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What is driving Asia’s technological rise?

Asia is a technological force to be reckoned with. Over the last decade, the region has accounted for 52% of global growth in tech-company revenues, 43% of startup funding, 51% of spending on research and development, and 87% of patents filed, according to new research by the McKinsey Global Institute (MGI). How did Asia get here, and what lessons does its success hold for the rest of the world?

Of course, Asia is not a monolith, and technology gaps within the region remain significant. India, for example, has fewer large tech companies than other major economies. Still, four of the world’s top ten technology companies by market capitalization are Asian.

China, home to 26% of the world’s unicorns (startups valued at $1 billion or more), leads the way in tech entrepreneurship in Asia, though it still relies on foreign inputs in core technologies. By contrast, advanced Asian economies like Japan and South Korea have large tech firms and a significant knowledge base, but relatively few unicorns. Asia’s emerging economies still invest relatively little in innovation, but they do provide growing markets for the goods and services produced by Asia’s tech leaders.

Against this background, Asian countries have had to make a virtue out of collaborating to overcome fragmentation and close technology gaps. And they have made considerable progress in recent years. Notably, they have invested heavily in regional tech startups — about 70% of such investment comes from within Asia — and robust regional technology supply chains.

While Asia’s technology supply chains continue to be reconfigured as they develop, the shifts have occurred largely within the region. (For example, the region’s developed economies and China have expanded investment in emerging economies’ manufacturing sectors.) This went a long way toward supporting Asia’s relative resilience during the COVID-19 crisis. The just-signed Regional Comprehensive Economic Partnership could foster even closer intraregional ties.

Collaboration among countries is only part of the equation. Asian governments have also worked with local tech companies to advance goals in domains like renewable energy and artificial intelligence. During the pandemic, such partnerships have been essential to South Korea’s track-and-trace strategy, and to national health QR-code programs in China and Singapore. Asia is also developing new models for collaboration across digital ecosystems to help enterprises and societies share resources and information more effectively.

To be sure, Asian economies may find it difficult to catch up and compete in some well-established technology sectors — such as semiconductor design or operating system software — where others have a commanding market position. But there is no denying Asia’s tremendous progress in new technologies, often facilitated by its existing strengths in manufacturing and infrastructure.

For example, more than 90% of the world’s smartphones are made in Asia. So, the region’s economies have focused significant innovative capacity in this area, such as to design mobile application processors and develop new types of hardware. Last year, the Chinese company Royole released the world’s first flexible smartphone. Early this year, Samsung went a step further, launching the first foldable smartphone with a foldable glass screen.

Similarly, Asian firms have capitalized on the region’s well-developed infrastructure to establish themselves at the cutting edge of 5G development and deployment. Of the five companies that hold the majority of 5G patents, four are Asian. Likewise, the region’s strong position in next-generation electric-vehicle batteries — more than half the world’s patents for solid-state batteries…

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