Silicon Valley Shows How Globalization Can Help a Regional Tech Economy Thrive

A view of downtown San Jose, the self-proclaimed "Capital of Silicon Valley."

A popular 21st century economic maxim holds that the world is flat -- or at least flattening.

Yet as countries, companies and individuals have begun to compete on a more level playing field, Silicon Valley's status as the world's pre-eminent tech center has been strengthened, not weakened, by the evolving global market.

The same high-tech tools that radically diminished the significance of location and distance have, ironically, enhanced the valley's position as a test lab and marketplace for innovation and industry, say many executives, entrepreneurs, economists and scholars.

Just a few years after a tech crash wiped out 200,000 jobs in the valley, the region is riding high on a global market it helped create. The rise of tech hubs in China, India, Israel and elsewhere has reinforced the valley's leadership, not threatened it.

Consider the evidence:

-- Homegrown giants are thriving. Revenues to valley icons such as Hewlett-Packard and Cisco Systems are soaring from the expansion of global markets. HP's non-U.S. revenue climbed from $43.9 billion to $59.5 billion from fiscal 2003 to 2006 and now comprises 67 percent of total revenue. In its most recent quarterly statement, HP highlighted how revenue from the "BRIC" countries -- Brazil, Russia, India and China -- had grown 37 percent compared with the same quarter in 2006. And Cisco, for its fiscal year 2007, reported 45 percent year-over-year growth in "emerging markets," a broad category that includes Russia and 129 smaller nations.

Meanwhile, the valley's software, computer chip and Internet companies are also enjoying strong growth. Google leads the way. Its market value over the past three years has soared from $45.8 billion to $211.7 billion.

The valley has long been home to the world's largest collection of tech companies, including 17 of 30 listed on the Amex Computer Tech Index. Many of those are racking up strong revenue, both in the United States and abroad, enabling them to invest in research and development, make acquisitions and fund start-ups.

-- The start-up culture is flourishing again. In the third quarter of 2007, venture capitalists invested more than $2.48 billion in more than 260 valley companies.
The numbers reflect a longstanding pattern: Venture funding to valley companies -- from inside and outside the region -- has long dwarfed the amounts in other regions, including many large developed nations.

The valley remains vital to the Web's continuing evolution. In less than two years, YouTube went from an idea to a $1.65 billion acquisition by Google. Within the bustling social-networking sector, Facebook, LinkedIn and Ning, as well as "virtual worlds" Second Life and Gaia, are headquartered between San Jose and San Francisco.

Even several sites that target audiences elsewhere are based in the valley or close by. Bebo -- the top social-networking site for the United Kingdom, Ireland, Australia and New Zealand -- is headquartered in San Francisco. The top sites for the Philippines (Friendster), Brazil (Google's Orkut) and Turkey (Yoonja) primarily operate from the Peninsula, thousands of miles from their users. Facebook recently disclosed that 60 percent of its users were outside the United States.

-- The valley's magnetism remains strong. Multinationals like Nokia and Microsoft have expanded their presence there, and many overseas start-ups are moving operations to the valley to be closer to potential investors, partners, ideas and customers. Recent arrivals include major law firms with global reach, such as DLA Piper, eager to partake in international deal-making.

The city of San Jose's U.S. Market Access Center, designed to help foreign firms do business in the valley, now has about 35 firms as tenants and 100 percent occupancy, up from about 30 percent in spring 2006, its director says.