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
March 31, 2009 Richard B. DasherStanford University
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>
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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”
March 31, 2009 Richard B. DasherStanford University
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”
March 31, 2009 Richard B. DasherStanford University
What we didn’t foresee: Q4 crash
World Bank, CQR 3/17/09
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
Predicted GDP growth
AeACompetitivenessSeries, China’s15-Year S&TPlan, April 2007
March 31, 2009 Richard B. DasherStanford University
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)
World Bank, CQR 3/17/09
March 31, 2009 Richard B. DasherStanford University
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)
March 31, 2009 Richard B. DasherStanford University
But, one quick result of 2008 crash:drop in international trade
World Bank, CQR 3/17/09
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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>
March 31, 2009 Richard B. DasherStanford University
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)
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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
March 31, 2009 Richard B. DasherStanford University
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