singapore

44Hong Kong, China

5861Taiwan, China

2223Republic of Korea

120122India

9083China

1212Japan

2008 ranking 32009 ranking 3United States

World Bank Group <www.doingbusiness.org>


Explanation of previous slide: WBfactors in ‘ease of doing business’

Starting a business: number of procedures required, typical timerequired, cost (as % of GNI per capita)

Construction (procedures, time, cost to build a warehouse)

Employing workers (difficulty of hiring, firing, etc.)

Registering property (procedures, time, cost)

Getting credit (legal rights of borrowers & lenders, availability ofinformation)

Protecting investors (Degree of disclosure, director liability, etc.)

Tax rates

Trade across borders (documents, time, cost)

Enforcing contracts (procedures, time, cost)

Closing a business (time, cost, recovery rate)


Some comparisons

18.939.611.122.79.4Cost of enforcingcontract (% of claim)

462.71,420406316300Days required toenforce contract

4.84466Credit informationindex (1 to 10 = best)

31.43027170Employment rigidityindex (1 to 100 =rigid)

13.43040236Days to start biz

5.8131486# of proceduresrequired to start biz

OECDIndiaChinaJapanUSA


Additional factors in entrepreneurshipenvironments

Availability of high-risk capital Angels, venture capital firms, bank lending policies

People willing to work for start-up companies Workers: education level, skills sets, costs

Managers: experienced -- willing to work withentrepreneur?

Difficulty of acquiring early customers

Availability of mentors

Exit options

Societal valuation of entrepreneurial careers


Background: entrepreneurship inJapan

Shortage of mentors Lack of understanding of process of mentoring

Homogenous entrepreneurial teams(lacking diversity of experience)

Difficult to get really top quality workers

Early customers tend to force start-up companyinto a niche

Entrepreneurs often neglect to think about exit IPOs small, much stock retained by founders

M&A traditionally meant being bought out by keiretsu


Snapshot: What’s happening now?Japan

Possible breakdown of various unwritten socialcontracts Layoffs of permanent employees by big firms Adoption of other Western approaches for cost-cutting

Consensus building by government and press:importance of entrepreneurs, innovation, sectoralpromotion

M&A becoming robust Much business in fact focuses on innovation:

new products, services, business approaches But, in Japan one hears a lot of whining, angst, old-style

values that may lead one to underestimate them


Background: Entrepreneurship inChina

An aspect of rapid evolution of “managed”market economy

Positive social valuation of entrepreneuriallifestyles

Challenges affect start-ups -- similar to situationfor foreign firms IP protection Sometimes opaque regulatory framework Rising costs

Concern about impact of increasing gap betweenrich and poor


Snapshot: What’s happening now?China

Shift of focus todomestic market Sharp drop in

exports But buying

companiesoverseas

Governmentstimulus packageof 3 trillion RMB

Continued rise ininvestment,including VCs


Background: Entrepreneurship inIndia

Level of economic development:“entrepreneurship of necessity” as well as“entrepreneurship of opportunity”

Labor force with English language abilities

Activities by returnees from overseas

Infrastructure, regulatory difficulties

Highly mobile labor force: hiring and retentionbecomes more difficult

Only recent entry by institutional venture capital


Snapshot: What’s happening now?India

Entrepreneurs looking at the “bottom of thepyramid”

New products, services for rural areas, less wealthy

Terrorism resurfaced

Beginning to run into problems with intrinsicallylow profit margins of BPO and other outsourcingbusinesses

Venture investment is up


Snapshot: The tigers (Korea,Singapore, Taiwan, etc.)

Being hurt by slowdown of global supply chain

Components businesses not doing well

Taiwan: continuing exodus of people and capitalto mainland investments

Singapore: banking on biotech (?)

Korea: Resurgence of big firms -- squeezing outstart-up opportunities?

Hong Kong: financial center that wants to focusmore on innovation


Impact of the Crash of 2008 onentrepreneurship in Asia

Increase in “entrepreneurship of necessity”

Slower sales cycles: capital is harder to get

But it was never easy

Need for longer-term support to profitability

New economic conditions may create newopportunities

Different economics when commodities are cheap

Government stimulus packages


Upcoming in this series

Next week: conditions in China (Ted Lin, formerassociate, Bessemer Venture Partners; Hong Tan,CEO, Access Analytical)

4/14: Wireless opportunities in Asia (Gary Brown,VP, Morpho Inc.)

4/28: Joint venturing in India (Vibhay Sinh,former CEO, Kilburn Engineering)

5/12: Exit options in Japan (tentative title,Adriaan Ligtenberg, Pacific Technology Partners)

Other weeks still TBA

asia entrepreneurship update - 2009 · summary asia is the growth engine of the world economy its...

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