Published: Friday, July 2, 2004
Published in: Silicon Valley Biz Ink
On June 2, Jeff Saperstein participated in a panel discussion at the Commonwealth Club of California in San Francisco on "The Global Impact of Outsourcing."
The discussion, moderated by Biz Ink editor Dennis Taylor, examined the relationship between Silicon Valley and a host of countries as they grapple with the effects of offshoring.
Saperstein is an adjunct professor at the San Francisco State University Graduate School of Business, the author of "Creating Regional Wealth in the Innovation Economy" and the principal of Mill Valley marketing firm Jeff Saperstein & Associates.
Taylor followed up with Saperstein in late June to focus more on the valley's role in the rapidly changing global economy.
Much of "Creating Regional Wealth" explores successful regions. How does Silicon Valley stack up as one of those regions?
In the late 1990s, Silicon Valley was an epicenter; it was a hub and everywhere else was a spoke. There were so many multinationals based here -- there was an inordinate amount of concentration in the valley. What has happened is there are now a lot of centers of innovation, which got their best practices from Silicon Valley, and are equal to Silicon Valley.
We created those satellites, and while our prominence is no longer what it was, our intellectual capital keeps getting enhanced. These other regions are not really competing as much as enhancing. The focus will never be entirely on Silicon Valley. Places like San Diego and Israel are linked to Silicon Valley, but not dependent on it.
Is that true of biotechnology?
There are really three centers for biotech -- San Diego, the Bay Area and Boston. But I was at the BIO conference in San Francisco a couple of weeks ago and it was like a World's Fair there were so many countries represented.
What came out of your research that was surprising or contrary to popular thought?
One is that the idea of liberation and emancipation. Indians, Chinese, Israelis are now competing with the valley. They are very proud and this is uplifting a lot people around the world.
A concern in the valley is the offshoring of tech jobs to India. Are we outsourcing innovation as well, or mostly support work?
Innovation is no longer as concentrated in Silicon Valley. It's not just programming; it's not like a McDonald's drive-through. Entire IT functions of Fortune 500 companies are going to India, and it's not just for cost reasons; many Indian companies are better at it than U.S. companies.
But while innovation centers are far more sophisticated all over the world, it's not a zero-sum game. There are an infinite number of innovations. It's not like a pie that is divvied up.
For example?
Consider that Apple's iPod took nine months from concept to implementation. It is great for music and great for Apple. Its marketing is superb. It's a great example of what we do well, but the parts inside are from Toshiba and Sony -- it's not solely an American product. Apple worked with a great group of partners. It wasn't all done in Cupertino. Part of Apple's strength is it developed these partners globally.
What we do best is marketing. For example, Japanese companies had to understand its market and brand products internally first, so they were already branded when they launched these companies globally.
You've indicated the concept of a "national" company is becoming archaic. Explain.
Look at IBM, which has six major research centers, two of which are in Bangalore and Japan. IBM is more of a multi-location company than a U.S. company. Another example is a skin product from [Cincinnati-based] Proctor & Gamble called SK II. But it came out of Japan, yet we think of P&G as American as apple pie.
Would government intervention in offshoring help or hinder the valley's innovation?
It would hurt us in a couple of ways. The most logical way is the government would intervene to control government contracts by only using U.S. companies. Taxpayers wouldn't be getting the cost benefit of offshoring, so the products may be poorer quality and cost more.
Secondly, what makes you think the people we most want to do business with wouldn't do the same thing to us. It would start a trade war, which would hit California particularly hard since technology is so global.
We want to partner with those places, not be restrictive. It's like stem-cell research. We think we are stopping stem-cell research, but all we are doing is letting other countries jump far ahead of us.
How is Silicon Valley responding to the emergence of the global economy?
In terms of innovation, we have guys from Israel, Taiwan, India and other places getting off planes and starting billion-dollar companies. But with the focus on [national] security, we are making it hard for these very smart people to come here and provide innovation. If people can't come here, they will go other places.
It's very easy to feel at home if you are an Indian in Silicon Valley. The transplanting of highly educated immigrants allow them to flower in a way they can't in, say, Japan.
There's a lot of places to do great innovation, but there's no place like Silicon Valley where you can grow from zero to a billion so quickly.
Does access to capital provide a competitive advantage to the valley?
The amount and concentration of venture capital is unrivaled for innovation. There's a huge amount -- $50 billion -- in China, but most of it isn't earmarked for technology innovation, rather for manufacturing.
Israel is strong, and parts of Europe, such as Munich [Germany]. Europeans view themselves as competitors to us. They don't want everything to be American so they plow huge amounts into subsidies. But in terms of funding for science, we dominate that.
What does the future of the valley look like?
In our Commonwealth Club panel, many people in the audience thought about outsourcing in terms of job security and quality of life. They wonder "will I have to work for 10 cents on the dollar like an Indian or 60 hours a week like the Japanese." But if we continue to pursue innovation, we are going to be very well placed in the future.
You can reach Jeff Saperstein at jsaperstein@creatingregionalwealth.com and Dennis Taylor at dtaylor@svbizink.com.
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Creating Regional Wealth in the Innovation Economy
Authors: Jeff Saperstein and Daniel Rouach
Publisher: Financial Times Prentice Hall
Pages: 384
Avg. Amazon.com rating: 3-1/2 out of 4 stars
List price: $34
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