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Silicon Valley

Page history last edited by PBworks 12 years, 3 months ago

Why is Silicon Valley so successful, and other places not?

 

Redfin CEO Glenn Kelman wrote a blog post a couple of days ago comparing Silicon Valley unfavorably to the Seattle tech scene.

 

I spend a lot of time in both places, and I think some of his observations are correct (people here compete to the death, people there go hiking). But even though I occasionally criticize Silicon Valley myself, I think there are some things that are dead wrong in his analysis. If you want a well balanced life, Silicon Valley is not for you. But if you want to change the world and are willing to do absolutely anything to achieve your dreams, there is no better place to be than here.

 

Apart from a few arguable points, such as his opinion that it is easier to retain employees in Seattle because they aren’t always looking to start their own company, most of the post seems come down to Kelman convincing himself that Seattle’s shortcomings are well worth it because it’s a nice place to live. Sure, he admits, not being immersed in tech means you tend to be out of it a little, and it’s harder to come up with cutting edge ideas: “When you and everyone you know spend 18 hours a day downloading, hacking, breaking, sharing, gossiping, criticizing and arguing about the Web, it’s easier to tell when an idea is truly new. And if you don’t, it’s almost impossible to catch up.”

 

He explains all that away, though, by suggesting startups in Seattle are more about building a great business than simply being cutting edge, or “cool”. “But being apart from Silicon Valley can give entrepreneurs the latitude to think about what works, not what’s fashionable,” he says.

 

The problem, though, is Kelman doesn’t provide any supporting evidence for this thesis, and I can’t think of any for him. The truth is people come up with good ideas when they have the motivation and intelligence to do so, not when they’re surrounded by people who don’t know what they’re talking about. Having literally tens of thousands of bright tech minds around you to listen to and challenge those ideas, as you do in Silicon Valley, gives entrepreneurs a critical competitive advantage.

 

The truth about Silicon Valley is that ideas matter more than anything. A Stanford (or even the occasional Berkeley) student with an idea can turn it into a Yahoo. Or a Google. Or countless other success stories. They are surrounded by people who want them to succeed, who are willing to give them money to support their ideas, and then help them grow it. There is no where else in the world quite like this place.

 

Sure Seattle is beautiful (Kelman talks about lakes and outdoor stuff a lot in his post). And if you want to have a balanced, healthy lifestyle, that’s a great place to do it. If you don’t think you have what it takes to make it in Silicon Valley, maybe Seattle or other mini-tech hubs is the place for you. But the best of the best come to Silicon Valley to see if they’re as good as the legends that came before them. It’s a competitive advantage to be here. And if you aren’t willing to take advantage of every possible advantage to make your crazy startup idea work, perhaps you shouldn’t be an entrepreneur.

 

Sure, Silicon Valley is “a heartless amnesiac.” There is no nostalgia for the old days, because we are always looking to rip the old stuff up and throw it away for something better.

The fact is that all those great things about Seattle, or wherever, don’t have a damned thing to do with offsetting the business and cultural advantages of Silicon Valley. Making lifestyle choices is fine, but don’t delude yourself into thinking those choices are anything but a tradeoff. If staring at lakes and skiing after work are important to you, don’t pretend to be surprised when your startup doesn’t cut it.

 

You spent 16 years in Silicon Valley before fleeing to Seattle, Glenn. Come back, if you dare. I think you have what it takes to succeed. Even here.

 

http://www.techcrunch.com/2008/02/15/an-outsiders-flawed-view-of-silicon-valley/

 

 

 

Silicon Valley

 

Internet Bubble

internet bubble

 

 


Business WeekSpecial Report: SILICON
   VALLEY
Sign UpAbout BWBW ContentsBW PlusDaily BriefingSearchContact Us

A dozen of the Valley's brightest stars: (top row, left to right) Larry Ellison, Oracle; Marc Andreessen, Netscape; Andy Grove, Intel; Al Shugart, Seagate Technology; Gordon Moore, Intel; John Chambers, Cisco Systems; (bottom row, left to right) Steve Jobs, Apple Computer, Pixar; Scott McNealy, Sun Microsystems; John Doerr, Kleiner Perkins Caufield & Byers; Larry Sonsini, Wilson Sonsini Goodrich & Rosati; Lew Platt, Hewlett-Packard; Jim Clark, Netscape

 

 

Table of Contents

INTRODUCTION

It started 40 years ago with the Traitorous Eight, a handful of disgruntled engineers. Here's what happened...

HOW IT REALLY WORKS

"What matters is how smart you are." The fuel behind Silicon Valley's growth is brainpower

Plus: Other legendary American places; The role of Stanford and Berkeley; Fred Terman's legacy ; Bill Gates, the outsider

MOVERS AND SHAKERS

We all know the kings, but who are the kingmakers?

Plus: Serial entrepreneurs; Love among the digerati; A day in the life of a Valley venture capitalist; The immigrant factor

THE CULTURE

The IPO has wrought miracles for many startups, and its appeal is as strong as ever.

Plus: Wretched excess; Millionaire receptionists; The dark side; Invisible women

BEYOND THE VALLEY

Many regions have tried to recreate the magic, but none has succeeded.

Plus: Close-ups of silicon wannabes Taiwan; Malaysia; Cambridge, England; Austin, Tex. ; Boston ; and New York City ; Applying the lessons of Silicon Valley to companies of all stripes

THE NEXT GENERATION 

Who'll replace Steve, Larry, and Andy?

Here's a look at 16 potential leaders of Silicon Valley's Next Generation.


INTERACTIVE MAP 

Travel through the Valley's past and present with this special presentation. Using Macromedia's Flash technology, we'll take you on an interactive tour. Click on a decade, then a city, and see the points of interest. You'll need Macromedia's Flash plug-in. Note: Please make sure to wait for the Flash file to download completely before trying to use the map.

 

INTERVIEWS & AUDIO 

To find out how Silicon Valley really works, BW reporters talked to scores of sources. Here are revealing, in-depth interviews with some the Valley's most knowledgeable and successful people.

Plus: Audio excerpts that let you listen to them in their own voices. You'll need a RealAudio Player

PHOTO SCRAPBOOK 

When BW reporters roamed throughout territory for months researching their stories, they brought their cameras along. Here are some postcards from the Valley

THE SILICON VALLEY 100 

The top 100 public technology companies in the Valley, with a wealth of accompanying financial information from Standard & Poor's. For information about how the rankings were determined, click the link above. To return to this page from an S&P Stock Report, use your browser's Back button.


FROM BW'S ARCHIVES...

Start with a commentary on David Packard's passing in 1996, then travel back to the dawn of virtual reality, client/server computing, and Intel's mighty new 80486. What were Steve Jobs's hopes for Next Inc. in 1988? Why was Silicon Valley's very existence in doubt in 1985? Just a little more historical perspective for this historic package on Silicon Valley. Enjoy! SILICON VALLEY MAILBAG 

Check out this sampling of reader reaction to our August special issue

 

 

 

 

Mobile & Silicon Valley

 

nokia.jpg

 

Silicon Valley becoming mobile innovation hub — Despite the U.S. being the laughing stock of the world for its backward mobile networks, Silicon Valley is becoming a center for mobile innovation anyway. Nokia, the large Finnish mobile phone maker, is boosting its activities in Silicon Valley, because of the action here. Nokia’s head of research here, Bob Iannucci, has even been promoted to Nokia’s chief technology officer. The Mercury News has a good story about the emergence of the valley’s strength in mobile, from Apple’s iPhone phenom to Google’s launch of its Android platform, to the surprising number of Finnish companies — BBS, Codenomicon, EB, Navicron and Tracker — that have established offices in the region. After its move to the valley, Nokia bought an intriguing company called Pixto, which lets consumers point a camera phone at an object — a building, an automobile, or a product in a store window — and with a single click call up Web data linked to the image. It uses GPS and image-matching algorithms to recognize the subject. The Mercury News argues Silicon Valley has become more important with globalization, not less.

 

 

 

 

 

Silicon Valley's Table of Elements

 

By Helga Tawil

 

PhD Student, University of Colorado, Boulder

 

Written: Dec. 2000

http://my.t-bird.edu/files/content/135001/Tawil_SV_history_00.htm

 

 

 

Silicon Valley

 

 

 

Over the last few decades, Silicon Valley has been the source, core and crown of the revolution in electronics and biomedical technologies. It is difficult to think of any other region that has been able to innovate and commercialize so many significant new technologies in such a short period of time; technologies that not only affect our lives but that have generated enormous wealth. Today, Silicon Valley has a leadership position in what might be the most powerful storm of Schumpeterian “creative destruction” of all, the Internet.

 

 

 

The Silicon Valley economy is dominated by a constant creation of new firms and by rapid innovation and commercialization in an expanding set of new technologies. Microelectronics (semiconductors – Intel, AMD, National Semiconductor) and later computers (Apple, Sun Microsystems, Hewlett-Packard) put the Valley on the world map, and they continue to be major activities. Computer networking, both hardware and software (3Com, Cisco, Netscape, Oracle, Yahoo!, Broadvision), has exploded as a central activity over the past decade, followed by newer generations of Internet services (Akamai, Ariba, CommerceOne). Biotechnology along with medical devices and drug delivery systems constitutes another major new technology in which the Valley is a world center. Along with these core industries, venture finance and intellectual property law have become significant activities in their own right.

 

 

 

Silicon Valley experiences phenomenal economic growth. In 1999, employment rose by 1.7%, with the software industry as the fastest growing sector of job growth; venture capital grew to $6.1 billion; initial public offerings reached a record level of 77; average wage increased in real terms by 5.1%; 12% of the U.S.'s fastest growing 500 top firms were based in Silicon Valley, including three of the five fastest growing companies; and an average of 11 new firms were born there per day. (JointVenture Index 2000).

