Page 27 - The South China Business Journal

c OMMUNITY NEWS India shares 80% textual similarity to China’s sector- these areas, as measured by World Development
leading Yuanfudao. This trend appears regardless Indicators. New entrepreneurial hub, wider
of whether a sector was strategically prioritized entrepreneurial diffusion. The unprecedented growth
by China’s government or whether a country was of entrepreneurship in China has spurred business
Following a Different Leader: aligned with China politically. Emerging market formation in other emerging markets. While earlier
efforts emulated U.S. successes of the 2000s, emerging
entrepreneurialism following Chinese examples
boosted firm growth and serial entrepreneurialism market entrepreneurs have increasingly emulated
The Global Influence of China’s even beyond China-led sectors. Chinese companies confronting similar problems
and consumer demands. However, few examples of
Emerging market venture backed firms in “China-led” China-inspired emerging market entrepreneurialism
Venture Capital-Backed Businesses sectors with high suitability scores were also more involve direct overseas investments by Chinese VCs.
likely to IPO or be acquired. All things equal, the rise Instead, local entrepreneurs and investors learn
of China’s venture industry also increased the number from and adapt businesses first developed in China.
By the Stanford Center on China’s Economy and Institutions (SCCEI) of serial entrepreneurs in emerging markets, and This global rise in investment has had wide-ranging
their venture activity later spilled over into sectors consequences, including more firm IPOs, increased serial
n 2001, 88% of global venture capital was invested capital investment growth in emerging markets not led by China. Researchers also observe that entrepreneurship and patenting activity, and gains in
Iin U.S firms. By 2019, China accounted for 38% occurred most often in these highly suited sectors,
in cities with a higher preexisting share of firms in economic wellbeing. The results suggest there could be
of the worldwide total, while the U.S. accounted for like the education technology sector in India. A China-led sectors, there was substantial growth in large benefits if emerging innovation hubs (whether in
42%, even though the level of investment in the U.S. one standard deviation increase in a sector’s China business formation and patenting activity, including China or elsewhere) shift the focus of technology toward
increased throughout the period. China’s sharp rise suitability score corresponded to a 214% increase in in sectors with few existing Chinese firms. Finally, the applications overlooked by the U.S.-led system.
in the industry is unprecedented for a developing venture investment deals among “China-led” sectors. researchers offer suggestive evidence that the China-
country. China’s venture-backed firms have often These findings suggest that China’s rise inspired new
driven rise in emerging market entrepreneurialism
focused on solving different problems than U.S. firms, venture activity in developing country sectors that in sectors like education, health, and agricultural
such as navigating difficult last mile logistics, adapting share similar business challenges to those in China. productivity boosted socioeconomic outcomes in
to rapidly changing regulatory regimes, or educating
millions of consumers to use financial technology. Emerging market entrepreneurialism driven by local
Many of these business problems are also faced by investors following Chinese examples. Only 2.5%
other developing countries. How has the dramatic of emerging market deals outside China involve
rise of China’s venture capital industry influenced a Chinese investor, and just 0.5% are exclusively
entrepreneurship in other developing countries? backed by Chinese investors. Instead, local
investors appear to be investing in local firms that
The data. The researchers used the Pitchbook database learn from and adapt business ideas and models
to compile data on over 169,000 venture deals from first developed in China. Using Natural Language
2000 to 2019 across 88,267 firms in 152 countries. The Processing tools to measure similarity in business
data describe each company and information about descriptions, the researchers show that the growth Venture-backed 昀椀rms that imitate business models of Chinese
each financing round. They then compare trends in in emerging market entrepreneurship following Average sector similarity to China versus the U.S. 昀椀rms (by country type)
emerging market entrepreneurialism before and after China’s rise is accompanied by an increase in textual
the sharp rise of China’s domestic venture capital similarity between the description of new emerging
industry in the 2010s. They use machine learning tools market firms and Chinese firms founded in the
to categorize companies into 266 sectors, grouped into same sectors during the preceding five years. For
15 broader macro-sectors, such as education technology example, the educational technology startup Byju in
and financial technology, to assess which sectors drive
changes in emerging market entrepreneurialism during
this period. Finally, they assess the broader impacts of
entrepreneurial growth in emerging markets on local
innovation and socioeconomic wellbeing.

Rise of the venture capital industry in China drives
entrepreneurship in other emerging markets. The
analysis finds that as China’s venture capital industry
rose in scale relative to the U.S. throughout the 2010s,
emerging market venture deals also increased by
between 26% and 42%. This growth in emerging market
entrepreneurialism occurred primarily in “China-led” Share of global venture capital investment
sectors — those sectors where China’s share of global
venture investment exceeded that of the U.S.
Emerging market entrepreneurship occurs in sectors
with conditions that mirror those in China. The
researchers compiled nearly 1,500 country-level
indicators from the World Bank’s World Development
Indicators database to create a “suitability index”
that measured how closely a developing country
sector matched the socioeconomic conditions of its
counterpart in China. If a sector closely mirrored
its Chinese counterpart, it was classified as better
Value of global venture capital investment
“suited” to emulate China’s business models. Venture

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