The global startups challenging American tech supremacy

The geography of innovation is shifting rapidly.

The United States has enjoyed an almost unrivaled dominance in technology and innovation over the past quarter century. Most of the biggest technological breakthroughs which achieved mass adoption during this time were pioneered in the US: the personal computer, graphical user interface, mobile telephony, internet browsers, search engines, e-commerce and many more. Most of the companies that seized the commercial opportunities presented by these technologies were also American: Microsoft, Google, Apple, Facebook, Amazon, Oracle and other technology behemoths have few peers on the international scene. 

Mehran Gul, a Project Lead for Digital Enterprise with the World Economic Forum, argues in an upcoming book that this is about to change dramatically. Gul says that we are witnessing the rapid rise of innovation ecosystems in places like China, India, Sweden, Israel, Singapore, Japan, Germany, among many others. The enormous ambition and entrepreneurial drive that can now be found outside the US is giving birth to fast growing start-ups that can compete with and prevail upon their peers in Silicon Valley. 

The rise of new companies in emerging innovation hubs will have a massive impact on where new economic growth will occur, the countries where the biggest companies will be situated, and migration patterns of the best and brightest talent. These disparate forces will come together to cumulatively determine where global power and influence reside.

I talked with Gul about these trends and what they mean for the future of American and global innovation:

You recently won the Financial Times/McKinsey Bracken-Bower prize by proposing a book about the rise of innovation ecosystems outside the US and how they are reshaping the distribution of economic power in the world. Can you give me an example of how things are changing? 

If you look at the largest and most powerful technology companies in the world today – Microsoft, Apple, Google, Facebook, Uber, Airbnb, Tesla, SpaceX, Intel – almost all of them are based in the US. That is going to change. 

One early signal of this shift is the surge of start-up unicorns – new companies worth over a billion dollars – outside the US. There are currently around 106 start-ups based outside the US which have achieved unicorn status and they are collectively worth around $360 billion.

In 2013, 70% of unicorns were based in the US. Each year since then that share has gone down. In 2014, 63% of new unicorns were based in the US. In 2015, that number dropped to 47%. In 2016 it dropped further to 42%. So far in 2017, 42 companies have been added to the global unicorn club out of which 17 are based in the US. 

China alone has 55 unicorns. Out of the 5 most valuable start-ups in the world, 3 are Chinese: the ride hailing company Didi Chuxing, online lender Ant Financial, and the consumer electronics giant Xiaomi. 

The rise of the rest is not just an abstract idea, it’s real and its strength is gathering pace.

Are these companies you’re talking about genuine global competitors to American rivals or are they merely protected from outside competition by their governments? 

I think the protectionist argument was true in the past but not anymore. It is true that in previous years when China blocked Google, Facebook, and Amazon it created space for domestic giants like Tencent, Baidu, and AliBaba. 

But increasingly home-grown companies are able to prevail over their US rivals in a competitive setting. Uber lost a fortune in China before being acquired by its local rival Didi Chuxing which at a valuation of $50 billion is the second most valuable private company in the world.

In Russia the domestic social network VKontakte has twice as many active users as Facebook. In India Flipkart maintains a 57% market share in online retail even though Amazon has invested $5 billion in its ambitious expansion plans in the country. Swedish start-up Spotify is the largest online music streaming service with over 140 million subscribers even though it faces competition from giants like Apple and Amazon.

Most of the companies you mentioned above are copy-cat versions of American originals. Are international companies actually innovating or are they succeeding because they are good at imitating American pioneers in captive markets? 

Again, I think the imitation argument was true in the past but it is increasingly less convincing. 

Many of the new companies are pushing the boundaries of technological possibility. DJI, a Chinese drone manufacturer, controls 85% of the civilian drone market. It is valued at $8 billion and employs 4,500 people, 1,500 of them in research and development.

WeChat, developed by Tencent in China, has a billion active users a month and it integrates a host of services like chat, payments, shopping, transport and others into a single digital platform. It has no close analogues in the US. TransferWise, a London-based Fintech company founded by two immigrants from Estonia, enables international remittances at a fraction of the price charged by traditional banks and recently launched a borderless multi-currency bank account for its customers. It moves over a billion dollars on its platform every month. 

Even among the imitators, I think many companies started off copying products and services from the US but eventually developed random mutations which led them down a very different path than the one followed by American companies they were initially trying to mimic.

How big is the shift? How fast is it happening? 

It’s very big. Last year the largest global technology acquisition and IPO both happened outside the US. Supercell, a mobile game development company based in Finland which developed the blockbuster Clash of Clans, was acquired by China’s Tencent in a deal valued at $8.6 billion. Line Corporation, a mobile applications developer based in Tokyo, went public at a valuation of $9 billion. It is owned by South Korean internet giant Naver Corporation.

The new champions are moving at dizzying speeds. An average Fortune 500 company takes around 20 years to reach a billion dollar valuation. Google did it in 8. Uber in 4. Auto1 Group, a German online marketplace for used cars, achieved the milestone in 3 years. Grab, a Singapore based ride sharing company, got there in 2 years. Rong360, a Chinese online loan provider, did it in just 7 months.

The pace and scale of change is definitely startling.

What does that mean in the long run?

The growth of new companies in emerging innovation hubs will have a massive impact on where new economic growth will occur, the countries where the biggest companies will be situated, and migration patterns of the best and brightest talent. These disparate forces will come together to cumulatively determine where power and influence reside in the world.

Would you say that your book proposal fits with the Western declinist-themed literature we’ve seen in recent years?

Maybe, but it’s more about the so-called ‘rise of the rest.’ That said, in much of the US and Europe people are genuinely concerned about the political and economic trajectories of their countries and whether they can compete globally and continue to enjoy the abundance and high standards of living they have been accustomed to in the past. At the same time in much of Asia, Latin America, and the Far East there is enormous enthusiasm for the future and a pervasive sense that their time has finally come.

Tell me about those who might disagree with you.

A lot of very smart people still think that the US will continue to dominate the technology space for the foreseeable future. 

For example, Andrew McAfee, co-director of the MIT Initiative on the Digital Economy and author of the best-selling book The Second Machine Age, argued in an article in the Financial Time titled “Tesla and the New Geography of Innovation” that US leadership in technology and its commercial applications will continue. He uses the example of Tesla to illustrate that innovation in car manufacturing is actually moving from established German companies like BMW, Volkswagen, and Mercedes to new US companies like Tesla. He concludes that “America’s fundamentals and its recent track record both look solid to me, and I expect that the big changes that are coming, however they’re labelled, will be largely born in the US.” 

Marc Andreessen, the storied technology pioneer and venture capitalist, made a similar argument in the Wall Street Journal a few years ago noting that America’s combination of great research universities, a pro-risk business culture, deep pools of innovation-seeking equity capital and reliable business and contract law is unprecedented and unparalleled in the world. 

So it’s definitely still a debate rather than something everyone agrees on. 

What has been the reaction to your writing?

The idea has definitely hit a nerve and I have come across a lot more interest in the topic that I had expected. The theme of innovation and where it comes from and what can be done to promote it enjoys tremendous interest in business and government. 

Business leaders are struggling to understand the technological forces that are transforming their industries, where these changes are coming from, and how they can stay ahead of disruptive change. Government leaders are also under pressure to create centres of innovation that can become the engines of prosperity, sources of job creation, and magnets to attract and retain top global talent. Whether it is France, Chile, Estonia, or Saudi Arabia, almost every country has some ambitious plan to nurture the next Silicon Valley.