Diffusion and adaptation: why even the Silicon Valley model is adapted as it diffuses to East Asia

Abstract

Diffusion scholarship expects little adaptation of core elements of policy models. However, the empirical reality is different; diffusion of even highly regarded models, such as the Silicon Valley venture capital (VC) policy model, results in marked adaptation. This article demonstrates why the Silicon Valley VC model is necessarily adapted differently by policy-makers in the geographically, ethnically and economically proximate states of Hong Kong, Taiwan and Singapore. More specifically, these policy-makers' interventionist orientations, private sector financing preferences and international versus domestic firm promotion biases drive contextually rational – and unique – adaptations of the Silicon Valley VC policy model.

Keywords:

• Diffusion
• bounded rationality
• Silicon Valley
• East Asia
• venture capital

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. VC is defined here as financial capital provided to new, high-growth companies with significant potential in exchange for company equity (e.g. an ownership stake in the company). VC is a high-risk and illiquid asset class, with VC managers investing in the hopes that start-ups exit via an initial public offering or acquisition.

2. The term ‘silicon’ is used to describe the California region centered around Stanford University because of the density of silicon chip (a personal computer component) manufacturers in the area. By the late 1970s, the successful technology firms, start-ups and investors based in Silicon Valley propelled the ‘silicon’ region's international notoriety.

3. Lazonick (2009) and Mazzucato (2013) are some of the most vocal critics of the notion that VC drives innovation, economic growth and innovation. They, instead, argue that the state has been the real risk-taker and investor in transformative technologies.

4. The ‘public venture capital policy menu’ includes the establishment of an early-stage, high-technology company-friendly stock exchange (Klingler-Vidra 2014c). While the important role that the establishment of NASDAQ in 1971 had on the performance of the American VC industry (by providing them with a fertile group for exits) is argued by Lazonick (2009), here the stock market policy is conceptualized as part of the enabling venture environment rather than VC industry-specific policy.

5. The US Small Business Innovation Research (SBIR) program provided direct investment in start-ups, not in VC managers as a means of supplying capital to the VC industry.

6. Similarity and difference in terms of VC legal structures may also be the product of formal institutions, particularly the local legal system's proximity to the American legal system (see Klingler-Vidra 2014a).

7. Taiwan's effective tax credit policy was discontinued the first time the opposition party came to power in 2000 (Author Interview, Taipei, 6 January 2012).

8. The intense scrutiny and power of the Legislative Council over budget reinforces Hong Kong's historical (particularly Colonial government) reluctance towards financing private sector activity (Klingler-Vidra 2014a).

9. The 45 state sample includes: Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Russia, Saudi Arabia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Taiwan (Chinese Taipei), Turkey, United Kingdom and United States.