[Book Review] Cloning Silicon Valley: The Next Generation High-Tech Hotspots

by David Rosenberg

2002 Reuters/Pearson Education, London

204 pages

What are the ingredients that have made California’s Silicon Valley so successful as a technology cluster with national and global impact? What other countries have such tech hotspots, and how do they compare to Silicon Valley? What collective role can industry, workforces, educators and government policymakers play in creating such hotspots in their own countries?

These are some of the most fascinating and high-stakes questions facing players in the cutting edge of information and communication technologies, and “Cloning Silicon Valley” provides a wealth of informative research across a range of such tech hotspots.

Technology and finance writer David Rosenberg was born and educated in the US, and currently lives in Israel. His articles have been published by Reuters, The New York Times, Red Herring, and The Wall Street Journal.

Three chapters introduce the Silicon Valley phenomenon and framework of the subsequent study; the next six chapters cover major technology hotspots of the world: Cambridge in England, Helsinki in Finland, Tel Aviv in Israel, Bangalore in India, Singapore, and the HsinChu-Taipei belt in Taiwan.

The book draws on data from sources like the ITU, World Bank, 3i Group, IDC, PriceWaterhouseCoopers, World Economic Forum, Global Entrepreneurship Monitor, OECD, UNDP, and Wired magazine, as well as books like “Regional Advantage” (AnnaLee Saxenian), “Understanding Silicon Valley” (Stuart Leslie) and “The Cambridge Phenomenon Revisited” (Segal Quince Wicksteed). Information is also culled from over 100 interviews conducted in the year 2000 by the author in the US and the six countries above.

Many success factors in California’s Silicon Valley have been identified by researchers over the years: low taxes, venture capital, risk-taking start-up culture, business webs, physical infrastructure, IT-savvy local population, local “living laboratories,” good local markets, networking skills, activities and organisations for communities of interest, collocation of companies in various stages of development, flexible organisational structure, legal/accounting services, M&A activity for flow of skilled labour and intellectual property, local academic and research institutes, commercial partnerships between academia and industry, activist government policy via research funding and small business debt assistance, speed of business activity, presence of role models, and human talent in innovators, serial entrepreneurs, marketers, and managers.

“But the basic chemistry is complicated, the order in which they come into play and the reactions they will produce are hard to finesse,” begins Rosenberg.

Prospective Valley-like clusters around the world need to not only juggle these ingredients but also compete with one another, develop local niches, boost exports, gain exposure to global structuring, technology and marketing practices, and forge strong links with tech hotspots, financiers and stock markets in other countries (especially in America’s Silicon Valley, via expats and MNCs).

For local companies, this also means gravitating from tech R&D foundations to a business orientation, juggling back-end development and customer-facing marketing across multiple countries, entering into international M&A/alliance activity, and dealing with organisational culture issues for managers from different nations.

One major Silicon Valley ingredient that is actually not in the region is the NASDAQ stock market, which has spawned numerous imitators around the world like techMARK and Alternative Investment Market in London, Neuer Markt in Frankfurt, NMAX in Amsterdam, Growth Enterprise Market in Hong Kong, and Sesdaq in Singapore.

“With the exception of London and Taiwan, the European and Asian growth markets haven’t been able to generate the kind of liquidity and only rarely the kind of company valuations seen in America,” says Rosenberg.

More than 70 per cent, or US$97 billion, of world private equity and VC investment was made in the US alone in 1999. VC investments account for 1.01 per cent of US GDP, more than double the worldwide average and more than three times Europe’s level.

Two chapters cover regional cluster variations in entrepreneurship, finance and management. Of the six surveyed clusters, Britain, Israel and Finland rank high in terms of innovation; India’s strength is in software writing rather than conceiving of new software; Taiwan excels in manufacturing but not as much in new intellectual property in chips; and Singapore’s strength is in opening its economy to retain outsiders so that its achievements reflect as much, if not more so, the talents and abilities of foreigners as Singaporeans, according to the author.

While Asians lead in basic math and science skills and teamwork functioning, they seem to lag in creativity and out-of-the-box thinking. America’s scientific prowess (as well as the UK) shows itself not at the secondary school level but at the university and post-graduate level.

Some Asian countries like Singapore have tried to create an environment that serves as a local living laboratory for the broadband content and services industry by wiring every household; Finland’s population actively chases new innovation and services on the wireless front.

