Wanshan Li
Professor Wilson
English 1A
March 24, 2006
Once being a land of opportunities and dreams, the legendary Silicon Valley has great foundation for innovations. But facing global challenges and internal problems, where is it heading after the dot-com collapse? Will it remain as one of the most important technology centers of the World?
Before looking forward to the future, the history of Silicon Valley would give us a better understanding of how Silicon Valley works. Geographically, Silicon Valley is mainly composed of Santa Clara Valley which is south of San Francisco Bay. Before World War II the Santa Clara Valley was a valley of orchards. Residents lived on canning and packaging of dried-fruit. Farmers grew prunes and apricots. Only farming equipment was made. (National Park Service)
The technological root of Silicon Valley was usually credited to Stanford University in nearby Palo Alto. According to the Dean of Stanford University’s School of Engineering James Gibbons, Stanford University transformed Santa Clara Valley into Silicon Valley by transferring technology from its laboratories to factories and market place, and educating engineers and businessperson needed in the labor force. (Gibbons, p201)
Historically, the establishment of the Stanford Industrial Park was considered the birth of Silicon Valley. Trying to solve Stanford University’s financial problems after WWII, Frederick Terman, a Stanford professor of electrical engineering, conceived the idea of leasing part of the university's land to high-tech companies for 99 years. (Uchida) Therefore, Stanford Industrial Park was established in 1951. Many companies, such as Varian Associates, General Electric, and Eastman Kodak quickly signed leases in the park. (Silicon Valley Economic Development Alliance) In addition to the idea of creating Stanford Industrial Park, Professor Terman encouraged his students to start their own companies in the west coast. The founders of HP, Hewlett and Packard were among those who followed their professor.
Besides Stanford’s effect, many hi-tech companies were created from “spinning-off” from previous firms. The most noticeable was the establishment of Fairchild Semiconductor in Palo Alto in October 1957 by eight physicists and engineers from Shockley Semiconductor Laboratory, which was founded by Nobel Prize winner William Shockley in 1956. (Lecuyer, p160) Among those founders of Fairchild, Gordon Moore and Robert Noyce later found Intel in 1968.
The economic cycle in Silicon Valley was driven by technological innovations. From defense in the 1950s, integrated circuits in the 1960s, personal computers in the late 1970s and the 1980s to the internet in 1990s, the industry in Silicon Valley has shifted its attention from one to other areas. (Henton p47) Industry clusters, which are “concentrations of competing, complementary and independent firms and industries that create wealth in regions through export to other regions”, evolved in these waves of innovation. (p48) Building on its strength, Silicon Valley took advantage of the internet revolution in the 1990s and began the Internet Boom. Two years after the introduction of the Mosaic web browser and the World Wide Web in 1994, most companies recognized the necessity of web presence and the possibilities of e-commerce. Many wanted to profit from these new business models, and vast amounts of capital were invested in start-ups. Some well-known, successful internet based start-up companies, known as dot-coms, were Amazon.com, eBay, Yahoo! and Google. (Wikipedia) But many dot-coms bankrupted after their capital burned out because of overspending, lack of market share and therefore absence of profit.
After the burst of dot-coms bubble in 2001, the economy of Silicon Valley, as with that of the whole United States, then went into recession. Joint Venture indicated the Valley lost 10 percent of its jobs in the year ending June 2002. (Bachman)
Four years after the burst of economy bubble, Silicon Valley finally seemed to start recovering. According to Joint Venture’s Index of Silicon Valley published in January 2006, employment in Silicon Valley in 2005 increased for the first time in four years, combined with a second year of declining unemployment. As of June 2005, the rate of unemployment had reached its lowest level since June 2001. (Joint Venture, p 22)
As Carolyn Said (2005) of San Francisco Chronicle suggested, the region’s talent and money made the Valley have an edge over other technology centers. Stanford, UC Berkeley and other world-class institutions in the Bay Area produce skilled engineers and entrepreneurs, which are needed by local companies. Silicon Valley residents are highly educated; eighty-two percent of the population is high school graduate and forty-one percent has a bachelor’s degree. (Joint Venture, p 12) The high concentration of core design, engineering, scientific and business management talent comprises 23% of cluster employment and 14% of total regional employment in Silicon Valley, compared to 8-9% in regions such as Austin, Seattle, and San Diego. (p 11) In addition, Russell Hancock President & Chief Executive Officer of Joint Venture observed that talents from every part of the world continue to flow into the Valley. (p 3) Besides the talents, Silicon Valley has the money needed for start-ups. Joint Venture reports that more than 25% of all venture capital in the United States is invested in Silicon Valley, up from 18% ten years ago. (p 11) The high concentration of venture capital helps fuel new businesses and makes marketing of new products and services very easy.
