How Asian corporate giants can boost innovation via deep-tech start-ups

Corporate venturing is booming in East and Southeast Asia, but barriers to innovation still remain, according to a new report from IESE Business School

The report offers practical takeaways for how companies can overcome these hurdles when working with deep-tech start-ups

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How Asian corporate giants can boost innovation via deep-tech start-ups

Published: 2:47pm, 19 Jul 2021

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Companies such as Alibaba, Lenovo, Tencent, Toyota, and Samsung are already innovating with start-ups in the deep-tech field. Globally, investment in deep-tech start-ups has quadrupled in the last five years: from $15 billion in 2016 to $60 billion in 2020.

And this practice of large companies collaborating with start-ups to boost innovation – called corporate venturing – is currently booming in East and Southeast Asia. In 2019, Asia accounted for 40% of corporate venture investments in the world. Meanwhile, Japan, South Korea, mainland China, Singapore, Hong Kong and Thailand are the East and Southeast regions with the highest adoption rate of corporate venturing.

That´s according to a new study by IESE Business School, which analyzes more than 100 East and Southeast Asian companies collaborating with start-ups. The study reports that 71% of the companies analyzed are planning to increase the weight of deep-tech start-ups in their corporate-venturing portfolios.

“Deep tech refers to emerging technologies based on scientific discoveries or engineering innovations, seeking to tackle some of the world’s fundamental challenges–encompassing work in expanding fields such as artificial intelligence, advanced materials, biotechnology, blockchain, robotics, photonics, as well as quantum computing,” say the study´s co-authors, IESE Business School´s Josemaria Siota and professor Mª Julia Prats. By collaborating with new ventures at the cutting-edge of technology, large companies are able to boost their innovation efforts, they add.

Through analyzing successful examples of Asia´s corporate giants collaborating in this way to boost innovation, the IESE study sheds further light on how to engage in open innovation with deep-tech ventures.

Six practices for working with deep-tech start-ups
Despite the boom in corporate venturing, large companies still face particular challenges when looking to jump on this rising trend.

Based on 77 interviews, the top concerns of chief innovation officers looking to partner with deep-tech start-ups are: technology evaluation, taking a short-term view, internal alignment of KPIs, regulation, regional fragmentation, silos between R&D and corporate venturing teams, and top-down management.
To overcome these barriers, the report highlights several practices that can help companies innovate. Some of them include:

1. Securing an unbiased technology evaluation for the deep-tech start-up. Be aware that corporate R&D teams may be biased toward their own inventions. If R&D is the only team with the knowledge for conducting the technology evaluation, and the result is biased, consider having an additional independent expert outside the corporation. Another strategy is having a shared mandate between the two teams (corporate venturing and R&D), or a joint boss with expertise in both the venturing and the technical side to help overcome team bias.

2. Designing an innovation architecture that takes into consideration the particular risks of each corporate venturing mechanism. Start-up acquisitions, corporate venture capital and venture builders are generally perceived as riskier than hackathons, scouting missions or challenge prizes. Evaluate the amount of risk that your company is willing to take on, among other factors, in order to pick the best mechanisms for you.

3. Work to counteract the disadvantages of a top-down corporate venturing approach to boost employee motivation, creativity and faster approvals. One example is having a flexible upper-management involvement depending on thresholds of resources required (e.g., a $15-million investment in a deep-tech start-up may require a higher involvement of upper management than launching a hackathon in deep tech).

4. Tailor your pitch to suit its audience when talking about deep tech. Executive committee members may prefer arguments related to long-term strategy. Business units might favor more focus on the short or medium term. Once you achieve a success case in one business unit, take it to the rest of the company.

5. Don't start with the technology. Instead, identify a problem that you want to solve through a clear use case. Focus on the quantitative and translated impact for corporate decision-makers. Involving business units in the creation of the use case may help increase acceptance along the way.

6. Minimize risk with a sandbox. Build a simple test environment (sandbox) to carry out the minimum proof of concept and then gradually increase the resources allocated to the project. This approach is especially useful in highly regulated contexts.

IESE Business School campus in Barcelona Spain

Download the full study here: Open Innovation: How Corporate Giants Can Better Collaborate with Deep-Tech Start-ups. The Case of East and Southeast Asia.
The study was released during the Corporate Innovation Summit, hosted by the Hong Kong Science and Technology Parks Corporation (HKSTP), discussing trends and best practices.