The six countries chosen for the study have been selected more out of their varied and interesting socio-economic mix than out of some global ranking. The selected regions also were not major technology players from the earlier industrial era.

Companies in these six hotspots do not have enough of a domestic market for their products and services, and hence must tap global markets for which they will also need global sources of financing if they are to succeed on the world stage. For countries like India, Israel and Taiwan, the networks of their expatriates in Silicon Valley are important; government has played a key role in the technology clusters of Singapore and Taiwan.

Table 1.1: Author’s subjective rating of tech hotspots (on a scale of 1-5)

1. Cambridge, UK

The Cambridge university and research cluster has been strong in basic science research for over 700 years, with luminaries like Darwin, Babbage, Maxwell, Rutherford, Watson, Crick, and Wilks (who built the Edsac computer). “But the university’s faculty and alumni have been notably less successful at taking that scientific prowess and turning it into big business,” according to Rosenberg.

Cambridge companies in “Silicon Fen” are high-tech high-forehead players operating in core technologies and not glossy segments like dotcoms and consumer applications. Their approach is more cerebral than the California’s pr-sales techno style that is also emerging in London. Its links with Silicon Valley are not as strong as they could be, and there are fewer role models.

To be fair, there have been successes like Mike Lynch of Autonomy, Chris Evans of Celltech, and Robin Saxby of ARM Holdings. Other notable startups include nCipher, Zeus Technology, and Cambridge Silicon Radio. UK venture capital has been more conservative but there exist public markets hospitable to young hi-tech companies. Government and university activities are less interventionist in terms of commercialisation of research.

“Cambridge can retain much of its academic aura yet succeed by keeping to its natural strengths rather than trying to mimic the more aggressive Silicon Valley model,” according to Rosenberg.

2. Helsinki, Finland

Caught in the German-Soviet struggles of the last century, Finland has a long industrial history in wood pulp and paper – and of late, telecommunications, dominated by Nokia which directly employs nearly 1 in 100 Finns.

Networking hubs in business culture include the sauna, where “deals are finally sealed amid steam and sweat,” says Rosenberg. Like the rest of Scandinavia, Finland spends heavily on education. Finns lead the world in adopting new technologies (including electric toothbrushes!), especially wireless media. While there is a pool of entrepreneurs, not as many become serial entrepreneurs.

Tekes (Technology Research Development Centre of Finland) is at the centre of a well-oiled R&D and commercialisation engine; support also comes from Sitra (Finnish National Fund for R&D). Notable startups here include Solid Information Technology (with offices in Burlington and Hyderabad), and Riot Entertainment (with backing from Nokia Ventures, ePartners and Softbank).

“If Finland has one fundamental deficit to overcome, it’s the lack of self-promotion,” according to Rosenberg.

3. Tel Aviv, Israel

Despite political turmoil, Israel has emerged as a major player in the global tech industry. The Army has played a major role both in terms of development of defence electronics and related spinoffs (such as secure computing, guidance systems, communications) as well as creating a high-pressure environment where targets have to be met fast in a team-environment with a focused goal-orientation.

Excellent engineering institutes, venture capital funds, lots of angel investors, high IT orientation, strong connections to Silicon Valley, and listings on Wall Street have also helped. Success stories include Mirabilis (acquired by AOL), Comverse, Amdocs and CheckPoint.

R&D tends to be done in Israel, and marketing from the US. But the Tel Aviv Stock Exchange (TASE) has failed to make itself a competitive market for IPOs, creating a serious gap in the finance chain; some European exchanges tend to serve as stepping-stones. A lot of Israeli companies also opt to domicile themselves in more tax-friendly America. There is also less of a sense of fun as compared to startups in the US, according to Rosenberg.

4. Bangalore, India: Silicon Island in a Third World Sea

Bangalore was a hub of the aerospace industries of India, then became a major centre for hardware and subsequently software companies. “It has all the standard strappings of a vibrant but distinctly poor and underdeveloped economy,” according to Rosenberg. Most of the software work is project-based, involving a mix of on-site and offshore programming.

