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The sun rises in the East: innovation in Asia is catching up to the West

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When it comes to innovation the West continues to lead the way. However, the advantages historically enjoyed by Western nations are steadily being replicated or overcome by competitors in the East, setting up a battle for future dominance of innovation.

This article is sponsored by D.LIVE Asia The Wall Street Journal’s premier, by invitation-only, technology event in Hong Kong on June 8th – 9th, that brings together an unmatched group of CEOs, founders, investors and luminaries from around the world to set the global tech agenda.

By George Hammond / Springwise Staff Writer

Alibaba – the Chinese e-commerce giant – is often referred to as the Asian Amazon; Tencent’s WeChat as an amalgamation of Facebook and Twitter; Baidu as Beijing’s answer to Google. These designations are at best inadequate, at worst plain wrong.

While offering Western readers simplicity and an anchor in the familiar, they also demonstrate some implicit assumptions: that innovation is best understood through the prism of developed, Western nations; that developing countries in the East are more adept at imitation. As innovative Asian companies proliferate and outstrip Western peers those assumptions are fast becoming outdated.

In the following piece we explore how factors which once gave the West the upper hand are now being replicated or circumvented in an Asian context, highlight the companies at the vanguard of that transformation and consider whether the era of Western dominance in technological innovation is drawing to a close.

West still dominant – for now

The West, and in particular the US, still dominates when it comes to facilitating innovation and driving scale. Of the world’s largest companies by market capitalization, five are technology giants, seven were founded in the last 42 years, and all are American.

Beyond the Fortune 500s Western nations perform well on other key indicators of innovation. From London to Berlin, Warsaw to Madrid, start-up hubs dot Europe, drawing substantial funding – €2.4 billion in venture capital in Berlin in 2015 alone, according to Ernst & Young – and churning out successful young businesses such as Locomore, the B-Droid or Kano by the dozen.

The ranking looks at factors from R&D spend as a share of GDP, to density of high-tech companies, extent of education, to patents granted. Along with more intangible factors such as government regulation, these markers define the success and scale of innovation from country to country. Historically, West has outperformed East in each – explaining how an area with less than a fifth of the globe’s population can constitute more than two thirds of its most innovative nations.

Eastern nations are gaining fast

To extrapolate from present and former glories to enduring dominance would, however, be hubristic. On the same index it is South Korea – not America – looking down from the top, with Singapore, Israel and Japan also gracing the top ten. Elsewhere in Asia, the world’s two most populous nations – China and India – are reaping the economic rewards of a bourgeoning middle class, growing internet penetration and increased government investment, with China outstripping the entire European Union in R&D spending.

The progression of Asian nations along each of those indicators is evidenced by the swelling ranks of unicorns – startups valued at over $1bn. These companies, among them Chinese electronics company Xiaomi, Indian e-commerce giants Flipkart and Snapdeal and Singaporean ride-hailing platform Grab, are the global ambassadors of Asian innovation.

Elsewhere fledging companies are emerging at a faster rate, enabled by higher levels of investment from both government and newly flush domestic angels. Outfits as diverse as an Indian startup digitizing milk delivery, a Taiwanese company using blockchain to verify digital ownership, and an Israeli venture using deep learning and ultrasonic technology to diagnose mechanical problems have all featured in the Springwise database in the last few months alone.

And there’s plenty of room for growth

This picture of innovation in Asia – led by a powerful group of pioneer companies from Japan’s Rakuten to China’s Tencent or South Korea’s Samsung, with swelling ranks of unicorns and a humming startup scene – presents a healthy diagnosis for innovation in the region.

Where once leading companies were derided for aping Western peers, now Asia challenges or leads in areas such as e-commerce, search, social networking, gaming, and ride sharing. Some of that development has come from larger players iterating their product lines, but a wealth of disruptive start-ups are also coming to market. From China alone, we’ve recently featured emotionally intelligent chatbots, WeChat-enabled cashless bike sharing and a smartphone capable of analysing the molecular make-up of almost any substance.

And while growth has tended to focus domestically, these companies are beginning to break into Western markets, whether through mergers and acquisitions or direct appeals to consumers.

All this leaves Asia well placed to further disrupt the West’s position as global innovation leader. The fundamentals are in place, many nations in the region still have some way to go in their technological development, and the sheer market size is formidable. Combined, these factors raise the possibility that Asian companies could leapfrog their Western peers. Before long, we may find ourselves describing the European Alibaba, Silicon Valley’s answer to Baidu, or the Western WeChat.

Explore how the technology revolution is unfolding in Asia—and in many cases how Asia is leading the world—at D.LIVE Asia.

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The Wall Street Journal News Organization was not included in the creation of this content.