 

 

 

The rise of Silicon Valley has garnered worldwide attention because it seemed to offer the possibility that a region with no prior industrial history could make a direct leap to a leading-edge industrial economy, given the right set of elements, without the time and effort required to pass through any intermediate stages of development. The idea that so much growth could occur in so short a time within such a small geographic area has sent planning bodies and government agencies from Albuquerque to Zimbabwe scramming to grow the next Silicon Valley in their backyards (Miller and Cote 1985). Thus the model of Silicon Valley has become the Holy Grail of economic development.

 

 

 

Nowadays, virtually every government in the world seems to want to create its own Silicon Valley. One article mentions that “at the last count, no fewer than 72 places had billed themselves as Cyber This or Silicon That” (Silicon Envy). The U.S. alone is home to Silicon Desert (Utah), Silicon Alley (New York), Silicon Hills (Austin) and Silicon Forest (title fought over between Seattle and Portland), among many others. Taiwan, Israel, India and Britain 1 all boast respectable imitations. Some of the more unlikely aspirants include France's Cote d'Azur (“Europe's California”), Egypt's Pyramid Technology Park, and Malaysia's “Multimedia Super Corridor,” a 478 square mile area and $40 billion set aside by the Prime Minister for his own version of Silicon Valley, that will include an IT city of 100,000 people. (Mickelthwait 1997).

 

 

 

Silicon Valley is a rich prize for social science theories and has been getting increasing amounts of scholarly attention; although I would argue still sporadic, in that most of the focus has come from – and for – the business world rather than the academic. However, those who have theorized about Silicon Valley come from a range of disciplines: business studies, geography, history, regional planning, sociology, economics, communication studies, political science, and anthropology. Despite the disparate backgrounds, approaches to Silicon Valley are often from a multidisciplinary perspective.

 

 

 

This paper will serve as a summary and literature review of the underlying characteristics that have enabled Silicon Valley to become one of the most innovative and prosperous economies, seek to establish what the elements of the Silicon Valley model are by combining theories from the readings, and finally, offer an analysis of whether or not this model is exportable. Are Silicon Valley's biggest success stories merely “accidental empires” as Cringely insists (1992)? Is Silicon Valley historically pre-determined? Can it provide a model for regional development for others?

 

 

 

Technopoles

 

 

 

Castells and Hall (1994) have called regional concentrations of science, technology and venture capital technopoles, whose icon is Silicon Valley 2. Castells and Hall admit that the primary structural revolution at work today is “the formation of a global economy, that is, the structuring of all economic processes on a planetary scale, even if national boundaries and national governments remain essential elements and key actors in the strategies played out in international competition” (14). Technology, particularly communication and information technology, is often associated with the march of the global economy in two important ways. First, communication technology enables the expansion of practically all businesses because it expands their geographical and organizational horizons making possible more profitable production, distribution, and exchange relations. Second, communication technology defines an industry in its own right and, based on a variety of measures, growth rates, profitability or stock price, it is a, if not the, leading sector in the global economy.

 

 

 

It appears that no theoretical or political position is immune from the tendency to be swept away by all the “end of geography” globalization talk (O'Brien 1992). Marx may have started it all with his reference to how capital annihilates space with time. Castells' and Henderson's (1987) assessment of a world divided between placeless power and powerless places is another way of saying the same thing. From another perspective, James Beniger's book The Control Revolution (1986) is noteworthy in this context because it offers what has to be the most extreme version of the "globalization through communication technology" theme. The computer, Beniger maintains, is the logical result of a history of organizing technologies that we have set against the second law of thermodynamics (the natural disorganizing tendency called entropy) delaying, though not conquering, the inevitable heat death of us, the earth, the universe and everything. But should we not be more careful about applying so-called laws of physics to social processes? Today most scientists would agree with the particle physicist Lee Smolin, when in The Life of the Cosmos (1997), he concludes that there is no law of thermodynamics, just a tendency under certain closed system conditions, and therefore no natural entropy and no inevitable heat death. Indeed, most cosmologists see the universe as a lumpy mass of energy producing galaxies embedded in a cosmic ecology of universes.

 

 

 

Although it is true that few social scientists have gone as far out on a limb as Beniger, he has to be credited for playing out what is implied in the many visions of geography's end, of placeless power, of friction-free capitalism, that abound in the literature. That is a primary reason why the so-called new geography is so vitally important today. Simply put, the work of people like Saskia Sassen (1991) and Sharon Zukin (1995) remind us that capitalism, like the universe, is also lumpy; that space and place matter, as do the relationships among places, and that this conclusion has profound consequences. As will be argued, Silicon Valley is a historically specific space whose metabolism cannot be explained through a single-variable, and its uniqueness is a momentous argument against the end or the insignificance of historical and geographical location.

 

 

 

History

 

 

 

In assessing the elements of Silicon Valley's success, few, although not enough, authors take into consideration the area's history. The recent recognition by economists and other social scientists that past events count and structure historical evolution with its inherent irreversibility has been formalized into a school of thought generally called “path dependence” (David 1986; Arthur 1989, 1994). Arthur (1994) argues that path dependence, based on agglomeration economies, provides an explanation for the clustering of high-tech firms in Silicon Valley. However his abstract model does not provide much understanding of how specific institutions were created or evolved to serve the cluster, and what the out-coming culture was.

 

 

 

When did it start? Authors argue over which date proved to be the point of no return. Some indicate the beginning of Silicon Valley 3 with the vision and work of Terman at Stanford in the 30's (Williams 1993); the formation of Hewlett-Packard in 1939 (Saxenian 1996; Hanson 1982; Rogers and Larsen 1984); the founding of Shockley Transistor Corporation in the mid 1950's 4, or the spin-off of Fairchild Semiconductor in 1957 (Braun and MacDonald 1982; Morgan and Sayer 1988; Scott and Angel 1987; Scott and Storper 1987). However, I agree with Sturgeon, that “these accounts truncate Silicon Valley's history and divorce the region from the economic geography of the greater San Francisco Bay Area” (Sturgeon 1992, 45). He undermines the myth of “instant industrialization” by offering us a history of the vibrant electronics industry in the area since the earliest days of experimentation and innovation in the fields of radio, television and military electronics. What emerges is a typical study in economic and historical geography: industrial development takes a long time to build up momentum, is profoundly structured by place and historical context, and acquires path-dependence characteristics that continue to influence outcomes far into the future.

 

 

 

Sturgeon's point is well taken. However he, like others, does not go farther back than the 20th century. Looking prior to the turn of the 19th century, one would have to question whether or not there is such a phenomenon as a “California Culture” or a “California Dream,” a great example of which is the Gold Rush of 1848-49. With the first striking of gold, California was deemed the land of opportunity, attracting entrepreneurs, laborers and dreamers alike. The Gold Rush reigned in the Western frontier and set off one of the largest voluntary migrations in world history. In 1849, San Francisco's population was doubling every ten days, real-estate values soared, immigration soared; freedom, independence and the dream to strike it rich reigned (Brittanica Online). The Rush ended quickly in 1950, but had the state's “genetic code” been irrevocably altered? Did California become the place to find one's fortune? Other entrepreneurial booms followed: the silver of Comstock Lode, agriculture, railroads, oil, shipping, real estate, motion pictures, the aerospace industry (Brittanica Online)… Certainly each one of these events, and each location in California is different, but none of the authors that focus on Silicon Valley's history seem to address the lure, richness and fame that California has promised and offered; past and present.

 

 

 

In the second half of the 1800's, geographically isolated from the rest of the nation, the state developed somewhat autonomously (Williams 1993, 1). After the Gold Rush, San Francisco became devoted to shipping and capital investment, and had a small but growing electric power industry. Stanford was founded, in 1885, and within a decade its electrical engineering department had become an important element of the California electric power industry, with professors and students working closely with the industry. Cooperative university-industry style of research and development started in 1905 and only fortified through time. Soon after 1900, wireless firms appeared around San Francisco, and university-industry relations bolstered in this segment as well. However most authors skip a few decades ahead, and seem to agree that it is the effort of one man who has had an influential and irreversible effect on the growth of Silicon Valley as the center of technological innovation and entrepreneurship, closely tied to Stanford University.

 

 

 

Frederick E. Terman, initially a student at Stanford, was eventually professor, head of engineering, dean of engineering, and university provost. As Head (in 1937), Dean (in 1946) and Provost (in 1955), he took many steps to make Stanford a national research center of engineering by asking for support from industry and military. He managed to recruit top students and faculty. He brought graduates of Stanford back to the university as research associates, and encouraged students to form businesses to commercialize their inventions (most notably Hewlett and Packard). He took on projects strategically, accepting only those that would strengthen Stanford's research and enhance its reputation. Constantly keeping on his efforts to build strong ties with industry, he leased Stanford-land to high-tech companies, vowing that such firms would reinforce university research; and set-up what would become a world-famous research lab – resulting in Stanford Industrial Park and Stanford Research Institute, respectively.

 

 

 

But Terman's activities encouraging entrepreneurship did not arise in a vacuum, rather the milieu already contained successful venturers. Terman was a catalyst and a booster in an already prepared environment. The Federal Telegraph Company (FTC) was founded in 1909 (Winslow 1996, 7); and the heavy involvement of Stanford's administration and faculty in the formation of the company came a full thirty years before Terman. FTC was involved in the innovation of many media and communication technologies, such as long distance wire telephony, speech reproduction and amplification (this includes the greater part of the whole modern motion picture and television industry), telephone repeater and amplifier (ibid., 8). Many luminaries of the local electronics scene began their careers there; and the company generated some important spin-offs, including Magnavox, Fisher Research Laboratories, and Litton Industries. Spin-offs are common in many industries and in many locations, but the FTC spin-offs are worth mentioning because of the importance that has been placed on spin-offs in the dynamic process of new firm formation in Silicon Valley's post-Fairchild era. The spin-off process, as well as the proverbial garage start-up, has been alive and well in the Bay Area since 1910, when Magnavox spun off from FTC (ibid.). Even the role of venture capitalists, it has been argued, was first born with Ampex's success in the 40's and 50's. From the dawn of the radio industry to the present day, San Francisco Bay Area companies have played a central role in developing and commercializing many of the key technologies that have served to drive the “electronics revolution” forward.