Bangalore’s strengths include widespread English skills, sheer numbers of lower-wage programmers, experience in managing global software and services projects, growth in MNC development centres, and connections with non-resident Indians (NRIs) in Silicon Valley who are excelling there (eg. VC Vinod Khosla, Sabeer Bhatia of Hotmail fame, Desh Deshpande of Sycamore, K.B.Chandrashekar of Exodus).

Challenges and obstacles include poor infrastructure, high telecom tariffs, a massive digital divide, government bureaucracy (though this is getting more business friendly), presence of just a few higher educational institutes, low R&D spending by IT companies, inadequate original and locally developed IP, less focus on products as compared to services, inadequate VC presence, and high employee attrition especially at the level of team leaders.

The Indian IT industry must make a commitment to widen the opportunities and benefits of IT beyond the narrow segment of the population it encompasses today, Rosenberg advises.

5. Singapore: Creativity on Command

Singapore, founded as a colonial trading post of the British East India Company by Thomas Stamford Raffles in 1819, has been through various phases of economic activity: rubber and tin processing, naval operations, petrochemicals, electronics, trade services, and now information technology.

Today, Singapore is the second most competitive economy in the world, according to the Institute for Management Development. It is also one of the world’s most hospitable places for MNCs to do business; many have their regional headquarters here.

Government agencies like the Economic Development Board, National Science and Technology Council, and the InfoComm Development Authority play a major economic management role in monitoring, financing and regulation. There are technology clusters (eg. Buona Vista science park), and universities like NTU and Singapore Polytechnic.

Capital is not a problem, but the domestic venture industry needs to become savvy and sophisticated technology investors; the local stock markets cannot absorb large offerings. Notable companies which have emerged from Singapore include Creative Technologies (maker of the sound-blaster for PCs), E-book Systems and Celestix Networks.

There is excellent broadband infrastructure – but it is used largely for basic purposes like email. Unlike Finns, Singaporeans don’t chase after the latest technology and exhibit only tepid entrepreneurialism in high-tech environments, according to Rosenberg.

Key focus areas of the intensity, professionalism and systematic approach of the Singapore authorities include providing more assistance to startups, imbuing a sense of creativity, dynamism and risk-taking via the educational system, attracting top talent from nearby countries like India and China, and achieving a long-term focus area of turning Singapore into the nerve centre for an Asian Silicon Valley across the entire region.

6. HsinChu-Taipei, Taiwan

“Taiwan has carved out for itself a nearly unique role as the factory floor of the global technology industry,” says Rosenberg. From commodity products of the industrial economy like plastics and simple electronics, Taiwan today is a leading manufacturer of commodity products of the IT era like PCs and peripherals.

“The HsinChu Science Park is in a class by itself for sheer size and importance to the world of computer chips and microprocessor-based electronics,” according to Rosenberg. Its companies make 90 per cent of the world’s scanners, half its notebook computers and LANs, half its PC monitors, 73% of its modems, and nearly one tenth of its integrated circuits.

But the industry emphasis tends to be largely on big manufacturing companies with solid linkages to Silicon Valley, and not smaller startups; the focus is more on cost-cutting in manufacturing processes (which is also knowledge-intensive) rather than wholly original IP.

The government has been very active in promoting cooperative R&D. A hefty 16 per cent of the government’s budget is spent on education; science and engineering education is excellent, and over 15 per cent of university graduates have done advanced work in the US over the past few decades. Returned stars include Patrick Wang, founder of MTI, and Morris Chang, founder of TSMC.

Challenges and focus areas include policies related to doing business in China, environmental pressures over quality of life issues, improving global marketing skills, and creating a more varied educational curriculum beyond rote learning.

In sum, this book is an informative read and provides valuable insights into the Silicon Valley phenomenon around the world. The book also provides useful personal perspectives from the dozens of interviews throughout the material. The framework for such international comparative analysis could do with some more academic rigour, though.

Silicon Valley may tower above the other tech hotspots in the world, but it faces challenges in areas like wireless (where Europe and Asia are ahead), and from the east Asian hub centred around China, which is a large market already and could position itself as a major innovator as well.

The high-tech industry is currently going through a cyclical downturn, according to Rosenberg. “A lot of the entrepreneurial urge of the 1990s has dissipated. But the boom created the machinery for high-tech entrepreneurship to continue – the VC funds, the attorneys and accountants, the dedicated office space and the dozen other ingredients of a start-up culture,” he concludes.

// Archived book review by Madanmohan Rao //