Silicon Valley: Will it ever be replicated?

Silicon Valley is the world’s success story in an unprecedented age of technological advancement – not to mention the rapid wealth that has come with it. But is Silicon Valley a success that can be replicated, even partially?

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Memeburn has checked out the state of similar concepts around emerging markets. This is what we found across four of them.

Bangalore enjoys the nickname “Silicon Valley of India”. Besides some who miss the point and criticise the city for not being truly a valley, the defining aspects of the area when it comes to technology are present.

Business Week reports the city has positioned itself to help market a software industry that experienced massive growth over the past decade. As a result, the area is home to a number of international-class conferences focused on software in the context of the IT industry’s rapid growth in India. Challenges remain. On the down side, in the recent past some of the biggest companies have threatened to pull out of Bangalore unless infrastructure improves.

VC India has identified some internal challenges to startups within the business culture itself. These include the fact that employees prefer working for well-known brands over new companies, startups are viewed as temporary or effectively started out of necessity and not desire and so bootstrapping is not appreciated for its value. Like any social factor, though, a business culture can be changed — and turned into a competitive advantage. On these grounds, setting up the right team may be part of the edge in launching a Bangalore-based startup.

The World Bank’s recent Ease of Doing Business Index also shows up two additional challenges for India’s Silicon Valley: a difficulty in facilitating foreign capital and lengthy regulations, when compared to similar emerging markets. Companies positioned to overcome this hurdle, as many have, are likely to be those benefitting from a strong international network and the experience of existing professionals who have made their mark in India.

According to journalist Christine Mungai, “Kenya is on the brink of becoming Africa’s ICT hub due to the continued growth in Internet and mobile technology use in East Africa’s biggest economy with investors flooding the country”.

In addition to the fact that Kenya has the largest mobile money platform in the world, Mungai also makes her case by referring to the Kenya Economic Update report by the World Bank which reveals that over the last decade, “ICT has outperformed all others sectors in Kenya, growing at an average of 20 percent annually”.

Though there are 12 procedures required by law to start a business in Kenya, the ability to get into the market is relatively easy compared to other African countries. Kenya also enjoys positive sentiment from investors who believe successful businesses in the country are also easily replicable in other African states. If South Africa seeks to position itself as a gateway to Africa, Kenya is certainly proving itself a worthy alternative. Though small by contrast to some other markets, the Kenyan story so far is successful given the country’s context.

South Africa
Down in southern Africa, the Silicon Cape, which positions itself as the South African variant of Silicon Valley, faces the problem of slow internet connectivity and exchange controls. While South Africa enjoys a first world business infrastructure, technology lags and the business environment could still be a lot more favourable to new startups.

Quirk E-Marketing’s Rob Stokes heads the Silicon Cape initiative. An interview with him is revealing for both the content and the context. During a discussion in his modern styled high rise office with the backdrop of Cape Town’s Table Mountain, the location and energy are remarkably similar to the Californian home of Silicon Valley. No surprise given the success of South Africa’s private sector by corporate standards the world over.

However one of Stokes’ main contentions is the fact that regulation hinders progress. The country’s Intellectual Property Act which gives the government power to claim a stake in companies whose software was developed at any time on university campuses, runs the risk of being a disincentive to innovation where it usually is most promising – in university dorms and classrooms. That said, young companies in South Africa are effectively exempt from the compulsory and complex mandatory audit which, until now, has saddled small and new businesses. A sure sign that reform is possible.

What most countries don’t have is fast internet along with a good education system, which creates a level playing field between small companies and large entities. So says John T. Chambers, president and CEO of Cisco Systems, a company known for its highly profitable expansion through Silicon Valley acquisitions. He made the remark during a panel at Stanford University in which some of the areas major stars reflected on the region’s success.

One outcome is clear: Israel has been the most successful to date if ever there were an objective analysis of Silicon Valley’s replications.

This tiny country, smaller than most American states, is outperforming European and Asian Goliaths ten to 100 times larger, says George Gilder of the Discovery Institute, a technology research organisation in Seattle.

As Gilder reported in City Journal back in 2007, Israel passed Canada as the home of the most foreign companies on the technology-heavy NASDAQ index. Far more high-tech companies are launched per year in Israel than any country in Europe. “It seems an appetite for risk-taking is crucial, alongside strong institutions and ease in setting up new businesses. The two are bonded by an appetite for risk-taking and entrepreneurial thinking,” claims Business Journal’s William-Arthur Haynes.

Speed and a willingness to take risks seem to define the successful neo-Silicon Valley styled regions of the world. A conversation with one Israeli VC illustrated this last just year. After discussing a business idea, one question followed in the same breath as another: “When can you get to Tel Aviv?” The point simply shows a combination of entrepreneurial speed, spurred by a solid economic environment in which laws can easily and quickly be adhered to, lend themselves to facilitating societies that drive innovation while attracting capital.

Added to that conversation, is the fact that the Israeli-based individual on the other end of the phone originally started out in South Africa.

As policy leaders slowly catch on to the importance of creating attractive environments for startups, we may one day see one of the best price wars yet: an effort on the part of governments to make doing business less of a cost to entrepreneurs. That’s competition which is certain to benefit emerging markets and incentivise the latent of talent with the confidence of local and global capital to back it.

Image: christian.rondeau

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