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SAN
JOSE—Silicon Valley, says San Jose/Silicon Valley
Journal editor Norman Bell, is more of a state of mind
than a piece of geography. For such an imagined
technological Shangri-La,
Silicon Valley continues to transform the world’s economies all the
way from the
United States
to Ireland, Israel, India and China through an expanding
tangle of collaboration, innovation and
entrepreneurship. Experts believe if the rest of the
developing world like the Philippines could tap into the
dynamics of this collaborative network, everybody else
could flourish.
Well,
Silicon Valley is a tangible piece of geography—only not
anyone there could agree where its boundaries lie. Tales
about its origins abound. Some say the term “Silicon
Valley” emerged in the early ’70s when journalists tried
to describe a concentration of electronics firms in
Santa Clara County that flourished after Stanford
University in Palo Alto leased a huge chunk of its
campus to high-tech companies after World War II.
(Silicon, which is derived from silica and silicates, is
extensively used in the manufacture of microchips, hence
the term Silicon Valley.) Stanford then was in dire
financial straits and what better way to address this
problem than by setting up an industrial park?
Thus,
from a rural wilderness where prunes and apricots grew
(the romantics used to call it “Valley of the Heart’s
Delight”), it evolved into what it is today—a
kaleidoscopic region whose fortunes and boundaries
changed as companies suffered booms and busts as they
leap from one “the next big thing” to another:
semiconductors in the ’60s to the ’70s, personal
computers and work stations in the ’80s, network
computing and the Internet in the ’90s, and mobile
computing, biotechnology and nanotechnology in the new
millennium.
“Today
the tech-focused kingdom has expanded up the peninsula
and over the Santa Cruz Mountains,” says Bell, who was a
participant in the Spring 2007 Jefferson Fellowship on
innovation offshoring sponsored by the East-West Center
in Hawaii. “It spreads from downtown San Francisco, down
Highway 101, past the biotech campuses of
South San Francisco
and the corporate campuses to the IBM software labs in
south
San Jose
and on to the RFID [radio frequency identification]
works in
Morgan Hill.
To the west, most agree it has spread to the coast,
where the University of California Santa Cruz is making
a name for itself in gaming and nanotechnology.”
Marguerite Gong Hancock, associate director of the
Stanford University Project on Regions of Innovation and
Entrepreneurship, estimates that Silicon Valley today
covers 1,500 square miles, covering 35 cities and four
counties populated by 2.4 million people, about 40
percent of whom are foreign born. It employs 1.2 million
workers, about a fourth of whom are doing high-skill
occupation, with productivity rate 50 percent than the
national average.
And for
such a small place, Hancock says the
Silicon Valley accounts for 5 percent of the
US gross
national product and a tenth of the total number of the
US patents. Then again, it is home to the current icons
of American global economic power and influence—Google,
Yahoo, Sun Microsystems, Hewlett Packard, Oracle, Apple,
Intel and YouTube.
“It’s a
complex, dynamic region,” says Hancock, while presenting
a map of the San Francisco Bay area running from San
Francisco City all the way to San Jose. “It’s a
proximate collection of independent cities, most of them
small towns. It was unplanned, has no formal identity,
no borders.”
Enduring
strength
What
makes Silicon Valley tick? And could it survive
offshoring and outsourcing as global companies seek the
cheapest locations worldwide?
These
are the questions that confront
Silicon Valley today but Hancock, who is currently studying
innovative regions all over the world, points out that
over time it has evolved “four pillars of enduring
strength.” It’s a nexus of innovation and
entrepreneurship; a fertile habitat for the best
talents; it has supporting institutions (universities
and research institutions, including Stanford and
University of California); and a linkage of people,
technology and capital—a network that spans across
innovative cities in countries like Israel, China,
Taiwan, India, Germany, Sweden, Singapore and Japan.
“People
here are willing to take risks,” explains Hancock,
stressing that entrepreneurs are not all afraid to fail.
“When firms collapse, government doesn’t rescue them.”