 

 

 

However, it is Terman who is credited with influencing a substantial number of high-tech firms to move to or start in Silicon Valley; and quite a number of them on grounds leased by the university (such as Varian, Hewlett Packard, initially, followed by Ampex, GE and Sylvania among others). By 1960 more than 40 firms occupied the 450-acre campus park (Williams 1993, 17). Many claim that had it not been for Terman's perpetual wooing of high-tech firms, engineers and military resources, most of these would have formed instead on the East Coast, and specifically Boston. Due to Terman's relentless efforts and the opportunities he offered, many firms also opened branches in Silicon Valley; for example IBM opened a facility in Santa Clara in 1943, Unisys came to town in 1955, National Semiconductor in 1967, and the list goes on. It would not be an area that would be rich only in corporations, but research institutes as well. The Stanford Research Institute (SRI) was founded in 1946 by Stanford University in conjunction with a group of U.S. business executives as a nonprofit organization with close ties to the university. Throughout its 50-year history, SRI has received strong support from government, scientific and business leaders from around the world. Once SRI was in place, other non-military research establishments followed. Xerox PARC opened in 1970, and scientists developed a dozen groundbreaking technologies such as portable computing, the laser printer and the mouse, among others. Many scientists from PARC eventually went their separate ways as well to form their own companies and partnerships (Winslow 1996).

 

 

 

The other person who is often credited as playing a role in the rise of Silicon Valley, especially as a micro-electronics haven and an entrepreneurial region is William B. Shockley. Shockley, credited with inventing the transistor, established the first semiconductor company in the Valley in the mid-1950's, also building strong ties to Stanford, and a reputation for the region. Due to organizational and personal problems, eight employees left Shockley in 1957 and started Fairchild Semiconductor. The break-away from Shockley was to become exemplary of employees throughout Valley firms deciding to go on their own and start new business ventures, a practice that is now common. Intel was formed in 1968, by another set of “refugees,” this time from Fairchild; in fact by the 1970's, former Fairchild employees had started 41 new semiconductor companies, many of them in the Valley. Fairchild was described as “a corporate vocational school” for young engineers, unleashing the centrifugal forces of entrepreneurial creativity which subsequently came to characterize Silicon Valley (Williams 1993, 19).

 

 

 

The shadows of Terman and Shockley loom large, not just in Silicon Valley, where they are honored as founding fathers, but also in countless other locales throughout the world that are trying to emulate the region's success. Development schemes derived from Silicon Valley include the incubation of “sunrise” technologies (following the Shockley theme), the encouragement of cooperation between universities and industry in high-tech commercial ventures (following the Terman theme), and the provision of high-tech industrial parks (an extension of the Terman theme following the model of Stanford Industrial Park). As economic development tools elsewhere these schemes have met limited success (Malecki 1981; Saxenian 1988; Taylor 1983). However, they continue to absorb the resources of planning agencies and universities in countless locations (Engstrom 1987). For example some localities designate technology parks on the theory that if you build they (branch plants and multinational corporations) will come, and bring high-paying research and manufacturing jobs them (Cox 1988).

 

 

 

By the 1960's and 70's, the area was a high-tech haven. The Homebrew Computer Club, founded in 1975, brought computer experts and enthusiasts together every month. Important computer innovations were introduced at those get-togethers, for example Steve Wozniak's Apple computer. In 1976 Apple Computer was born in Cupertino, and within eight years going from garage-based business to a $1.5 billion sales company (Williams 1993, 22). Silicon Valley continued attracting scientists, researchers, students, professors, business-people, and high-tech enthusiasts. And despite the defense industry dwindling, competition from Japan and other parts of the country, the Valley's semiconductor, computer hardware and software industries continued to thrive. Moreover firms working in other fields, such as biotechnology, have grown up alongside the electronics companies, creating an area not only strong on Internet and computer technologies, but other industries as well.

 

 

 

Elements of Silicon Valley

 

 

 

The main networks of social capital 5 in Silicon Valley are focused, productive interactions among the following social institutions, instruments and entities: research universities, U.S. government policy and military, venture capital, business networks, stock options, labor market, the nature of the industry, and the business culture. The cooperative – and competitive – interaction of these critical elements define Silicon Valley. The network environment in Silicon Valley is the outcome of historically conditioned, specifically chosen collaborations between individual entrepreneurs, firms, and institutions focused on the pursuit of innovation and its commercialization. These collaborations also result from what some theorists refer to as “historical accident,” as well as broader, nationally based, institutionally driven trajectories of development and competitive choice (Arthur 1989). They are buttressed by the nature of the Silicon Valley markets for labor and capital, by the internal dynamic of successive innovation, and by the simple momentum of economic success.

 

 

 

Any explanation of this region must recognize the diversity of institutions that coexist and cooperate to make possible new firm formation process. An essential characteristic of Silicon Valley has been the ability to spawn new firms. Schoonhoven and Eisenhardt (1989) call it an “incubator region,” Florida and Kenney (2000) characterize the region as having a “social structure of innovation,” Bahrami and Evans (1995) describe it as an “ecosystem” consisting of inter-dependent institutions, social norms, and communities that create an environment encouraging the evolution of existing firms, and especially, the creation of new firms.

 

 

 

Those looking to Silicon Valley as a model, regard it as a high-tech industry. Mickelthwait (1997) argues that it might be more accurate to understand the Valley as a way of doing business, with a product that happens to be technology; claiming that the Valley's most important contribution may be organizational rather than technological. In this case, it might be more illuminating to compare Silicon Valley with entrepreneurial “clusters” in other industries, such as Hollywood or London. In building clusters, social and political factors, such as tolerance to immigrants, may matter more than technology or economic stout.

 

 

 

Mickelthwait offers us one view of what the integral ingredients of Silicon Valley's success are. Bronson (1999) takes a different approach, by focusing on the culture, mentality and work ethic of entrepreneurs and engineers. There are obviously many ways to approach the success and the elements of Silicon Valley, whether as an industry, a technology, a way of doing business, or an incubator region. However, the point is not to think of these elements as causal variables of Silicon Valley's success, rather they should be seen as a web of components that are cause and effect for one another. Having said that, however, I will attempt in the following section to give detailed analyses of the main elements of Silicon Valley's success. 6

 

 

 

1. The Universities7

 

 

 

It is no secret that Silicon Valley boasts some of the country's top research universities, such as Stanford, UC Berkeley, and UCSF (medical school). Silicon Valley today is blessed with the anchoring presence of Berkeley and Stanford, and its intellectual capital is further supplied by other quality institutions. These places attract the best-and-brightest talents the world over, many of whom end up staying in the area and infuse it with innovation.

 

 

 

Stanford alone has played a seminal role in the creation of the Silicon Valley model. Its students, and to a lesser extent its professors, have spawned off numerous companies such as Sun Microsystems, Cisco Systems and Yahoo!; it has a strong relationship with the military and the government who give it a substantial amount of research funding; it encourages its students to innovate and commercialize with patent offices as well as, more recently, a capital venture-like fund. As mentioned above, in its history, Stanford has contributed much more than that: in its institutional innovations that reflect the relationships between research institutions, entrepreneurs and firms. The first was the creation of the Stanford Research Institute (SRI) to conduct government-supported research, and to assist West Coast high-tech firms in securing government contracts. Second, Stanford opened its engineering classrooms to local companies through its Honors Cooperative Program, in which employees could enroll in graduate courses. Third, Stanford promoted the creation of the Stanford Industrial Park, one of the first in the country, which reinforced the emerging pattern of cooperation between the university and electronics firms in the area to the long-term prosperity of both (Winslow 1996).

 

 

 

But it is not only the research universities that partake in industry relations; community colleges contract with local companies to teach their employees while companies provide consultants to the colleges to help develop curricula. Furthermore, San Jose State University pumps out more qualified engineers to the Silicon Valley workforce than any other institution, including Berkeley and Stanford (JointVenture Index 2000). Quality and quantity alike, Silicon Valley gets much more than its fair share of university-supplied brainpower. Few places on earth can boast such presence. For those trying to emulate the Valley model, the presence and history of the universities is a sobering thought. How many places are ready to produce a similar level of output in both quality and quantity? More than an entire century stands between the founding of Stanford and today's firm foundation of tertiary institutions in Silicon Valley. This doesn't mean it has to take another century for regions like Asia, but it does highlight the challenge it faces to close the gap, because of the people universities attract, their experimental and innovative natures, and in this case, their close relationship to commercial success.

 

 

 

2. The Industry

 

 

 

a. Nature of Industry and Firms

 

 

 

In looking at the industries or industry-clusters that have been present in Silicon Valley, it is clear that they have all been fast-paced industries. Based on technology, which itself is in a constant game of “creative destruction,” firms have had to move fast, be aggressive, and be able to re-invent themselves as needed and directed by both technological and market forces. On a larger scale, even though some firms die, others are born, in the constant flux of innovation and commercialization. Not only are the firms in the Valley able to reinvent themselves, but the entire region is. Given California's history as briefly described above, the same could be said about the entire state, in its willingness to be on the edge, to be a real “frontier” and to spawn the latest trends.

 

 

 

This is not to say that Silicon Valley is home to only small firms. Nor is Silicon Valley predicated on small firms remaining small. In fact, the entire objective of Silicon Valley firms is to grow to be large firms as rapidly as possible – capital gains being the objective. The small ones harbor big ambitions and see themselves as young, not permanently small. Valley companies sell to a broad universe of clients and sometimes grow very large. For example, once a Stanford couple's garage start-up, Cisco Systems has recently become the company with the largest market capitalization, exceed the capital value of the Ford Motor Company or Microsoft (Yahoo! Finance). 8

 

 

 

Kenney and von Burg (1999) see the new firm formation process as the critical dynamic for Silicon Valley. They conceptualize Silicon Valley as an amalgam of two separate “economies”; the first consists of the existing firms and institutions, which produce their expected outputs but also generate innovations that can be actualized commercially outside existing institutions. In the second, institutions succeed by incubating firms to be sold to larger firms or the public through stock offering.

