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Offshoring, Outsourcing, Bring Changes to Silicon Valley - 2004-07-28

The growth of high-tech centers in places like Bangalore, India, have changed Silicon Valley, home to many of the world's top technology firms. Business leaders say the region has challenges, but expect it to remain a force in the high-tech industry.

Dan Gillmor, a columnist on high tech issues for the San Jose Mercury News, says the success of Silicon Valley has led to a paradox. The companies in this region have created the tools for long distance collaboration, allowing them to decentralize and forge overseas partnerships.

He says the facts of global trade have made this outreach necessary.

"Strictly in this area, in terms of technology, the long-term trend is more dispersal of talent and development, and I think on balance, that's a good thing," he says. "It may not be the best for Silicon Valley, but the Valley has its own unique characteristics that will continue to keep it at the forefront, though maybe not with the huge advantage that it once enjoyed."

Today, competition in the high-tech industry is intense, and engineers in India will work for just one-fourth of what engineers demand in the United States. Silicon Valley has lost more than 200,000 jobs since the collapse of the Internet economy in 2001. But the job losses have slowed, says economist Mary Daly of the Federal Reserve Bank of San Francisco.

"We're absolutely not hemorrhaging jobs any more and, in fact in some states and some sectors, you see a recovery in the job picture," she says. "And in the worst hit areas, you see a stabilization of jobs losses. So I think the signs are for a recovery in the IT sector, and we certainly see that in production and output."

Silicon Valley has seen some recent successes. Google, the popular Internet search engine, is undergoing its initial public offering, exciting both analysts and prospective shareholders.

On a smaller scale, the San Francisco-based company has just gone public and is showing a profit, as its provide a novel service over the Internet. Salesforce allows clients to maintain sales and contact information on its web site, giving small firms the same high tech tools for sales and customer service that their big competitors have. The site can be accessed anywhere in the world, in 11 languages, through any computer with Internet access.

Salesforce founder Marc Benioff says more than 10,000 companies subscribe to the service. He says clients need no special software, and geography is no boundary.

He says that global reach is also true of Silicon Valley, which for him is not a location, but a mind-set.

"Silicon Valley is not from San Jose to Menlo Park. Silicon Valley is the mind of the entrepreneur that you can create a great company and take it forward," he says.

But there are problems in the Valley and throughout the high-tech industry, says Carl Guardino of the Silicon Valley Manufacturing Group, an association of 200 high tech companies. He says the United States consistently ranks below other industrial nations in math and science scores for students in elementary and high school.

On the other hand, he says the United States has some of the world's top universities, but that too few students focus on science and math. The opposite is true in certain developing countries.

"China graduated about 195,000 engineers the year before last. India graduated about 135,000. The United States graduated 60,000. And those engineers being educated in other countries are just as smart, and I would argue, even hungrier, and we can't have those types of numbers if we're going to compete," he explains.

He adds that more than half of US students now getting post-graduate technology degrees are foreign born.

Many who come to study stay here, however, like Indian-born Pradeep Sindhu, founder of Silicon Valley's Juniper Networks. One of the region's success stories, the maker of network routers and switching equipment is expanding its market share. But some of its software is developed in India, and all of its manufacturing is done overseas. Christine Heckart, Juniper's vice president of marketing, says the company is pursuing opportunities where it finds them.

"Some of the best engineering talent, marketing talent, management talent in the world is here in the Valley and we want to leverage that," she says. "But this isn't the only place that we want to leverage outstanding talent. There's outstanding talent in India for software. We want to leverage that. There's some outstanding talent in China around manufacturing. We want to leverage that."

Venture capitalist Terry Garnett says Silicon Valley is like a heat-seeking missile, targeting opportunities, both in the United States and overseas. He thinks the region will always have a role in the high-tech industry, nurturing innovation and serving as an entryway to opportunities.

"What's unique here is that there is a tolerance for failure," Mr. Garnett adds. "You know, this is the Ellis Island of the 21st century. This is where you come to try it. You can be anyone. It doesn't matter if you've got all the credentials or you're 'doctor this' or 'doctor that.' If it's a phenomenal idea and you can create it, there's a high level of acceptance here."

However, he adds, you may develop your product in India and manufacture it in China.

Outsourcing has become a political issue in the United States, where many high-tech jobs have moved offshore, much as heavy manufacturing did in the 1990s. But people here say that despite its challenges, Silicon Valley will remain an incubator, and a key hub in a growing international high-tech network.