Sun, Dec 27, 2020 page7

• The developments driving Asia’s technological rise

  Based on its manufacturing prowess, Asia is innovating and making inroads in new domains from renewables to artificial intelligence

  • By Jonathan Woetzel and Jeongmin Seong
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  Asia is a technological force to be reckoned with. Over the past decade, the region has accounted for 52 percent of global growth in revenue in the technology sector, 43 percent of start-up funding, 51 percent of spending on research and development (R&D), and 87 percent of patents filed, research by the McKinsey Global Institute showed.

  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.

  

  Illustration: Constance Chou

  India, for example, has fewer large tech companies than other major economies.

  Still, four of the world’s top 10 technology companies by market capitalization are Asian.

  China, home to 26 percent of the world’s unicorns — start-ups valued at US$1 billion or more — leads the way in tech entrepreneurship in Asia, although it still relies on foreign inputs in core technologies.

  By contrast, advanced Asian economies, such as 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.

  In the past few years, they have made considerable progress.

  Notably, they have invested heavily in regional tech start-ups — about 70 percent 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 such as renewable energy and artificial intelligence.

  During the COVID-19 pandemic, such partnerships have been essential to South Korea’s track-and-trace strategy, and to national health quick response 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 might 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.

  However, 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 percent of the world’s smartphones are made in Asia.

  Therefore, 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, 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 were filed in Asia — resulted from leveraging existing strengths.

  New opportunities are also opening up for Asia. While the region’s consumer markets are expanding and digitizing rapidly, there is still a great deal of room for growth and innovation in consumer-facing technologies.

  Similarly, Asia can expand its role in the growing market for digital information-technology services, such as big data and analytics, digital legacy modernization, and Internet-of-Things system design.

  After all, the region has a huge pool of tech talent: India alone produced three-quarters of the world’s science, technology, engineering and mathematics graduates between 2016 and 2018.

  Vulnerability to the effects of climate change, from deadly heat waves to large-scale flooding, is also driving progress in the region.

  Asia has the largest share of installed renewable energy capacity — 45 percent — compared with 25 percent in Europe and 16 percent in North America.

  The International Energy Agency expects that share to rise to 56 percent in 2040.

  With the support of investments in R&D and new infrastructure, Asia stands to make its mark on the world with technological solutions to climate risk.

  Asia’s rapid development as a global technological leader over the past decade is a testament to the power of collaboration.

  Yet, in much of the world, the tide is turning toward isolationism and protectionism. Indeed, after years of relative openness, rising trade barriers threaten to disrupt global flows of technology and intellectual property.

  This will sap potential in many frontier sectors. According to a McKinsey Global simulation, US$8 trillion to US$12 trillion of economic value could be at stake by 2040, depending on the quality and level of technology flows between China and the rest of the world.

  Many high-tech markets — including electric vehicles, battery storage and advanced displays — depend on Asian investment and market growth to achieve global scale.

  Asia is likely to continue to forge ahead with its technological development.

  However, to make the most of its progress — and the strides that have been made elsewhere — enhancing technological collaboration within and among regions remains a priority for Asia and the rest of the world.

  Jonathan Woetzel, a McKinsey senior partner, is a McKinsey Global Institute director and coauthor of No Ordinary Disruption: The Four Global Forces Breaking All the Trends. Jeongmin Seong is a senior fellow at the McKinsey Global Institute in Shanghai.

  Copyright: Project Syndicate
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