Despite its great foundations, Silicon Valley has its challenges to face. Although average wages are rising, Silicon Valley’s median household income, which has declined for the fourth year continually, is now close to the level a decade ago. Fifty percent more people have filed for bankruptcy since 2001. Not only average apartment rent grows faster than median household income, but also the percentage of newly approved affordable housing units continues to fall. (p 6)This means many low income and even middle income households may be forced out of this region. On the other hand, although educational performance is improving in the region, many students will not have the skills needed in Silicon Valley. “Only 33% of 10th and 11th graders—and only 23% of Hispanic youth—are enrolled in intermediate algebra, a gateway course to higher level mathematics. Fewer than half of all 3rd graders—and only 17% of 3rd grade English learners—scored at or above the national median in reading.” (p 7) These data shows there may not be enough talent produced locally in the future.
Besides its internal strength and weakness, other factors can also affect Silicon Valley’s future. Because of their fast growing markets and huge potentials, developing countries such as India and China are able to draw the resources of the developed world. The fact that Silicon Valley's leading venture firms are attracted to China raises questions about the Valley's competitive edge. Citing Gavin Ni, chief executive of Zero2IPO, Ha of San Jose Mercury news points out that 30 to 40 percent of the $1.05 billion in venture capital that flowed to China last year come from Silicon Valley. In addiction, more Silicon Valley dollars is collected in Chinese companies’ public stock offerings. Beijing-based Baidu's shares skyrocketed 354 percent on its initial public offering day was such an example. China draws not just Silicon Valley money but also its talent. Many Chinese-based firms pull executives from the Silicon Valley. Baidu's chief executive Robin Li was from Silicon Valley firm Infoseek. (Ha) Plus its large quantity of home-grown, cheap talents, China will definitely be a tough competitor to Silicon Valley and the United States as a whole. William J. Broad of New York Times, citing a report from the National Academies, says, “last year, more than 600,000 engineers graduated from institutions of higher education in China, compared to 350,000 in India and 70,000 in the United States.” The talents abroad also cost less to employ. “The cost of employing one chemist or engineer in the United States is equal to about five chemists in China and 11 engineers in India.” (Broad, W.) Another growing power India is known as a place where service, programming jobs are outsourced to. Area managers recently surveyed by a team of faculty at Santa Clara University's Leavey School of Business say, about half of Silicon Valley's outsourced jobs go to India. (Santa Clara University News)
The outsource of low end jobs to low-cost locations causes only limited amount of high-end jobs created in Silicon Valley. Joint Venture’s report says, "Many companies have grown their revenues and achieved record productivity, but they haven't added to the region's job count -- choosing in some cases, to outsource work to lower-cost locations." (Joint Venture, p6) One member of the Joint Venture board, San Mateo County Manager John Maltbie, who has seen the valley rise and fall since he took his post in 1989, says although many companies have emerged stronger, jobs have not returned in sufficient number in this bounce-back. "Yes, we are creating these higher-end jobs, but of necessity there are fewer of them,'' he said, “I liken it to climbing a pyramid. There are fewer and fewer opportunities the closer you get to the top." (Abate)
While the challenge arises from abroad and America is in danger of losing its competitive edge, help is on the way. In order to boost the nation's economic power, President Bush proposed an increase of $50 billion federal spending on critical research programs in the physical sciences over 10 years. An additional of 70,000 teachers was called for training over five years to meet the demand of teaching more advanced math and science courses in high school. (Feller)
With pro-science-and-technology government policy, its talent pool and money, Silicon Valley will most likely remain competitive. But for the workers of the Valley, upgrading their skills is vital for their continuing employment and promotion, because job opportunities are concentrated in the skill-demanding creative and innovative cluster. Including professional service firms in such areas as research and development, scientific & technical consulting, engineering services, and industrial design, the cluster was the only one to experience a net gain in jobs (4%) during the 2001-2005 period. Not only the cluster’s employment concentration rose by 15%, but also creative and innovation services have the largest number of firms of any cluster (6,565). (Joint Venture, p11)
In conclusion, high living cost, local education gaps and booming global competitors are in different ways diminishing the recovering Silicon Valley’s dominance in venture capital and human resource. Besides positive government policy to counter balance the diminishing forces, “We [the Silicon Valley workers] have to stay on the creative edge of design, marketing and production management.”(p3)
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