Lynn Thoman

Ep 309: Beyond Silicon Valley: Where the Next Breakthroughs Will Come From

Lynn Thoman: The personal computer, the smartphone, email, search, social media, electric cars, almost all of them came from one country, and much of them from one zip code. But that monopoly on innovation may finally be ending. So why do some places become engines of innovation while others, with brilliant people, world-class universities, and plenty of capital, never quite get there?

Hi everyone, I'm Lynn Thoman, and this is 3 Takeaways. On 3 Takeaways, I talk with some of the world's best thinkers, business leaders, writers, politicians, newsmakers, and scientists.

Each episode ends with three key takeaways to help us understand the world, and maybe even ourselves a little better.

Lynn Thoman: Today I am excited to be with Mehran Gul, author of the wonderful and award-winning new book, The New Geography of Innovation. He traveled to many of the world's leading innovation hubs to answer one question.

Why do some places repeatedly create the technologies that change the world while others never seem to catch up?

Welcome, Mehran, and thanks so much for joining 3 Takeaways today.

Mehran Gul: Thank you so much for having me. It's a real privilege to be on.

Lynn Thoman: It is my pleasure.

You started by asking whether American tech dominance was ending, but you eventually decided that was the wrong question. What was the better question?

Mehran Gul: I think the better question was to look at how the world is changing despite the fact that it might still be the US that is in a pretty comfortable lead over the rest of the world. I think it's very easy to look at what's happening now and look at things like SpaceX just making the biggest IPO ever, or the fact that America has now nine companies that are worth over a trillion dollars, whereas the rest of the world only has one, and to think that the world hasn't really changed all that much just because of American leadership at the top. But if you look at the second tier, that is almost all completely reconfigured over the past two decades.

If you were to look at one of the most technologically relevant countries in the world two decades ago, that second tier would be almost entirely European. You would have countries like Germany, like France, like the Nordics in there, the UK, etc. But now that second tier is populated more by countries like China or South Korea, which plays a big role in high bandwidth memory chips, or Taiwan, for instance, which is a critical node in the semiconductor industry.

Places like Singapore, which is responsible for the second largest sales of Nvidia chips in the world at this point in time. So it's easy to see the US on top 25 years ago and today and say nothing's changed. But even if you concede American leadership, the map of innovation in the world has still changed significantly in the past few decades.

Lynn Thoman: So interesting. I think that many Americans have a very narrow perspective and don't see what's happening in the rest of the world. What's the biggest misconception that Americans have about China's tech rise?

Mehran Gul: That it is copycat innovation, or that it's only at the level of applications, but not at the level of basic science. I think every five years, the objection moves. So for instance, 10 years ago, the objection would probably be that they're not creating anything of their own.

The benefit that they have is that they have this big captive market. They wouldn't let Facebook or Google into their own markets. So they would create copycat products and re-scale that way.

So the primary benefit that China has is a big market and no external competition. I think as of two years ago, that changed to, sure, they might be very disciplined in terms of their engineering. But if you look at things like AI, they're good at making application level interventions.

They're good at making products and services, but not necessarily the underlying scientific breakthroughs that enable those applications somewhere down the line. ResNet is a major paper in AI that came out of a lab in Beijing back in 2015, which at this point is the most cited academic paper in any academic field, not just AI [but] in physics, in chemistry, across all academic fields published in the 21st century.

So I think today, the main way in which this misperception of China comes across in the US is mostly that it's all application level innovations, and they're not really good at the underlying science, where I think they would be surprised by how well their universities are doing just across the board in terms of rankings, in terms of research output, in terms of quality research output as well. So I think that's the main misperception that I come across.

Lynn Thoman: Mehran, you've mentioned the difference between invention and deployment. Can you talk a bit more about that difference and what it implies?

Mehran Gul: When we talk about electric vehicles, for instance, I think in the US, even today, people have an association between electric vehicles and Elon Musk and Tesla, because that was the first major company that came up in the US that moved the economy away from gasoline to electric-powered engines. But globally today, seven out of 10 EVs [electric vehicles] sold in the world are manufactured in China. So Tesla is, at this point, a minority player.

If you look at the top 10 EV manufacturers in the world, seven of those companies are Chinese. And these would be companies that an American wouldn't even recognize these companies, companies like Zeker, for instance, or NIO, or Li Autos, companies that you would have never heard about, are now manufacturing more EVs than Ford, for instance, or GM, for example. So that's a very clear distinction between something that was invented in one place, the US, and then that really reached scale in another.

