by Linc Jepson & Julia Nekrylova, 74ze Engineering, Inc. As Silicon Valley matured towards the end of the last century, the progress being made became a financial and intellectual magnet for science and engineering talent worldwide. Investment successes led to an increase both in funding and the number of companies. Labor became scarce and the popularity of remote and overseas development offices grew. The dynamics of the flow of labor and capital was changing as investment grew. In many areas it was reversing direction.
While the Silicon Valley community showed there was no shortage of good ideas and there were certainly hungry investors ready to invest, there was a definite shortage of labor. Silicon Valley ties to the homelands of its émigré engineers grew as did the number of foreign development offices setup by larger corporations, especially in Taiwan, Israel, and later India.
As more critical work is shipped offshore, confidence in the experience level of the foreign labor grows. This attracts attention and soon a new type of company is created. Startup companies seeking funding from Silicon Valley investors must convince them that they may produce their product or provide their service at a reasonable cost. Avoiding the fight for high-paid local engineers and utilizing bright foreign talent is one way. (It has even been cited that as recently as a few years ago some venture capitalist teams only considered funding new companies which had a strategy to offshore part of their development.) It is during this stage that independent offshore contract companies began to lay down roots, providing project assistance or sometimes dedicated staffs to foreign companies.
Many entrepreneurs began setting up their entire operations around their foreign labor base – giving their engineering team, which is offshore, the critical task of developing their core technology. Israel, Korea, and Taiwan seem to have long ago entered this stage, and India only recently. This is not to say that outsourcing does not happen, but merely that the climate has changed to create such new businesses. The growing popularity of EDA tool company Aldec is a prime example in which founder and US-based emigrant Stanley Hyduke developed a successful product in his native Poland.
While the initial non-governmental activity in a geographic region has oftentimes been triggered by expatriate engineers convincing management to do development there or by their own return to their homelands with an acquired wealth from abroad, the present state of technology centers in countries such as Israel and Taiwan is also the result of government intervention. The establishment of the BIRD Foundation in Israel in 1977 and theTaiwanese creation of Hsinchu Science Park in 1980 both illustrate government initiative to evolve their tech industries by cultivating local business. The confidence of a national government investing in its own technology sector and altering legislation to facilitate growth can greatly attract foreign direct and indirect investment.
A conviction of immigrant engineers and many who had moved into managerial ranks took root. Colleagues in their homelands were capable of doing the same work which they were being paid higher Western salaries for. Management supported the idea at first by creating foreign offices. Management’s management, that is the owners and investment community, saw this success and realized that they might go straight to the source, investing directly in foreign technical talent. This ongoing shift in investment dollars to find the most cost-effective means to its R&D goals is gradual, as building confidence in technical skills takes time; but it also signifies the slow release of certain skills from the economies of the investor nation. (The current flow of Taiwanese management and investment to mainland China to supply the Taiwanese tech industry is a localized example of this.) In effect, with the entrance of the populous nations India and China to the tech scene, the tables have greatly turned in favor of less expensive, but technically savvy areas of the globe, and away from previous darlings such as Israel and Taiwan. Rather than the labor traveling to the capital, the flow of capital to the labor is growing.*
A later stage of development in the high-tech venture capital world is the formation of a local capital base. Western venture capitalists are now aggressively visiting countries such as India and China, seeking investment opportunities, and even establishing branch offices there. As wealth from technology ventures is accumulated and as local success stories divert wealth from more traditional investments such as natural resources and consumer durables, a local technology investment community develops. Israel and Taiwan are prime examples of nations in which thriving local capital markets have developed. Oftentimes this formation is assisted by the government.
So, what is to prevent Eastern Europe from catching up to the rapidly developing technology nations which presently captivate the Western media? The talent engine, the educational base, is certainly present. Since the fall of the Soviet Union there has been a dramatic polarization of wealth. Just as the economist Simon Kuznets depicted a necessary income inequality (or concentration of wealth) for an agrarian economy to industrialize, is that same inequality needed for the shift from investment in physical capital (industry) to human capital (knowledge) to take place? A concentration of wealth has certainly occurred in Russia for example, but investment trends appear that they will continue to focus on human staples and natural resources for some time. However, with the wave of international outsourcing, Eastern European technology hotspots are increasingly being considered as potential centers for more than the non-critical implementation work which they have primarily been attracting.
No comments:
Post a Comment