Bell describes
Silicon Valley
as having the “frontier mentality” manifested by its
“ever-changing cut-throat search for the next big
thing.”
“The
result is a boom-and-bust economy where serial
entrepreneurs proudly list their failures and venture
capitalists bet millions on companies with no customers
and no revenues,”
Bell writes in a paper for the Jefferson Fellowship.
The
business environment is almost Darwinian: Those who have
the best business ideas and models thrive because,
according to Hancock, the Valley has a fertile business
environment or “habitat” characterized by meritocracy,
favorable government policy, open business environment,
and the presence of specialized business service
infrastructure that include venture capital, hotshot
lawyers and accountants.
Hancock,
though, admits that
Silicon Valley is losing some jobs due to offshoring, as well as gains made
by other centers of innovation in
Israel,
China, Taiwan and India.
Activities like mass manufacturing have long been gone.
Back-office operations like office support, business and
financial support, as well as the jobs of IT
administrators, legal assistants and statistical
analysts, are going to India and other offshore
locations like China and the Philippines. Even jobs for
entry-level computer and software engineers, quality
assurance and test engineers, as well as product and
process engineers, are vulnerable to offshoring.
According to economist Dieter Ernst, a senior research
fellow of the East-West Center, there are fears that
“innovation offshoring,” or the internationalization of
product development and research toward the Asia-Pacific
region, especially China and India, poses competition to
Silicon Valley and other innovation centers in the
United States.
Companies like Google, Yahoo, Cisco, Dell and others in
the Fortune 500 are increasingly setting up R&D centers
in China’s major cities like Shanghai and Beijing, while
local companies like Huawei are increasing their
capabilities to design and produce high-technology
products, Ernst notes.
Fast
changes
As early
as 2003 Oracle CEO Larry Ellison already pronounced “the
end of Silicon Valley as we know it.” Even further back,
in 1991, the Los Angeles Times noted in an editorial
that the “dreams of striking it rich are fading in
Silicon Valley.”
But Anna
Lee Saxenian, professor and dean of the University of
California School of Information, is just amused by this
kind of talk.
“In the
’80s I wrote a master’s degree thesis saying Silicon
Valley is going to stop growing. I said that housing
costs were too high, labor was expensive, and the roads
were way too congested,” said Saxenian in a lecture to
Jefferson Fellows.
She
predicted that Silicon Valley was going to consolidate,
that it would become like the car industry with only a
few big companies surviving, and that new companies are
not going to locate operations in the area. By the
mid-’80s, however, the Silicon Valley’s economy was
still booming, and fueled the robust growth in demand
and production of personal computers. Among the leading
companies at the time were Apple, Silicon Graphics and
Sun Microsystems.
“I was
wrong,” Saxenian concedes. “I had to revise my ideas.”
There
were a couple of things she missed, she says. The first
is the fact that companies in the region are part of
what she considers a “regional ecosystem” built around a
network of open collaboration, making firms operating in
the valley more resilient and flexible. The flow of
information among them is fast and smooth and this has
accelerated technological change in the Valley. “They
really tried to avoid hierarchy,” she notes.
This was
not the case in the ’60s and ’70s. Saxenian says during
those times IT companies competed based on vertical
integration where they control all aspect of hardware
and software production. “This kind of business
organization couldn’t cope with the rapid phase of
change,” she notes.
Foreign
workers
The
second factor she missed is the role of immigrants.
Silicon Valley has a tremendous depth of talent, and
about half them are foreign born, mainly Indians and
Chinese. Since the ’70s and ’80s, thousands of students
from developing countries, including Ireland, Israel,
Taiwan, China and India, went to Stanford and other
universities in
California
to study engineering and the sciences. Based on a 2000
survey, there are around 20,000 Indians studying in
California, and another 20,000 Chinese.
Unsure
of what awaits them back home, many of these students,
armed with postgraduate degrees, ended up working in
high-technology companies in Silicon Valley. Some of
them even started setting up their own businesses in the
area.