And it's easier for people in the US to sometimes not realize how big a lead China has over that, because Chinese EVs have 100% tariffs when exporting them to the US. So you simply don't see Chinese EVs on American streets, which might make people underestimate how, if you go to the Nordics, for instance, if you go to Europe, if you go to Latin America, many parts of Africa, the most common EVs in the streets are Chinese and not American. And I think this is playing out across a range of other industries as well.

It's true for lithium-ion batteries. The top 10 manufacturers of lithium-ion batteries in the world are Chinese, even though the initial breakthrough inventions for lithium-ion batteries were made by John Goodenough, who is from Texas, and he made some of those discoveries while based at Oxford University. So it's not something that's limited to smartphones or AI.

It's something that we're seeing across the board. And just because you can come up with a new idea doesn't mean that you can take the idea to scale as well.

Lynn Thoman: So Mehran, take us inside Shenzhen in China.

What changes in a person's imagination when they watch a fishing village become a global tech capital in a single generation?

Mehran Gul: I think we sometimes overemphasize the ability to produce technologies and underemphasize the cultural acceptance of those technologies. And if you look at the backlash against tech that has happened in places like the US and even the UK recently, people vandalizing Tesla charging stations, for instance, it's very hard to argue that there isn't a broad-based backlash against tech in the US. The sort of skepticism or cynicism that you come across about AI as well, the number of speakers at graduations this year who were booed offstage because they talked about AI, you see that less frequently in China, where because places like Shenzhen have changed so quickly, people just see change as a normal state of being.

And just because a technology is going to wipe away some jobs is not really dictating the direction in which the technological trajectory of the entire country ought to take as it is taking in the US, where people are constantly talking about putting the brakes on AI.

And I think in figuring out which country is pulling ahead compared to others, we don't just need to look at their capacity to produce technologies, but also their capacity and their willingness to absorb those technologies as well.

And in China and in places like Shenzhen today, you don't find the kind of techno skepticism that you see in places like US. In places like China, you don't really see those conspiracy theories about technology gaining that much traction. In China, they see tech as being the leveler, as the thing that's going to help them level up against the US and the West more generally.

Lynn Thoman: Shenzhen to me is just one example of many, many places in China that went from being a poor fishing village, essentially subsistence level with people on bicycles to now a tech capital. In the West, we often assume China's political system is a constraint on innovation. What did you hear in China that complicates that view?

Mehran Gul: I actually hear the opposite in the West more frequently. So I agree with you that there is a factual basis to say that the Chinese state is an impediment to technological development, as there is a factual basis to say that the Chinese state helps technological development in China.

What I frequently come across in the US is people saying that these companies like BYD or Tencent, etc., they're doing very well because the state protects them. It's because the state provides subsidies, it gives loans, it facilitates everything that they do, that these companies have grown to the level that they have.

And yet, when I go to China, I see something very different, which is entrepreneurs who are quite concerned by the degree to which the state has managed to decapitate its tech sector.

Go back to 2021, Tencent was almost a trillion-dollar company. And because of state actions, it lost two-thirds of that value. And that happened because the Chinese state decided that it's going to put some curbs on the gaming industry. And Tencent is a big player in the gaming industry, not just in China, but globally as well.

I can give you one example after another.

The entire tech industry in China went up in flames because the state decided one morning that education ought not to be a sector for private profit-making.

So when I look at China and I talk to Chinese entrepreneurs off the record over there, they would often emphasize that they hear in the US and in the Western press very often, people over-explaining what's happening in China in terms of state subsidies or market-driven capitalism.

I personally don't think that the success of companies like BYD or CATL or Tencent or Alibaba can be attributed to state actions. I think quite to the opposite. If you can point to subsidies at one end, you should also point at the fact that they also get fined, their leaders get jailed, they get exiled.

You need to balance sort of both perspectives. In some occasions, the state helps. And in other occasions, the state is literally responsible for sinking entire industries, which is also why you see so many Chinese companies re-domiciling to places like Singapore, because they feel that they would have more breathing room in places like that, with ByteDance, for instance, Hill House Capital, Shein, all now re-domiciling to Singapore, so that they can put some distance between themselves and Chinese state.

Lynn Thoman: And what do you think accounts for the rise of China as an innovation hub?

Mehran Gul: I think it's often the opposite of reasons that people give for why innovation happened in places like the US. I think it's a fact that it's just come up in much harsher circumstances than the much more comfortable situation that Bay Area companies have come up in in the past sort of 60 years, where there has been a lot of state support in the form of, how did Silicon Valley first come up? It was because Fred Terman came back from the Second World War and brought a lot of defense contracts with him, which laid the foundation for the semiconductor industry.

