While most investors agree that Silicon Valley is at the top of a greater region of technology sprawl, it is the leading and most dynamic and flexible innovation ecosystem on the planet, the questions that arise are narrow in scope but surgical. Most people are now questioning The Valley from the bottom up, asking serious questions about its monoculture, lack of social and political diversity, while Texas, Arizona, Florida, Utah and North Carolina all entice California firms to relocate into their states with tax and educational incentives. More importantly, let’s not forget the challenge from China, the new tech powerhouse that has an army of engineers and a powerful state-sponsored capitalism model that is focused and determined to expand its influence. China wants to win in AI and all other fields of tech, and the firms do not care about politics, human rights nor the name of the buyer of their products.
Silicon Valley as we know it started in the period from the 1950s to the 1970s with the first firms being military hardware firms or defense related firms such as Lockheed, Stanford Research Institute, NASA, as well as the commercialization of the integrated circuit. As we moved from the late 70s into the 1980s, the second wave of companies ran with the integrated circuit business so AMC, Fairchild Semiconductor, National Semiconductor, with semiconductors as a businesses exploding. From 1987 to 1996 the personal computer boom took hold and the number of engineers exploded in Silicon Vally with Xerox, Apple, SRI, and 15 other computer companies built offices. From the 1997 to 2005 period the Netscape boom and the internet became the next driver with Google, and many others taking hold. and the fifth wave of the Valley was the 2206 to 2013 Social Media revolution as LinkedIn, Facebook, and hundreds of other social media companies were developed in the valley.
The area is home to some of the top universities including Stanford, UCLA, USC, CalTech and many others. Silicon Valley strip mines from the Ivy League schools and with 1,000,000 overseas students studying in the US, firms like Google, Facebook and Apple have first shot to hire top graduates from overseas origins. As Ian Bremmer, the geopolitical scientist says, “there are over 400,000 Chinese and Indian students studying in the US, and we should not care about how many come to the study, but only the number we can hire to stay and work for US firms.” It is important to note that Bill Gates worked with the US government to change visa status to allow as many as 300,000 students from overseas to stay in the US each year – these companies needed engineers. Over 40 percent of engineers that live and work in Silicon Valley were not born in the United States. And over half of all the startups launched in Silicon Valley are done by entrepreneurs who were immigrants.
Some say that without foreign imports of new talent from India, China, South Korea, Russia and about 10 other countries, the US tech industry will die. In short, the industry relies too much on overseas talent.
But there are challenges that face Silicon Valley such as the cost of housing. Of course high paid executives and engineers can pay for higher rents, as can lawyers but some of the junior staff working in the valley are no commuting 40 to 50 minutes a day, and they still pay elevated prices for small one room apartments. Traffic, primary schools for children and the inability to hold on to and recruit new talent are all becoming problematic.
And finally int the new technologies such as AI and 5G, Chinese firms are committing large amounts of capital and marshaling armies of engineers to take the leadership position. This will be a significant challenge for Silicon Valley and its leadership position in the future.