Today
more than a quarter of Silicon Valley’s highly skilled
workers are immigrants from several countries like
China, Taiwan, India, the United Kingdom, Iran, Vietnam,
the Philippines, Canada and Israel.
“By the
end of the 1990s, Chinese and Indian engineers were
running 29 percent of Silicon Valley’s technology
businesses. By 2000, these companies collectively
accounted for more than $19.5 billion in sales and
72,839 jobs. And the pace of immigrant entrepreneurship
has accelerated dramatically in the past decade,” notes
Saxenian.
After
working a decade or more in
Silicon Valley, many of these workers went back to their homeland and
set up businesses, especially when the economies of
their respective countries started to improve.
Saxenian
admits she doesn’t have exact figures but she estimates
that about 10 percent to 15 percent went home after
having “marinated” in the Silicon Valley culture. Around
30 percent to 40 percent of them shuttled back and forth
between Silicon Valley and their home countries, setting
businesses mostly in high-technology industries, and
serving as bridges to firms and innovators in both
countries.
She
calls them “the new Argonauts,” in reference to Greek
mythology where Jason and his band sailed the high seas
in search of wealth and adventure. These “Argonauts” are
responsible for creating cross-Pacific collaborations
that, for instance, fueled
Taiwan’s
rise in the 1990s as a global center of technology
production.
“A
similar process is now underway linking both Silicon
Valley and the urban centers of Eastern China,” Saxenian
said in another paper for Cornell University entitled
“Brain Circulation and Capitalist Dynamics: The Silicon
Valley-Shinchu-Shanghai Triangle.”
“And
transnational communities have played a central role in
the emergence and upgrading of software capabilities in
India, Ireland and Israel.”
Tapping
into this dynamic global network, she explained, could
bring benefits to developing countries like the
Philippines. To take advantage of the network,
developing countries should invest in technical
education.
The rise
of innovation centers, many of which are manned by
returning scientists, has been worrying some analysts,
especially since this has often been associated with the
loss of jobs, as well as the perceived decline in
American technological superiority. According to
East-West Center’s Ernst, numerous American companies
are opening R&D centers all over India and China in a
phenomenon called “innovation offshoring,” thus raising
fears that China may eventually leap over the US in
terms of technological superiority.
But
Gregory Shea, president of the United States Information
Technology Office representing high-technology companies
in China, dismisses this view. He argues that these new
R&D centers are more involved in development rather than
research. Ultimately, he believes that offshoring and
outsourcing will even strengthen American multinational
companies.
“When
you look closely at these [R&D centers], they usually
involve less-than-leading-edge technology. Rather they
are aimed at producing high-volume, relatively
commoditized products and components for local and
regional markets,” notes Shea. “These investments are
critical for securing and building a strong market
position in such a large and expansive market as China.”
He adds:
“They are also critical to ensuring continued revenue
growth for the company as a whole, which is vital to
supporting high-end jobs in research, design, marketing,
finance, legal and other areas of corporate
administration in the headquarters [in the US] and other
countries.”
Saxenian
believes Silicon Valley serves as the hub of this global
innovation network that reaches as far as Beijing,
Shanghai, Bangalore, Ireland and Israel. “These
[innovation centers] don’t compete; they complement each
other,” she says.
She
admits, however, that regional economies in the
Asia-Pacific region will eventually develop their
capabilities in innovation as they invest more in
education and research, and form relevant institutions.
As such,
Saxenian says Silicon Valley’s dominant role in
innovation and technological change will eventually
diminish. “This does not imply decline,” she quickly
clarifies. “Rather it will become one of many nodes in a
more open and distributed global network of differently
specialized and complementary regional economies.”
Will
Saxenian be proven wrong again? Only time will tell.
Dave Llorito was a participant of the Spring 2007
Jefferson Fellowship on “innovation offshoring”
sponsored by the East-West Center in Honolulu, Hawaii,
with funding from the Freeman Foundation. |