 

 

 

Cohen and Fields (1999) argue that the industry that defines a region's specialization also defines its social structure and institutions more than any other single factor. First by the speed of the companies' and industries' growth and transformation, and second, by valuing some kinds of social structures over others (e.g., unions and friendly societies in coal and steel communities, intellectual property and employment contract law in Silicon Valley).

 

 

 

In her account of the Silicon Valley economy, AnnaLee Saxenian develops the concept of a localized “industrial system” to account of the region's competitive advantages. According to her, industrial systems vary from one locality to another and consist of three primary characteristics: 1) local institutions; 2) a local industry structure based upon relationships among firms; and 3) a dominant organizational structure within firms. What differentiates regional economies such as Silicon Valley and helps explain why some regions are able to prosper, is the capacity of regional industrial systems for adaptation and change – the capacity to become what she calls “Protean Places” (Saxenian 1994).

 

 

 

To develop Saxenian's analysis, a more comprehensive approach to the issue of what makes regions competitive begins from the premise that comparative advantage is not necessarily a function of natural endowments but is instead something that can be created over time. This is why Silicon Valley is looked at as a model that can be more or less emulated. Three arguments lie beneath this view: 1) markets and the market process are products of politics and institutions; 2) institutions and institutional frameworks play a key role in the performance of economies; and 3) institutions can be transformed through policy choices in order to affect market outcomes. These three arguments create the basis for a theory of economic development that more accurately depicts how the networks of innovation in Silicon Valley emerged, and how policy can be used to affect economic outcomes in other regions. 9 The choices that configured and continuously reconfigure the region's innovation networks are shaped by a specific environment of local and national history, in which institutional decisions, policy programs, and industrial trajectories play leading roles. The fact that government policy and decisions by major institutions play such a critical role provides encouragement for efforts to create innovative milieus elsewhere.

 

 

 

b. Industry Networks

 

 

 

The family tree of Silicon Valley industry network provides a unique support model to help make many start-ups viable where they would not be elsewhere. Imagine a start-up with singular, focused, and narrow products with a team of 10 people designing a single-chip high-speed ATM switching controller; or a company making equipment to measure strain patterns on magnetic disk surfaces, a test needed in one of thousands of steps in the manufacturing of disk drives; such businesses are so narrow and sometimes so esoteric as to have no chance of surviving, except for the local presence of potential partners and customers to help unlock the value of their product.

 

 

 

Whatever barriers telecommunication technology has struck down, however much the “virtual corporation” now exists, they have not erased the cultural and emotional comfort in striking deals with "local" partners. Thus the logic is that an average technology start-up would have a greater chance of finding early partners and customers if it were located in Silicon Valley, and becoming part of the region's network.

 

 

 

Saxenian argues that Silicon Valley's success is due to the loosely integrated inter-firm networks that were a response to the market volatility experienced in the 60's and 70's. Out-sourcing was found to be more efficient than vertically integrating the entire production system (Saxenian 1994). Given the nature of the technology business and industry, it is imperative for firms to work hand in hand. Even giants such as Microsoft, although not a Valley firm, could not survive without cooperation from other high-tech firms. It is common among Valley firms to have partnerships with other firms, sometimes even competitors. The area also has a very “open” culture in terms of corporate secrets; given that technology changes so often, and that so many who live in Silicon Valley work in high-tech firms; gossip, trade secrets, and other information travel rather freely compared to other regions and/or industries. Furthermore, as explained below, due to high labor mobility and the role of venture capitalists as “godfathers,” personal and professional relations not only create a tighter network in which a greater number of people and firms rely on each other, but also make it difficult to keep company secrets private.

 

 

 

Those who want to recreate Silicon Valley at home in their technology parks, need to recognize the necessity of creating and maintaining such local networks, an imperative part of which is getting a critical mass of firms, venture capitalists and people free flowing among each other and building relationships and networks of inter-dependence and trust.

 

 

 

c. Service Infrastructure

 

 

 

The network of relations subsists on a larger scale as well. A sophisticated service infrastructure exists, that allows start-ups and larger firms to focus on their chosen steeple of expertise, rather than dissipate their energies across a broad range of peripheral or supporting activities. The Valley's leading law firms have grown to specialize in areas important to local high-tech companies: intellectual property rights, technology licensing, encryption law, immigration law, as well as the usual tax and corporate matters. Contract manufacturing services are available to develop prototypes, or engage in high-volume or “peak-load” manufacturing of subsystems and finished goods. Specialized public relations firms provide assistance with strategic marketing, product packaging, trade shows, and other collateral services. Accounting firms have specialized practices and services designed for start-up and high-tech companies. Executive search firms are used extensively in order to augment management teams and recruit new talent (locally, nationally and internationally). Real estate firms have expertise in providing facilities especially designed for high-tech firms (whether a firm requires a “clean room,” highly purified water supplies or a campus-like environment). The function of this supporting infrastructure is the timely and reliable provision of a wide range of specialized expertise so that things get done quickly and effectively, without “distracting” from a company's main concern.

 

 

 

d. Not Just Technology…

 

 

 

But Silicon Valley intellect is not restricted to technology. Stanford's Graduate School of Business is ranked among the top 10 in the world, and management talent in Silicon Valley is in no short supply. Neither is legal, accounting, creative, or human resource talent in short supply.

 

 

 

3. Venture Capital

 

 

 

For the last two decades, the San Francisco Bay Area has been home to the largest concentration of venture capital in the world and the recipient of the greatest amount of investments (Florida and Kenney 2000). This was not always the case. Until the late 1950's, entrepreneurs depended on informal investors for small-scale funding. For larger sums entrepreneurs had to appeal to East Coast financiers. However, successes and new opportunities generated by high-tech firms offered local financiers the opportunity to become an organized group, so that unlike other regions, venture capital evolved in tandem with its technological and entrepreneurial base. By the mid 1970's, the relationship crystallized into a “virtuous circle” with success encouraging greater investment and vice versa. Venture capital is now an institutional feature in Silicon Valley and a critical node in a network of institutions that evolved to encourage new firm formation, innovation and commercialization.

 

 

 

Prior to WWII, there was a history of wealthy local individuals financing electronics start-ups which was sufficient. That combined with military “angel funding” and large corporations wishing to invest in new technologies, meant that entrepreneurs were not seeking capital, and, conversely, there was only a limited amount of capital. It wasn't until the mid 1950's, if not later, that some important events would have an impact on the environment for venture investing. In 1956 Varian went public, and in 1957, Hewlett Packard. Both IPOs were successful and demonstrated that there was a market for equity in fast-growing high-tech companies. It also indicated that there were alternatives for small start-ups beyond being purchased by an established East Coast firm, thus further encouraging entrepreneurs.

 

 

 

By the 1960's, the SBIC as an organizational vehicle for venture investing was no longer favorable (for a number of reasons such as stricter rules, regulations and public disclosures, among others). So that by the end of the 1960's, the high rates of returns by Bay Area venture capitalists attracted more investors, encouraged more start-ups, and newly wealthy entrepreneurs and managers were released to become VCs themselves. Between 1968 and 1975, venture capitalists increased dramatically, and the growth occurred through a complex process of division as existing venture capital funds spawned spin-off funds, giving rise to more funds. As the numbers grew, there was less and less reliance on East Coast capitalists, instead East Coast firms started opening offices in the West, which meant still more capital flowing into the Valley. Conversely, most major Silicon Valley venture capital firms did not feel compelled to open branches in other regions. In the 1970's there was also a geographical shift of West Coast VCs moving from San Francisco to Palo Alto 10. The 1980's, although marked by some economic setbacks, saw continued growth and the introduction of megafunds and “seed funds.” By the mid 1990's, the commercialization of the Internet offered enormous opportunities for firm creation. The success in Internet funding also prompted the entry of many non-traditional sources of start-up funding, such as wealthy individuals or “angels” (Florida and Kenney 2000).

 

 

 

Silicon Valley played a critical role in the evolution of the modern venture capital system, and, conversely, the local venture capital community contributed to the making of Silicon Valley. Venture capital grew by a process of combination, division and incessant networking, developing in a more organic way than a similar community in Boston for example. Lacking a substantial base of financial capital like New York, Boston or Chicago, Silicon Valley venture capitalists used the limited partnership arrangement as a vehicle to mobilize funds from institutional investors, while providing the opportunity for the venture capitalists to benefit handsomely. Silicon Valley was also unique in the fact that local VCs invested and re-invested the bulk of their funds and subsequent profits locally. It has evolved gradually as an element of the endogenous growth of the region. Combined with the incessant waves of change in electronics-related and bio-tech fields which have opened economic spaces providing entrepreneurs opportunities to build firms, the presence of venture capital meant that new possibilities and enticements were available for entrepreneurs. These possibilities, reacting with the technology revolution that was occurring in electronics, ignited a chain reaction that has periodically waxed and waned, but by and large has substantially expanded.

 

 

 

In 1998 alone, $3.7 billion went into 700 new technology start-ups in the Valley, or an average of about $5 million per idea. This represents about one start-up a year for every 3,000 people in the area. In 1999, venture capital nearly doubled to $6.1 billion (JointVenture Index, 1999 and 2000).

 

 

 

To match this, other regions have a long way to go. For example, Singapore and Hong Kong would each have to start half a dozen new companies every day of the year! The entire venture capital industry in Malaysia commands a capital base about 40% the size of a typical single firm in the Valley (Azab Powell 2000, 113). No doubt this ratio has been growing rapidly, and places like Taiwan have for some time buzzed with venture capital funds on the aggressive lookout for hot ideas. As of 1999, Taiwan's 153 venture capital firms had $3.3 billion in capital under management – pocket change by Silicon Valley standards (ibid., 142). The problem is that these funds tend to be less mature, less experienced, and have in the past preferred to invest in Silicon Valley as well. This might be changing along with the recognition that the Internet is rapidly growing in Asia, and governments along with financial institutions and private financiers have been getting increasingly organized and ready to increase investment flows into Asian technology start-ups.

