For much of the last 100 years or so, large incumbents have been nervous about nimble startups. Schumpeterian lore suggests that it’s these new entrants that threaten to disrupt industries and the large and cumbersome businesses that dominate them.
Now, however, incumbents have a much warmer relationship with startups, and via increasingly widespread venturing programs, often have close and symbiotic relations with potential disrupters. Corporate venturing has taken off in large part due to its ability to provide firms with a window into the new and disruptive without them having to develop it in-house.
Global venturing
New research from London Business School highlights how much of our understanding of corporate venturing comes from studies undertaken in the developed world, even though the proportion of corporate venturing activity undertaken in the US has fallen repeatedly over the past decade. This notion that corporate venturing allows firms to glimpse the future probably doesn’t apply to activity in, for instance, China, where startups are seldom a source of novel technology but can nonetheless achieve dramatic demand growth.
The researchers developed a detailed dataset of Chinese corporate venturing activity in the latter part of the 2010s to try and uncover any cross-industry patterns. This analysis reveals that most activity is driven by the demand for growth via market expansion.
“The findings mirror the features of the Chinese setting, where entrepreneurs profit from the dramatic expansion in economic activity and serve as a vehicle to leverage the global innovation frontier,” the researchers explain.
Standing on shoulders
The researchers highlight how many startups in developing countries can piggyback off of technologies already available in the developed world and achieve rapid expansion as a result. This market-based view of corporate venturing is important to appreciate alongside the more traditional technology-based perspective.
“Many investors are attracted to entrepreneurial ventures that pursue growth by serving rapidly expanding market needs (market-based), rather than by developing novel technology (technology-based),” the researchers continue.
As a result, while corporate venturing in many developed countries builds on a rapid pace of technological development and robust corporate R&D initiatives, these factors are far less influential in countries like China, where corporate R&D is less important. Instead, there is more of a focus on accessing the resources and opportunities to expand.
“Every firm has a marketing strategy, but it is not the case that all firms pursue the same marketing strategy,” the authors conclude. “Our study illustrates that point using China as a setting. That is, in countries that experience dramatic GDP growth, it’s possible for firms to use CVC as a strategy to harness market growth.”
