TCS Daily

Whither Innovation?

By Dominic Basulto - January 6, 2004 12:00 AM

Generally considered the hub of innovation and entrepreneurial activity in the world, Silicon Valley is seeing its once insurmountable lead in technological innovation slipping away to competitors such as India and China. Most distressingly, world-class technology companies like Oracle, Microsoft and Motorola are now tripping over themselves in their rush to ship thousands of high-end R&D jobs to India and China. In just the latest example of this trend, technology superstar Google announced plans to hire at least 100 engineers for its new R&D facility in Bangalore, India. What is most disconcerting is that these companies are not shipping jobs overseas purely for cost-cutting reasons (although, no doubt, that plays a key part) -- they continually cite the inability to find the type of scientific and engineering talent needed to fuel world-class R&D facilities within the USA. It's one thing to outsource low-skill call center and back office jobs to India and China, but it's quite another to place more faith in the intellectual prowess of foreigners than in home-grown Americans for high-end R&D work.

Signs of this erosion in innovation leadership are everywhere. The five Indian cities of Bangalore, Delhi, Mumbai, Chennai and Hyderabad now account for more than 300,000 IT-related jobs -- including as many as 40,000 R&D jobs. Moreover, there are ominous signs that these cities will continue to gain more jobs at the expense of Silicon Valley. Indian IT outsourcing firms such as Infosys and Wipro consistently hype the need to move into higher-value added areas like IT consulting, as part of a strategic push to grab market share from tech behemoths like IBM and Accenture. Imagine: Indian companies advising U.S. companies on IT strategy. The head of Indian IT outsourcing giant Wipro, in what can only be described as slap in the face of Silicon Valley, explains why this is possible: "U.S. society is not being re-skilled and re-tooled to stay on top of the emerging environment."

U.S. technology firms appear to buy into the argument that the future of innovation lies elsewhere. Oracle just announced plans to construct a 600,000-square foot R&D facility in Bangalore. It is not just a dusty back office warren for IT workers -- it will be a lush 7.3 acre campus that includes a gym, library and sports facilities. Intel plans to move into a $41 million, 42-acre Bangalore campus in 2004. Already, IBM, Microsoft, Dell and Hewlett-Packard occupy more than 1.1 million square feet at R&D facilities in India. Those are jobs that won't be coming back to the USA anytime soon.

As more companies transfer R&D jobs overseas, America's dominance in next-generation intellectual property will come under increasing pressure. In fact, the New York Times reports that the India-based R&D units of companies like Cisco and Intel have filed nearly 1,000 patent applications with the U.S. Patent & Trademark Office in just the past two years. In short, Silicon Valley has single-handedly turned India into the #2 R&D hub in the world. According to the head of A.T. Kearney in India, "In the process of getting low-end work done in India, multinationals discovered that there are not too many locations where they can find this abundance of superior talent at these kinds of costs." The important point is that the rate of innovation in India now rivals that of Silicon Valley -- and rivals in every corner of the world are no longer wowed by the myth of Silicon Valley.

Finally, consider the latest report from the World Economic Forum, which lists the 30 most innovative companies in the world -- the so-called Technology Pioneers. The good news is that 18 of those companies are based in the United States, including 7 in Silicon Valley. However, for the first time ever, a company from China (CK Life Sciences) cracked the Top 30. In the year earlier report, the U.S. claimed 27 of the top 40 spots, finishing a clear #1 to rivals such as the U.K. (4) and Germany (2), and China was nowhere to be found. In coming years, one expects that the names of Chinese, Indian and Korean companies will increasingly populate the list. It is not a stretch of the imagination to believe that Indian R&D workers will go on to found the next generation of innovative start-ups -- in India, not Silicon Valley.

Over the past 30 years, Silicon Valley has continually reinvented itself to respond to external competitive threats. It is quite clear that Silicon Valley once again faces a staggering threat to its dominance in innovation.


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