 

 

 

The sheer number of VCs and dollars is a staggering challenge for others. However, another distinguishing factor was the fact that many VCs in Silicon Valley had prior careers with technology firms in the region. Consequently, the venture capitalists understood the technical dimensions of the business, and were able to forge personal connections. As a result of their unique relationship with technology firms, Silicon Valley venture firms are embedded within the broader fabric of high-tech development and are an integral part of the social structures in the process of innovation. They became central actors in the establishment of networks in the region incorporating finance, entrepreneurship, innovation, customer and partner identification, and trouble-shooting.

 

 

 

So the venture capitalists serve not only as a home-grown source of early-stage capital but also as a loci of high-tech investment expertise and “godfather” services to start-up companies. The growth of venture capital as an institution is linked directly to the extraordinary success of their investments. Repeated success meant that the VC's were able to amass even greater sums of capital, leading to an increasing number of investments and the wherewithal to take even greater risks. VC's serve not only as a source of capital, but as partners, with seats on firms' board of directors, from where they participate in strategic decisions, assisting in recruiting key personnel, proving instructions to potential suppliers, customers and partners, and even replace founders. This only increases the interdependence among firms and the network of people which it includes; this becomes important as part of other elements of the Valley model: industry networks and high labor mobility, discussed elsewhere in the paper.

 

 

 

4. Stock Market

 

 

 

Employees (not counting a firm's founders and CEO) often hold options and shares amounting to 10 or 15 percent of a firm's capital value (Florida and Kenney 2000, 68). The dream of making it rich just through stock options alone is necessarily a huge temptation for employees, engineers and entrepreneurs. Silicon Valley firms are legendary for creating millionaires based on the fact that employees usually own shares. It's a common enough fact in the region that even secretaries, receptionists and janitors have earned millions through stock options (Bronson 1999). On the one hand, this inevitably brings more people to the area, seeking employment with high-tech firms. Those looking for jobs in Silicon Valley not only have an abundance of firms to choose from, and a heads-up in negotiating contracts and salaries because of job-shortages, but they also have the chance to potentially make lots of money through stock options. It also motivates would-be-entrepreneurs to start their own firms. The whole process becomes a virtuous circle of attracting more talent and spawning more firms.

 

 

 

In that case, much of the drive behind the start-up and innovation mentality, behind high-labor mobility and venture capital, can be credited to a six-letter word: NASDAQ. Granted, the "real" corporate purpose of a public listing is to gain access to market capital to finance greater company growth. Of course it also helps would-be-entrepreneurs to dream of striking gold. With a market that's willing to take risks and place high value on technology companies and richly reward their entrepreneurs and employees, is it any wonder that Silicon Valley continues to lead the world in ideas and innovations? With rewards so rich and transparent, the technology stock market that helps drive Silicon Valley is unmatched in its ability to encourage people to go out, take risks and work hard for their ideas.

 

 

 

The same can be said of any location in the United States in that case. Firms do not have to be located in Silicon Valley to “go IPO.” The one difference however is that, as seen in stock prices since Netscape hit The Street in the mid-90's, there is keen interest and belief in technology stocks, and most of these are Silicon Valley firms. One only need to look at the sheer number of high-tech stocks on NASDAQ, their huge gains and popularity (until the recent down-turn perhaps), allowing young Valley firms such as Yahoo!, Cisco and eBay to top the charts and bring wealth to investors. The Internet, and in this case Silicon Valley more so than other high-tech regions, has also pioneered on-line investing, spurring such firms as e*trade, further proliferating the investment craze in high-tech. Due to the stock market and the increases in prices of high-tech stocks, Silicon Valley increasingly holds greater numbers of the U.S.'s (and world's) top 500 firms. The stock market structure, and the appeal in high-tech stocks is by no means limited to Silicon Valley as opposed to other regions in the U.S., however it does further legitimate and cultivate Silicon Valley's wealth – in financial terms as well as in number of firms, venture capitalists, entrepreneurs, employees and immigrants.

 

 

 

It is a different case in the international realm, especially in emerging markets where good intentions in strict financial rules and regulations to protect investors also help choke off the innovative spirit. For example, Asian bourses tend to better understand the value of steady profit-making companies and cash-rich conglomerates, but less so the value of emerging technology companies that may show strong hints of growth and promise of future profitability. This may be changing with the emergence of "second" and "third" boards throughout Asian markets, but old habits die hard (Azab Powell 2000). Until Asian companies can get valuation models to reach market capital as aggressively as their Silicon Valley counterparts, there will be a lower level of innovative activity.

 

 

 

5. High Labor Mobility

 

 

 

Silicon Valley pioneered the introduction of “flexible employment” which is a shift from the traditional pattern of individuals filling jobs in firms with career ladders and relatively stable employment, to a pattern in which jobs are filled on a relatively transient basis. This is only one factor that leads to high labor or inter-firm mobility.

 

 

 

Second, there is no stigma in leaving a large and successful company such as HP or Sun to launch a start-up. Since the “traitorous eight” (as Shockley dubbed those who left him to start Fairchild), it has become an accepted path to take in Silicon Valley: work for a large firm, and leave to one with better opportunities, or better yet, start a new one. What also differentiates the Valley is that even if the start-up fails, there are not only numerous jobs awaiting a seasoned engineer or manager at other Valley firms, but there is also a venture capitalist who will fund the next great idea, regardless of previous failures or bankruptcies. In Silicon Valley, failure is acceptable, which is not necessarily the case in a lot of other countries. So there is a rapid turnover due to employees finding better opportunities within the region, and due to would-be entrepreneurs deciding to pursue their dreams and easily obtaining funding.

 

 

 

There are also other explanations. The first focuses on how Valley employees' loyalty is greater to the craft of innovation than to any particular company (Saxenian 1994, 36). The argument is based on the idea that engineers and innovators are more interested in the technology itself, in the challenge of improving and creating, than in being loyal to a firm or a pay-check. According to Bronson (and interviews I've conducted in Silicon Valley), this is only partially true, for while there is a fixation with technology on the part of engineers and entrepreneurs, there is also the lure of greater financial gain either through higher salaries and/or through stock options. In fact many see their job-hopping as diversifying their stock portfolio! Another explanation depicts a much darker image: with pay linked to performance and management techniques that push workers to the limit, employees put in superhuman hours. Owing to the strain, they eventually burn-out and move to other firms (Florida and Kenney 2000). Yet other reasons depend on personal and professional relations: programmers might choose to move in teams (Bronson 1999), engineers might follow their interest in a new technology, employees might want to follow a manager they respect and enjoy working with. The proximity of so many firms within the same industry undoubtedly contributes to this fluidity. In either case, the myth of “anyone being able to make it” doesn't necessarily hold, as in this regime an individual's knowledge, education and connections are critical.

 

 

 

6. “The Culture”

 

 

 

a. Entrepreneurs and Low-Risk

 

 

 

From the intellectual and business base, sprout entrepreneurs, never short of new ideas. The inquisitive nature of university research challenges people to explore obscure problems and come up with unconventional, and often profitable, answers. Technology is also an area in which people like to tinker and experiment. A number of entrepreneurs in the region come from the local universities, research institutes and as “defectors” from other firms.

 

 

 

This brings us to a myth: Silicon Valley entrepreneurs are big risk takers, and other regions lack people of this quality. In fact, given the high job mobility, high wages, and high investment returns in the Valley business network, people face comparatively little return-adjusted risk in becoming Silicon Valley entrepreneurs. Furthermore, considering that most Valley entrepreneurs have high levels of education, a network of other entrepreneurs, engineers and VC's, high wages and high investments, should they to fail in their start-up venture, they would still have opportunities to find high-paying jobs. One could stretch the argument farther: even if the entire industry fails, most entrepreneurs would still have the “capital” (social, cultural, educational as well as financial) to be employed elsewhere.

 

 

 

Conversely, the lack of such an ecology and comparatively low risk-adjusted return in Asia for example, makes it a much more difficult dive for the would-be entrepreneur there. Add to this the relative stability and benefits of working for MNC's in Asia, it is no wonder that the best-and-brightest of Asia are less likely found in risky start-ups; or worse yet, found in Silicon Valley firms – especially the case with Indians graduating from the elite IIT schools (Azab Powell 2000).

 

 

 

b. Tolerance of Failure

 

 

 

In a lot of the world, bankruptcy is stigmatized; in some countries it disqualifies people from starting another company. The U.S. has always been more tolerant; for example, Henry Ford's first two car ventures failed. In Silicon Valley, more so perhaps than the rest of the country, failure is treated like a stepping stone and is quickly forgotten (Mickelthwait 1997). As previously mentioned, a formerly failed or bankrupt entrepreneur would still qualify for venture capital, given that his new idea holds future financial promise. With so much venture capital funds available, and with so much potential gain from IPO's, more and more people are looking for investments, becoming in turn less scrutinizing about who to give money to, or for what next business idea, no matter how absurd it may sound. The high availability of capital, combined with VC's “rule” that the more start-ups are invested in, the higher the probability of success (see below), leads to the popularization of the credence that in the Internet-age any kind of business might succeed. (This might be changing as the stock market has recently been a little harsher with tech-stocks.)

 

 

 

c. Risk-Seeking

 

 

 

Actively seeking risk makes sense for venture capitalists. Although many of their investments might fail, those that make it deliver huge rewards. The “rule of thumb” is that for every ten investments, three are complete losses; another three or four neither succeed nor fail, from which it is difficult to extract the original investment; another two or three return three or more times the initial investment; and one or, perhaps, two investments return more than ten times the initial investment. “In effect, the gains from the 'home runs' cover all losses. The larger the number of quality investments, the greater the possibility of funding one of those 'home runs'” (Florida and Kenney 2000, 4).

