Where Tech Starts, Ends

See the latest issue of Briefings at newsstands or read in our new format here.

By: Simon Constable

Something odd happened almost three decades ago. Startup web-browser company Netscape went public, delighting investors despite having no profits. This event, on August 9, 1995, prompted one of the biggest global economic shifts since the industrial revolution. Over the last 27 years, web-based businesses have become behemoths worth billions of dollars: Amazon, Meta, Alphabet, Alibaba, Tencent, Baidu, Netflix. Yet the overwhelming majority of these big tech companies come from just two countries: the US and China. Other countries, such as those in Europe or Asia (excluding China), lag hugely.

While China and the US are diametrically opposite in their respective types of government—the former is communist, the latter is the epitome of bare-knuckle capitalism—they do have some things in common, says John Freeman, a Virginia-based technology-industry analyst at CFRA Research. Most notably, both countries offer large self-contained markets for entrepreneurs. “China is huge,” he says. Its population is 1.4 billion, and it has the second-largest economy. In contrast, the US has only 330 million residents and the largest economy of all.

The similarities between the two countries go beyond their respective market size. The US is famed for its entrepreneurial drive, but many people don’t understand that China also has a long history in commerce. “It’s been the most consistently put-together civilization,” Freeman says. “It’s in their DNA.” Notably, before the Maoist years, China had a vibrant economy for centuries. And the Chinese population had long been familiar with trading goods across Asia. When China’s subsequent rulers embraced commerce, the country’s people unleashed their entrepreneurial talents. “China was spring-loaded for innovation,” Freeman says.

Another valuable part of helping develop new technology is funding. In the US, the venture capital business plays a substantial role in developing promising tech startups. “The US has evolved an enormous V.C. industry,” says Steve Clayton, fund manager at UK-based financial firm HL Select. That means some investors are willing to have their money tied up for years before realizing possible gains. In China, money gets funneled to perceived worthy projects and those who know the right people. “Connections matter enormously in China,” Clayton says. To put another way, those favored by China’s rulers can get access to cash.

However, other countries, such as those in the EU, have failed to produce megatech companies. The reasons mainly come down to the inverse of what made the US and China into tech leaders. “Europe is not as culturally unified as the US or China,” says Robert Wright, a senior research fellow at the American Institute for Economic Research. While it’s relatively easy to translate language, culture is another matter. “There are some cultural things that don’t translate,” he says.

Ultimately, each country represents a different market that needs an individually customized approach. But each of these markets pales by comparison with China or the US. For instance, at $1.3 trillion, Spain has an economy less than half the size of California’s. Investors show less interest in smaller markets. Business success, meanwhile, often breeds more of the same. But when a region lacks examples to follow, entrepreneurs sometimes have nothing to emulate. In Europe, that shows up as a lack of entrepreneurial ambition, says Grant Duncan, a Korn Ferry UK managing director and sector lead for Media Entertainment and Digital EMEA.

If a young Briton’s startup succeeds and gets an offer of £10 million ($11.5 million), they’ll likely accept it. But Americans tend to have bigger ideas, Duncan says. “They’ll say it’s worth a billion—because of that culture of scale and ambition."

Constable, a former Wall Street Journal TV anchor, is a fellow at the Johns Hopkins Institute for Applied Economics.