Workforce Innovations

Feature

Innovation: The Key to Maintaining Silicon Valley’s Competitive Edge

As many of the more traditional elements of U.S. business, such as manufacturing and R&D, are offshored, the United States’ opportunity for maintaining its competitive edge in the global marketplace is to innovate—create new services, new products, and new processes. This is especially true within Silicon Valley’s knowledge-based economy. Innovation made Silicon Valley great and it’s what the region must increasingly rely on moving forward.

Technological advances have enabled other countries to expand into industries in which they were not involved only a decade ago. India, China, and several of the former Eastern Bloc countries, for instance, have made great strides in such sectors as manufacturing, research, and customer support services. These countries are not only investing heavily in developing their domestic workforce, but also in wooing the scientists, technologists, and graduate students who have been such major contributors to Silicon Valley’s technological and economic success.

In an essay written for The Innovation Edge: Meeting the Global Competitive Challenge, R. Sean Randolph, president and CEO of the Bay Area Economic Forum, states “Foreign-born workers and executives comprise a significant segment of U.S. companies’ research base. In Silicon Valley, one-third of high-technology start-ups have been started by immigrant entrepreneurs.”

But Silicon Valley is no longer the world’s most desirable environment. Post-9/11 security measures have made it much more difficult for foreign workers to get green cards and work visas. On top of this, the high cost of university education, increased capacity and quality of overseas educational institutions, and the current negative world-view toward the U.S. have made potential workers seek opportunities in other parts of the world.

The challenge of locating skilled technology professionals here at home has become more difficult because our educational system is not producing the number of science and technology graduates we need to have to pursue innovative programs and processes. Our college students are shying away from computer science and engineering programs because they’ve heard of friends’ parents whose jobs were offshored. And, elementary and high school students must deal with an educational system whose math and science programs are in sore need of teachers and improved, relevant curriculum.

Factors in Our Favor

All is not doom and gloom, however. The fact remains that the United States, and Silicon Valley in particular, do have the resources to ensure continued success in this ever-changing global economy. Among the factors in our favor are the vast number of patents acquired within the region, the quality and scope of local universities, the access to funding, and the ingrained attitude of entrepreneurialism and innovation.

Patents

According to Joint Venture: Silicon Valley Network, “Patents are one indicator of a region’s capacity to innovate. The ability to generate and protect new ideas, products, and processes is an important source of Silicon Valley’s regional comparative advantage. The number of patents issued in a year is a leading indicator for the number of new products that will reach the market in five years.”

In July 2006, the Wall Street Journal declared, “Seven of the Ten Most Inventive Cities are in Silicon Valley,” the majority of which were located within NOVA’s service area of northern Santa Clara County. The article stated that of the 16,673 patents issued to companies and individuals in the top ten U.S. cities in 2005, 73% were from Silicon Valley. San Jose topped the list with 3,867 patents, and Sunnyvale placed second with 1,881 patents. Palo Alto followed in fourth place, Fremont fifth, Cupertino seventh, and Mountain View ninth, with Santa Clara rounding out the list.

Universities

The Bay Area is fortunate to be home to two world-class universities: Stanford and the University of California at Berkeley, in addition to a number of other highly regarded public and private schools.

According to Randolph, “American universities are magnets for many of the world’s best minds, providing a critical talent pool and competitive edge for industry.” The president of a software start-up interviewed for NOVA’s recent study of Silicon Valley’s small businesses (see “Business Resources” page for additional information) stated that proximity to such high level research institutions was beneficial, because “entrepreneurs can check with universities for research projects” and to access graduate students. The study found that 74% of all small businesses interviewed had utilized services or resources of local colleges and universities with a high approval rating.

“The U.S. continues to be the world leader in science and technology,” says Randolph, “with a preponderant share of scientists and R & D spending, and a university infrastructure that is unmatched in its size, scope, and sophistication.”

Venture capital

In his essay “How should the Bay Area respond to the global innovation challenge?,” Robert Morris, vice president of innovation assets at IBM, writes, “The region competes in the global market as a knowledge-based economy, powered by its wealth of research capacity, technology, entrepreneurship, and innovation. It is the venture-capital “capital” of the world, receiving 35% of all venture capital invested in the U.S. With that capital, local companies can move ideas and products into the marketplace faster than anywhere else.”