 

 

 

A similar mentality applies to entrepreneurs, engineers, and employees. Knowing that there are other firms or options to fall on in case of failure, they are willing to join start-up or gazelle 11 firms for hopes of higher gain from stock options. Moreover, the sooner they join a young firm, the more likely they will obtain a higher amount of stock options. This is risk-seeking as well.

 

 

 

One interesting analysis given by Bronson (1999) seems a bit like “twisted logic” at first. Given that Silicon Valley entrepreneurs seem to live and breathe inside their companies and cubicles, they have no time to seek risk and adventure in their private and/or social lives. When asked, one engineer explained “the feeling of being consumed with a problem at work is more overwhelming than the need to socialize” (Interviews 2000). So that the task-at-hand, job, or company, is their main source of adventure, and hence risk.

 

 

 

d. Playing with Technology

 

 

 

One strong thread that runs through the Valley's past and present is the drive to “play” with novel technology, which, when bolstered by an advanced engineering degree and channeled by astute management, has done much to create the industrial powerhouse we see in the Valley today. The caricature of the “ham” radio enthusiast – the shy but intelligent teenage boy who, late at night taps into a secret world known only to him and his far flung community of fellow hams – bears a striking resemblance to that of the “computer geek” and “code hacker” of more recent vintages. “Ham” radio enthusiasts were prevalent in the early days of the radio and wireless industry in the San Francisco area (Williams 1993; Sturgeon 1992); just as “computer nerds” have been over the last decades.

 

 

 

Many entrepreneurs and engineers can't help but feel seduced by the idea of creating new technologies. As one engineer explained: “You're creating technology. You're creating a new way of living, a new way of thinking. And the impacts of society are significant… And I think it's most felt by engineers because they have the mentality of creating and making things work, and changing peoples' lives.” Later he goes on to say that what he likes about what he does (software architecture) is “the excitement, the whole problem solving, solution creating… It's pure sheer excitement. Of accomplishing something, or creating something, making something” (Interviews 2000). Others have even refused to describe their jobs as “work” but as “play” instead (Bronson 1999, and Interviews 2000).

 

 

 

e. Reinvestment in the Community

 

 

 

Regional clusters die because their founders reinvest their fortunes elsewhere. Whereas in Silicon Valley, most of the money made out of the technology industry has gone straight back into the area, either via people starting their own companies or via “business angel” investors, as mentioned earlier (Florida and Kenney 2000).

 

 

 

7. The Role of The State

 

 

 

Although the U.S. has a hands-off, liberalization and deregulation ideology, it does not mean that Silicon Valley has been a government-free creation. Certain aspects of government involvement, aid and policies have played a valuable role in the rise and success of Silicon Valley.

 

 

 

a. Military

 

 

 

Missing in most authors' accounts, is the extensive military role, intentional and otherwise, in creating and sustaining Silicon Valley. The Valley owes some of its present configuration patterns of federal spending, corporate strategies, industry-university relationships, and technological innovation to the assumptions and priorities of Cold War defense policy. For most of its history, Silicon Valley's largest single employer has been Lockheed Missiles and Space (now Lockheed-Martin). Despite nation-wide military cutbacks, Silicon Valley remains one of the leading recipients of defense contracts in the country, whether measured by total dollar or by dollars in prime contracts per worker, with four times the national average (Leslie 1993). Even companies better known for their commercial products, such as Sun Microsystems, are nonetheless significant defense contractors. Leslie describes the Department of Defense as the original “angel” of Silicon Valley. From its radio days, to its war years, from postwar growth to Stanford's model of industry relationship, the military has been a significant influence and infuser of capital.

 

 

 

Some of the first military labs to show up in the area, added to the region's intellectual capital, and helped nurture Stanford's and others' university-military collaborations. Moffett Field, initially a naval air station, was created in 1931; the Ames Research Center (NASA) adjoining Moffett Field came in 1940; and Lawrence Livermore Labs in 1952 (Winslow 1995). Military electronics have represented a great business, both because the defense market was generally easier than its commercial counterpart and because military R&D contracts offered an inexpensive entry into new fields and enticing prospects for commercial spin-offs. Lockheed opened a major manufacturing facility in Sunnyvale in 1956, and a complementary laboratory complex in Stanford Industrial Park. Significantly, in selecting the Stanford location, Lockheed stressed the university's reputation in electronics. The impetus for the early growth of the semiconductor industry came almost exclusively from the military. Virtually no other customers existed for semiconductors when they were initially developed; in 1962 the government was the sole market for semiconductor devices (Leslie 1993). The aerospace industry also offered opportunities.

 

 

 

By 1960, Silicon Valley had become the center of an aerospace complex rooted in microwave electronics technology for reconnaissance, communications, and countermeasures. Furthermore, most companies at the time, with the exception of Hewlett Packard, never cracked the civilian market. None broke their essential dependence on defense contracts, or on the culture of classified projects and security clearances that sustained those contracts. They staked their futures on the procurement policies of the national security establishment. The microwave electronics industry set the pattern for the sort of horizontal structure and collective learning that would become characteristic of Silicon Valley (Leslie 1993). Companies such as HP and Varian forged the technical and cultural links between the microwave and the microelectronics industries and served as models for a subsequent generation of start-ups and spin-offs.

 

 

 

To this day Stanford remains near the top of the list of university recipients of defense contracts, as does SRI (Leslie 1993; JointVenture Index 1999). Terman is criticized as having overemphasized the university's value in the Silicon Valley equation; tending to assume that what was good for Stanford was good for Silicon Valley, and vice versa, without fully considering how much that symbiosis owed to a mutual dependence on the special circumstances of the early Cold War (Leslie and Kargon 1996). Without massive federal investments (mostly for defense) in Stanford's academic programs and in the surrounding industrial community, neither the university nor the region could have grown as strongly or as quickly. By 1967, Stanford was receiving $12 million a year for government sponsored research (Williams 1993, 17). Terman and his industrial counterparts took full advantage of those resources, but they did not create them.

 

 

 

b. Immigration

 

 

 

Thirty-two percent of Silicon Valley residents are foreign-born (JointVenture Index 2000). Perhaps the most striking fact is the truly international character and enormous diversity of nationalities in the high-tech community. Skilled immigrants account for at least one-third of the engineering workforce in many of the region's technology firms and are increasingly visible as entrepreneurs and investors (Saxenian 1999). Cohen and Fields argue that “the openness of the labor market to foreigners is one of the region's most valuable assets. We would go so far as to say that the region's – and the nation's – premier ranking as the world's innovation and commercialization center could not be sustained without the steady influx of educated, motivated high-level technical and entrepreneurial/technical talent” (Cohen and Fields 1999, 19).

 

 

 

Saxenian's study (1999) attempts to quantify the immigrant engineer's and entrepreneur's presence in and contribution to the Silicon Valley economy; the extent to which skilled Chinese and Indian 12 immigrants are organizing ethnic networks in the region to support the often risky process of starting new technology businesses; and analyzes how these engineers are simultaneously building social and economic networks back to their home countries that further enhance entrepreneurial opportunities within Silicon Valley. In fact, Saxenian seems to contest two stereotypes by claiming that: 1) immigrants do not displace local workers, but rather are generating new jobs and wealth for the state economy; and 2) rather than a “brain drain” occurring in sending countries, she sees the emergence of a “brain circulation” as immigrants either return to or open business relations with their home countries. She suggests that there is a healthy flow of financial and intellectual capital between Taiwan, India and California and that this flow has made a major contribution to technological innovation and to the economic expansion of Silicon Valley, and to some extent in the other two. Skilled immigrants contribute to the dynamism of the Valley economy, both directly, as engineers and entrepreneurs, and indirectly, as traders and middlemen linking California to technologically advanced regions of Asia (Saxenian 1999, 74). As Cohen and Fields summarize, “just as capital is flowing in from all over the world, so is labor – at the highest end. The resources are now global; the ability to combine them, productively and smoothly, is local” (Cohen and Fields 1999, 23). The benefits of bringing in talented immigrants are not confined to the Silicon Valley community or to the U.S. alone. They are the vital transmission belt, diffusing technology and market knowledge, sometimes playing a key role in developing successful high-tech districts “back home.”

 

 

 

Chinese and Indian engineers have established their own high-tech businesses 13, and the pace of immigrant entrepreneurship has been accelerating. By 1998, Chinese and Indian engineers were running one-quarter of Silicon Valley's technology businesses, accounting for 17% and 14% of the total sales and jobs, respectively (Saxenian 1999, 5). And interestingly, the region's most successful Chinese and Indian entrepreneurs rely on ethnic resources while simultaneously integrating into the mainstream technology economy. These long-distance networks are accelerating the globalization of labor markets and enhancing opportunities for entrepreneurship, investment and trade both in California and in Asia.

 

 

 

The presence of large numbers of Chinese and Indian engineers in the Valley is a recent phenomenon, mirroring the time of the changes in U.S. immigration legislation. Given that high-skilled immigrants play an important role in maintaining and internationalizing (in terms of exports and business relations) Silicon Valley, other regions are to learn that immigration laws might play an important role in the creation and growth of an industrial region.

 

 

 

c. U.S. government involvement/dis-involvement

 

 

 

Silicon Valley is not free from government influence. In legal aspects, the U.S. and Silicon Valley vary from other hopeful regional clusters. For example in Europe, a policy of maintaining high semiconductor tariffs and bailing out high-tech firms has helped reduce the region's share of the world market for electronic data products (which includes computers). In Silicon Valley, success in just about any area turns out to hinge either some liberalizing legislation, or the absence of any legislation at all (Mickelthwait 1997). For example the U.S.'s bankruptcy laws and California's tax structure has historically treated capital gains more generously than income. Patent laws in the U.S. are strict; labor mobility is easy.

 

 

 

National policies have also played a part in Silicon Valley's success, not only as seen above with military involvement and funding, but in trade policies. Today increased national defense spending might paradoxically raise engineering wage costs and divert intellectual resources from Silicon Valley, thus inhibiting its growth. Were the US government to change and/or control policies on technology exports, this could lead to decreased sales, and again hamper Silicon Valley development. Change in immigration laws, or a tightening of H1-B visas to immigrants would also curb some of Silicon Valley's growth.