And every other Silicon Valley company came from Fairchild Semiconductor, and that's how the entire place got its boot sequence. Whereas you can't really find that one event in China or one event in Shenzhen that birthed the entire region.

Over there, the things are more poverty that stretches back generations, and people putting in extra hours working 996 [9am to 9pm 6 days per week] just because this is the one opportunity that they have to climb out of the generational poverty that they're coming from.

So again, not the same sorts of explanations that you come across in places like the Bay Area or Silicon Valley more generally.

Lynn Thoman: What other countries are we underestimating when you think about creating the next massively successful companies?

Mehran Gul: For me, Singapore would be one. I think the C Group, for instance, over there, which is already worth over $60 billion, even though the company is around 15 years old, it was at one point worth over $200 billion, one of the fastest growing companies in the world. Places like South Korea, for instance, would be right up there for me.

Places like Sweden would be playing an important role. So I think those are the countries that I would put on that second tier.

Lynn Thoman: Does AI make innovation more global, or does it make the strongest hubs even stronger?

Mehran Gul: My contention would be that it's the latter, even though the popular thing to say is that AI is a leveling force. And if you look at the statements by people like Jensen Huang [CEO of Nvidia] and Sam Altman [CEO of OpenAI], they always say that AI is a leveling force and that AI is democratizing technology because the work of 10 people can be done by one person.

But I think it's just a clear fact that making foundation models is not easy.

You can no longer even make [AI] foundation models within the constraints of a university department. Today, if it takes at least $500 million to come up with even a borderline competitive foundation model, then how many commercial entities out there are capable of doing that? And that's one of the main reasons why, if you look at the entire European continent, there's only one notable foundation model, which is the ones produced by Mistral that are relevant anywhere else in the world.

So I tend to think that AI is re-consolidating power among the two large tech players, the US and China. And then within these places, it is consolidating power within a handful of companies, Anthropic, OpenAI, Meta, Google.

We just have this impression of the tech economy as a place which you can just start a company in a garage and then go conquer a trillion dollar market.

But if you look at the AI industry, at least, it is striking how most of the winners of the AI industries are existing large hyper-scale companies, Google, Nvidia, Microsoft. In China, we have companies like ByteDance, companies that in some form or the other predated the AI boom in general. And that's because of the amount of capex [capital expenditures] expenditure that is going into both the hardware and the foundation models layer of AI.

And the fact that data centers are not that cheap to build.

Lynn Thoman: For a founder or an ambitious young person, how should this change how they think about where to live, work, or build?

Mehran Gul: When COVID happened, I read so many pieces in very reputable news outlets arguing things like geography does not matter anymore. This is the beginning of having distributed teams and you no longer need to be in Silicon Valley. You can build the next big thing in Raleigh, Durham, or wherever you might be based.

And yet, if you look at the most consequential companies in the world, they're still coming from those handful of places. And not just that, the few companies that are coming from other places take no time to migrate to where all the action is. So even if Hugging Face, for instance, was born in Paris at Station F, it's now based in New York.

It's not as if places like Europe are not producing interesting companies, but they are moving very early in the game to either New York or to San Francisco. And I think that migration of companies and that migration of talent has gone up and not down. So I think I would make the argument that geography matters more.

Lynn Thoman: So interesting that geography is more important.

Mehran, what are the three takeaways you would like to leave listeners with about innovation?

Mehran Gul: The three takeaways would be, it's not just about the US and China. I think other countries are showing up to the race as well, and it would help you keep an eye on what's happening.

The race between the US and China is also happening in Singapore. It's also happening in ASEAN. It's also happening in markets in Latin America, for instance. And I think it would be helpful to look at these places as well.

And the second thing to understand would be that for a lot of countries, the gap between the US and China and them is increasing and not decreasing. Both the US and China are really pulling away from the rest of the world and really opening up a massive gap between them and the rest of the world's economies.

I think the third one would really be, try and find models of countries that have managed to make themselves relevant to the global economy in the new technological frontier, despite the disadvantages that they had.

These smaller countries have often figured out the solution to a problem that the bigger countries are still struggling with.

So I think places in the US would learn a lot from asking the question, how is it that Samsung was the only smartphone manufacturer that was a big deal in the 1980s, when there were handhelds, and also in 2026, when the entire industry has changed, and Nokia, Ericsson, and all of those have dropped off, but Samsung is the only one that's still relevant.

Lynn Thoman: Thank you, Mehran. This has been fascinating. I really enjoyed your book, The New Geography of Innovation.

Mehran Gul: Thanks so much, Lynn. I'm really glad that you asked very insightful questions.

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This transcript was auto-generated. Please forgive any errors.