Silicon Valley Leadership Group states in its 2007 Projections, “Venture capital investments in the Valley have continued to be four times that of the closest competing metro area and commonly approach the aggregate investment levels of all competing metro areas combined.” Many of the executives interviewed in NOVAÕs study of small business indicated that the availability of venture capital funding and support for entrepreneurial ventures was an important asset to being located within Silicon Valley. “All the pieces that are needed to support emerging business can be found here,” stated one biomedical company president. “You can’t find this kind of infrastructure anywhere else.”

Culture of innovation

The U. S. leads the world in productivity in every major industry and benefits from a dynamic private sector. Nowhere is there a region that better reflects this than the San Francisco Bay Area, where the entrepreneurial culture supports the development of new enterprises, transforming ideas to products and services. The founder of a local software company was quoted in NOVA’s small business study as saying, “A spirit of creativity is celebrated here in a way not celebrated in other places.”

Morris notes, “The fact that we have the world’s highest concentration of research universities, national laboratories, biotech, IT, and other corporate laboratories offers unprecedented opportunities for innovative collaboration.”

Randolph concurs: “Despite recent erosion, the U.S. still has impressive competitive advantages in higher education, scientific research, advanced manufacturing, finance, and business and service innovation.”

Critical Changes Needed to Remain Competitive

Despite the numerous advantages, there are still serious issues that must be addressed—by the nation, the state, and the region—if we are to remain globally competitive. Two areas in particular deserve immediate attention, according to economic leaders within the Valley.

Improve education

Randolph states, “A globally competitive workforce requires a world-class educational system, from K–12 through the graduate level. The U.S. currently graduates 140,000 engineers, computer scientists, and technologists with four-year degrees, compared to China’s annual rate of 350,000.” According to the McKinsey Global Institute, the number of trained engineers in developing countries will equal the number available in the U.S. within the next several years.

Locating qualified job candidates was cited as the single greatest challenge in doing business in Silicon Valley, according to NOVA’s study of small business. The president of a software start-up stated that, while the problem is a national one, “the shortage really affects Silicon Valley.” The challenge, reportedly, is not simply about better or more affordable methods of recruitment, as study participants indicated that they see a legitimate shortage of candidates with the right blend of technical skills and personal traits.

Morris adds, “Educational institutions abroad are first class and they are producing top talent that can be hired for a fraction of the price that prevails here.... We will succeed if we can reach our students, intrigue them to take the right path, and then deliver the programs and courses to help them succeed.”

In his essay “Services innovation as a competitive response to globalization,” Gary Bridge, senior vice president at Cisco Systems, writes, “Occupations have shifted toward tasks that require (a) expert knowledge and (b) advanced communications skills. Education, from preschool to university, must recognize these demands and align the curriculum, teaching methods, and metrics accordingly.”

In addition, high technology has infiltrated almost every area of business today. Randolph notes, “Much of today’s manufacturing ... either produces or is based on high technology, and requires significant levels of education and training. These skills matter. Manufacturing anchors research, design and engineering activity at the front end of the production process, and logistical jobs at the back end.”

Provide greater access to foreign talent

Our current climate is hardly welcoming to highly educated immigrants. Randolph states: “Applicants from many countries face a 5–7 year wait to apply for green cards, the documents that permit skilled foreigners and advanced degree holders to work in the U.S. on a long-term basis. This discourages skilled workers from contributing to our economy. Applications by foreign graduate students to U.S. institutions, which we depend on to fill the [skilled workforce] gap, have fallen. In the wake of 9/11 and the adoption of more strenuous security procedures, the number of overseas applicants to leading U.S. universities has fallen, particularly at the graduate level. The decline is most evident in applications by Indians and Chinese, and in fields such as computer sciences and engineering.” Addressing this issue, according to many of the respondents of NOVA’s study, is “the most important endeavor that government could undertake to support businesses in Silicon Valley.”

Moreover, in the years ahead, as Baby Boomers retire, the U.S. will face a shortage of skilled, experienced workers. Randolph notes, “In the Bay Area, the same number of people are about to retire as are entering the workforce, which means we will have to attract people from elsewhere in the U.S. or overseas to support a growing economy. Up to now, immigration has offset U.S. labor shortages, providing an advantage compared to Japan and the European Union, which are also aging but have more restrictive immigration laws or have failed to fully integrate their immigrant populations. Future immigration policies will therefore have a significant bearing on our economic position.”

Looking Forward

Silicon Valley holds a unique position within the global economy as the world’s first and foremost center of high technology. Many of the very technologies that led to the region’s success have succeeded in flattening the globe and leveling the playing field for other regions willing and able to create the infrastructure, establish the necessary workforce, and enter the technology game. The better prepared the Valley is for this inevitable shift, the better it will be in maintaining its economic vitality in future years.