 

 

 

Legal and policy differences also exist within the United States. For example, California regards “post-employment covenants not to compete” as unenforceable, making it much harder to prevent employees to spin-off on their own, as opposed to Massachusetts.

 

 

 

Is The Table Of Elements Exportable…

 

 

 

It would be a mistake to take these elements as single or sole root causes of a successful Silicon Valley. In a virtuous cycle of value, the web of these components, and others not mentioned here of equal importance such as legal firms, and perhaps of lesser importance such as climate and spatiality, are in turn cause and effect for one another. The story of the Silicon Valley economy is dominated by an overriding theme: innovation and commercialization. While the folklore of innovation in Silicon Valley tends to elevate the role of the individual inventor or entrepreneur – and there are indeed numerous examples of how such individuals have affected technological outcomes in the region – the history of the region reveals innovation to be the result of a collaborative process. At the center of this process is a dense concentration of high-tech companies with individual entrepreneurs and highly skilled workers recruited from all over the world. This international community of firms is supported by some of the world's foremost research institutions and universities, along with a broad range of service providers unique to the region. These include an indigenously created venture capital industry, a legal community specializing in issues related to high-tech, and “headhunter” firms that help find and supply high-tech firms with talent. In its composition and in the way it engenders collaboration, this community is, literally and metaphorically, both local and global. The complexity of the elements and their inter-relatedness and inter-dependence makes it very difficult to reflect upon the generalizability of the Silicon Valley model. This leads me to think that what may be needed in emulating Silicon Valley is to move forward on all fronts, rather than relying on a few value components to cause others to be created. With this in mind, one must ask the question whether any single economy has the necessary ingredients to replicate the Silicon Valley model?

 

 

 

The fact that the San Francisco Bay Area's electronics industry began close to the turn of the 20th century, combined with all the other historical events, should lay to rest the notion that industrialization and urbanization on the scale of Silicon Valley can be quickly induced to other areas. Silicon Valley is over one hundred years old. It grew out of a historically and geographically specific context that cannot be re-created. So given the region's uniqueness, clearly the answer to the above question is no. Nearly all efforts to create Silicon Valley analogues have failed, or, at best, been partial successes (Leslie and Kargon 1996). The mutually reinforcing, interactive, regionally-based system of Silicon Valley has had its own logic, which reinforces its current path.

 

 

 

Putting Silicon Valley into its historical context, one can then see its path dependence. It did not just sprout up, many of its elements have evolved and coalesced over time. Sturgeon argues that the characteristics of early Bay Area electronics companies closely match the structure of industrial organization so widely hailed in Silicon Valley today, albeit on a much smaller scale:

 

 

 

 

 

 

 

A leading role for local venture capital; a close relationship between local industry and the major research universities; a product mix with a focus on electronic components, production equipment, advanced communications, instrumentation, and military electronics; an unusually high level of inter-firm cooperation; a tolerance for spin-offs; and a keen awareness of the region as existing largely outside the purview of the large, ponderous, bureaucratic electronics firms and financial institutions of the East Coast – all of these well known characteristics of Silicon Valley were as much in evidence from 1910 through 1940 as they have been from the 1960s onward. In the jargon of the Valley, it seems that they key characteristics of Bay Area electronics, set in place so long ago, have proved to be readily 'scalable' as the industry has grown in the region (Sturgeon 1992, 97).

 

 

 

All of this begs an even more important question: if one can't exactly emulate the Silicon Valley model, might it not be better then to create an entirely different value-creation model, more appropriate for a given context, at a given point in history? Yes. And can the Silicon Valley model offer any insight as to what elements can help in fostering economic development in general? Yes again – as long as we keep in mind that what has led to success in the Valley might not necessarily lead to the same results elsewhere. Nor can its elements simply be “copied and pasted.” Regional and economic development is not a homogeneous formula.

 

 

 

…Internationally?

 

 

 

The first lesson for planners and economic developers is to focus on long-term, not short-term, developmental trajectories. The second lesson is to understand that Silicon Valley's success and growth over the past decades (and century) has come out of a place, not a technology. To simply build a high-tech park and rely on computer, Internet or other new technologies to magically give birth to the next Silicon Valley, is not enough. To open immigration to high-skilled workers is also not sufficient. Neither is it enough to loosen international trade tariffs or sanctions on certain industries.

 

 

 

In the international realm, the Silicon Valley elements might be much more difficult to emulate than on American home ground. For foreign countries, the fundamental structure built by the government is essential: stock markets; national legal systems that allow business start-ups and registrations, loans, funding, copyright and patent protections; a stable and reliable infrastructure; international legal policies that allow for exports, and perhaps to a lesser extent immigration of high-skilled workers, depending on the region and the available work-force. The institutional, political and legal frameworks created are important as the starting ground for the other elements. Second, it is imperative that the region has an ample quantity and quality of people that are able and willing to innovate, commercialize, have the freedom to move (within the country, region, firms or indeed within their minds!), and that will be adequately (if not insanely) rewarded for their efforts – whether this comes from universities, research institutions, the military or corporations is perhaps not as important. Of course the universities and research institutions, combined with military opportunities, have been crucial in the Valley's success. Such systems however might be challenging to recreate elsewhere, hence it might be more important to focus on providing an environment of innovation not as pressured as the commercial realm, rather than the institutional structures themselves. Lastly, the sense of community needs to present, in that it will lead to higher social capital and networks, plus motivate people to reinvest in those communities.

 

 

 

In looking at the Asian economies, in order to develop economically in a similar fashion to Silicon Valley (rather than simply replicate the “model”), within the space of the next ten or fifteen years, might it not make sense for Asian economies to start thinking as a group and leverage one another's investments, with each investing in what it may be best at, all the while being conscious of the need to be part of a single network of values?

 

 

 

…in the U.S.?

 

 

 

For regional development hopefuls within the U.S., clearly many of the elements already exist: the legal structures, the stock market, government's liberalization policies, trade policies, and immigration laws, research institutions and industry-university relations. What separates Silicon Valley from Austin, Boston, Seattle, New York and others (as hopefuls and imitators) is 1) the concentration of venture capital, 2) the concentration of firms and people, 3) “cultural” aspects such as laidbackness and openness, and 4) the network-based industry rather than an independent and closed mentality.

 

 

 

Venture capital and funding will not be difficult to come by within the United States. Capital can move freely; furthermore as seen in the case of the Valley, if there is “reason enough” for increased numbers of venture capitalists, they will move and arise locally. Second, the concentration of firms and people is perhaps a bit more difficult than the flow of capital, however it's not unreasonable to expect. The U.S. has a high rate of national migration, and its population for the most part has the mentality of willing to move for a better opportunity. The high-skilled immigrants, if they're “needed”, will also come. It might take them longer to build their own communities in regions where there might be none, but their communities will slowly grow and eventually bring in more immigrants. Immigration laws in the U.S. are not specific to California. A critical mass of firms will take longer still. However places like Austin, Seattle and Colorado Springs already have a fair share of high-tech firms (as well as high-skilled workers). Seattle has Microsoft, Austin has Dell, both giants in the high-tech world. Third, although arguably some of the culture and laidbackness may be a “California thing,” or a “high-tech thing” for that matter, it's not improbable to think that the mindset will evolve elsewhere as well. Seattle, Austin and Colorado Springs certainly come close. Increasingly notions such as “dress-down days” and “play rooms” are taking over corporate America, regardless of location. Lastly, the most difficult aspect to recreate may be the network-based industry, as not only is it industry and culture dependent, but also requires the people, the firms, the universities, the research institutions and the venture capitalists to operate collectively.

 

 

 

A perfect example of the last point leads us to a bit of comparative history. During the 1970's, Silicon Valley and Boston's Route 128 were BOTH deemed leading centers of innovation in electronics. With common origins in university-based research and postwar military spending, the two were often – and still are – compared. The performance of these two regional economies diverged in the 1980's. Both were affected by the decade's crisis (economic slowdown, the end of the Cold War, the rise of workstations and personal computers), but while Route 128 was not able to recover, Silicon Valley flourished. This is not to say that Silicon Valley was not affected. In fact, Silicon Valley has regularly been beset by severe slumps, which have brought with them severe dislocation and pessimism regarding the future. Many believed that 1989 was the year that Silicon Valley would stop being what it was. However, a new generation of semiconductor and computer start-ups emerged alongside established companies. The dramatic success of start-ups such as Sun Microsystems and Cypress Semiconductor, and the continual dynamism of large companies such as HP and Intel, were evidence that Silicon Valley had regained its former vitality, able to overcome the hardship of the 80's, which later lead to its vanguard position in Internet-related innovation and commercialization.

 

 

 

AnnaLee Saxenian has perhaps done the most comprehensive analysis of why Silicon Valley adapted successfully while Route 128 lost its competitive edge, in her book Regional Advantage (1994). According to her, the two regions' different responses to the crises of the 80's revealed differences in productive organization whose significance had been unrecognized during the rapid growth of earlier decades; “or had been seen simply as superficial disparities between 'laid back' California and the more 'buttoned up' East Coast. Far from superficial, these differences illustrate the importance of the local determinants of industrial adaptation” (Saxenian 1994, 2).

 

 

 

Saxenian found that Silicon Valley has a regional network-based industrial system that promotes collective learning and flexible adjustment among specialist producers of a complex of related technologies. The region's dense social networks and open labor markets encourage experimentation and entrepreneurship. Companies compete intensely, while at the same time, learning from one another about changing markets and technologies through informal communication and collaborative practices; and loosely linked team structures encourage horizontal communication among firm divisions and with outside suppliers and customers. “The functional boundaries within firms are porous in a network system, as are boundaries between firms themselves and between firms and local institutions such as trade associations and universities” (ibid., 51). In contrast, Route 128 is dominated by a small number of relatively integrated companies. Its industrial system is based on independent firms that internalize a wide range of productive activities. Practices of secrecy and corporate loyalty govern relations between firms and customers, suppliers, and competitors; reinforcing a regional culture that encourages stability and self-reliance. Corporate hierarchies ensure that authority remains centralized and information tends to flow vertically. The boundaries between and within firms and local institutions thus remain more distinct. Obviously Saxenian's conclusion is based on her assumption that firms are embedded in a social and institutional setting that shapes, and is shaped by, their strategies and structures, rather than being isolated from what lies outside them. So that if we understand regional economies as industrial systems rather than as clusters of factors of production, and we think of the two regions as examples of two different models of industrial systems (decentralized network-based vs. independent firm-based), it is then clear why the trajectories of Silicon Valley and Route 128 diverged.

 

 

 

As seen in the “industry network” element, Silicon Valley's model of what Saxenian calls a network-based industrial system has been a vital ingredient of the area's success, especially when compared to other U.S. regions who have more similarities to the Valley than international regions. In a network-based system, the region – if not all the firms in the region – is organized to adapt continuously to fast-changing markets and technologies. They system's decentralization encourages the pursuit of multiple technical opportunities through spontaneous regroupings of skill, technology and capital. Its production network promotes a process of collective technological learning that reduces the distinctions between large and small firms, and between industries or sectors.

 

 

 

There are a few saving graces that other regions, at least in the U.S., have over Silicon Valley. First, they can offer lower prices – whether real estate costs, out-sourcing costs, wages, corporate or personal taxes – especially as Silicon Valley prices are increasingly and almost exponentially rising. In fact one survey found that 30% of Silicon Valley firms are willing to relocate due to high local prices (“EDS Survey”, JointVenture Index 2000). Not only are lower prices enticing for Valley firms willing to relocate, but offer lower over-head costs for new firms. Second, the rise the “virtual corporation” might benefit other regions. While we may still be a ways from a critical mass of telecommuters, virtual meetings and cyber business relationships; it is becoming increasingly common to conduct business with employees, suppliers, customers and partners by phone, fax or Internet. Perhaps we could see the day that a person's or firm's location is not a crucial element (conversely this might mean that Silicon Valley hopefuls won't be as substantial as the real thing). Of course this is predicated on the assumption that the way to become another Silicon Valley is to compete with it. Instead, as we have seen in Saxenian's comparison between the Valley and Route 128, it might be more beneficial to understand Silicon Valley as a business-model. The challenge then is in creating new firms and industry segments, rather than serving as a competitor, an extension or support-system for Silicon Valley. “Silicon Alley” in New York is a good example of an upcoming cluster in its own right focused on creative aspects of the Internet, such as advertising and media-content, generating different kinds of firms and services than Silicon Valley. The same applies to the rest of the world: not to think of Silicon Valley as based solely on technology; but on a way of integrating intellect, research, finance, commerce and law; on way of simultaneously collaborating and competing.

 

 

 

Conclusion

 

 

 

Given Silicon Valley's unrivaled success in generating new firms and in innovating, commercializing and producing wealth from a range of electronics and biomedical technologies, it is no wonder that governments, regional planners and economic developers aspire to gain lessons from the area, obsessively looking for the crucial elements of its success that they hope to reproduce. While there may be lessons to be learned and elements that may be recreated elsewhere, the fact that Silicon Valley has historically, geographically, socially, culturally and economically unique existence and network of relations, makes it improbable that any other location could be the same. In that case, emulators would be more successful focusing on long-term developmental trajectories, based on a different value-creation model, more appropriate for their given context, at a their given point in history; or combining a future ambition with an analysis of existing comparative advantages in order to harvest a successful model of their own.

 

 

 

Whatever our thoughts about technopoles and other approaches to regional development, it is time that more than a handful of scholars join this multidisciplinary debate on the importance and prospect of expanding the regional development model pioneered in Silicon Valley to sites around the world. Whether the rise of global cities and regional development strategies are part of the decline of the nation state, the return of the city state, or merely represent the latest iteration in capitalist market expansion and of liberal fantasies of a beneficent capitalism, it is time that scholars take a closer look.

 

 

 

 

 

 

 

Notes

 

 

 

1. INDIA: In the past 18 months, $500 million was invested in more than 500 start-ups nationwide. Local VC firms have gone from 5 in 1998 to more than 50 half way through 2000. India's biggest resource is human capital; Indian universities are graduating more and more programmers, the elite IIT produces thousands of world-class engineers; most speak English and have substantial expertise in software development. But for the moment, India is better at making products for other people than coming up with new ones of its own, serving as backroom operation, low-cost programming base or off-peak hours support center for Valley firms. Furthermore the country suffers from dismal infrastructure, tough governmental laws, and a variety of other limiting factors. Things might be changing for India, with Valley Indians establishing relations back home and the growing number of high-tech workers, Indian firms are breaking the glass ceiling, with Indian firms successfully going IPO and listed on NASDAQ (Azab Powell).

 

 

 

TAIWAN: Hsinchu Science Park in Taiwan was set up in 1980 by the Taiwanese government with the explicit aim of luring Taiwanese technologists back from Silicon Valley. Entrepreneurs were offered various tax breaks and a promise that the government would not intervene with their businesses. Hsinchu houses a thriving network of firms employing 50,000 people. Its main focus is making chips, and its leading company, Acer, is one of the world's biggest PC makers (Silicon Envy).

 

 

 

More recent statistics shows that Taiwan is now the number 3 producer of IT, behind the U.S. and Japan. Exports of its IT hardware, Internet and telecommunications sectors combined equaled more than $44billion in 1999.

 

 

 

However the government sets limits on both Taiwanese investments abroad (especially Mainland China) and foreign investment in Taiwan. Tough government laws, lack of research universities and a focus on manufacturing rather than innovation, still leave a lot to achieve for Taiwan (Azab Powell).

 

 

 

U.K: Cambridge Science Park and its surroundings is home to more than 1000 innovation-based companies with more than 27,000 employees, making it Europe's biggest concentration of high-tech industry (Silicon Envy).

 

 

 

ISRAEL: Israel is perhaps the best poised to be the next innovation center of the world, with 135 engineers and technicians for every 10,000 people (compared to the U.S.'s 18), with more than $4 billion of high-risk money funneled into start-ups, and the third after the U.S. and Canada in its number of new listings on NASDAQ (Silicon Envy).

 

 

 

2. The technopole is a place that brings together institutions, labor, and finance that generate the basic materials of the information economy. They result from various local, national, and, in some cases, international, planning activities that bring together public and private sector organizations, to promote systematic technological innovation. The term “technopole” originated in the Japanese government's effort of the 1960's to build a science-based technopole, Tsukuba, 40 miles outside of Tokyo. Most would see Silicon Valley as its most successful form (Castells and Hall 1994).

 

 

 

3. The term “Silicon Valley” was coined by Dan Hoefler in 1971, a reporter for Electronic News who wrote a three-part series on the history of the semiconductor industry in the Bay Area.

 

 

 

4. Authors place the birth of Shockley Semiconductor between 1955 and 1957.

 

 

 

5. The notion of “social capital” popularized by Robert Putnam (1993), refers to the complex of local institutions and relationship of trust among economic actors that evolve from unique, historically conditioned local cultures. Such institutions and social relationships, built upon the experiences of a shared, deep history, become embedded within a localized economy and form what Putnam describes as “networks of civic engagement” that facilitate the activities of politics, production, and exchange. However, Putnam's concept of social capital does not fit the experience of Silicon Valley because it obscures the specific nature of the social capital on which Silicon Valley was built and through which it continues to construct itself. Silicon Valley is an economic space built on a social capital that is vastly different than that popularized by the civic engagement theorists. Instead, social capital in this paper can be understood in terms of the collaborative partnerships that emerged in the region owning to the pursuit by economic and institutional actors of objectives related specifically to innovation and competitiveness.

 

 

 

6. For reasons such as paper length and limited expertise in particular fields, certain elements that are part of the Silicon Valley model are purposely left out. They are: law firms and legal structures, spatiality, climate and belief in higher quality of life, lack of labor structures (such as unions), headhunter firms, a service infrastructure (contract manufacturing, accounting, marketing and public relations firms), intra-firm work ethic and culture, and Liberalist/”Ultra-Capitalist” values.

 

 

 

7. Not listed in any particular order.

 

 

 

8. Obviously this changes as stock prices, revenues and profits fluctuate. However it is nonetheless remarkable that a company only 16 years old has been able to hold such a position.

 

 

 

9. In a classic exposition of the first argument, Karl Polyani (1944) shows how political authorities throughout history have shaped the formation of markets by creating institutions and the rules that govern the process of market accumulation. Polyani's work shows that markets do not exist independently or operate spontaneously as in neoclassical models of rational choice. They are the products of institutional, political, and legal frameworks that structure the organization of the market.

 

 

 

10. By coincidence, one of the venture capitalists had a friend who had a hard time signing leases for his new office spaces on Sand Hill Road, so the venture firm moved in. After that, the developer concentrated on attracting more venture capitalists. By the late 1980's Sand Hill Road was the largest single enclave of venture capital in the U.S.

 

 

 

11. A gazelle is a company defined as starting with at least $1 million in sales and an annual compounded growth rate of 20% for the last 4 years. Gazelles account for 20% of Silicon Valley firms, compared to 3% nationally (JointVenture Index 2000).

 

 

 

12. The focus on Chinese and Indian immigrants in Saxenian's study is driven by the results that show that in 1990, two-thirds of the region's foreign-born engineers were from Asia. Of these, Chinese and Indian immigrants accounted for 74% of the total Asian-born engineering workforce. She also supposes that these numbers have increased since 1990, but is waiting for the 2000 census results (Saxenian 1999: viii).

 

 

 

13. Chinese and Indian immigrants have founded or headed companies such as Yahoo!, Broadvision, Sun Microsystems, Hotmail, eBay, Akamai, Tibco, Exodus and Solectron, to name a few (Saxenian 1999; Yahoo! Finance)

 

 

 

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