Specific Research Project (SRP)
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Silicon Valley Author:
Paolo Giorgetta, The author welcomes any comments to the topic December 2000 Abstract: Silicon Valley is a region in the south-western part of the San Francisco Bay Area, which can be considered as the mecca of high-technology. But what's all about? How could such an environment emerge and develop in such a manner, that within a relatively short period of time Silicon Valley itself is, economically spoken, ranking within the first 10 most powerful countries worldwide? What are the driving forces of Silicon Valley? And what are the effects of such a development on Banking, on the Valley's environment and on people living there? Keywords:
Burn down rate Table of Contents 1. Introduction 1.1 My internship with Bank of Los Altos 1.2 Why an SRP about Silicon Valley 2. What is Silicon Valley 3. The Background of Silicon Valley 4. What are the driving forces of Silicon Valley 4.1 Stanford University 4.2 Venture Capital 4.3 Lawfirms 4.4 Interfirms network 4.5 Labor market / Teamwork 4.6 High-technology industry 4.7 Capital gains 4.8 Ecosystem 5. Some effects resulting from Silicon Valley's development 5.1 Banking 5.2 Real estate 5.3 Changing landscape 5.4 Quality of life 5.5 Social aspects 6. Conclusion 1. Introduction 1.1 My internship with Bank of Los Altos The on-the-job assignment during my International Retail Banking Program (IRBP) was with Bank of Los Altos (BoLA, www.bankoflosaltos.com), a small business and consumer bank with a strong commitment to customer service, delivering a high level of personalized services to individuals, professionals and small to mid-sized businesses. Its primary market are communities within Silicon Valley. There are four branches and two real estate department. The main financial services provided by BoLA are personal and business deposits (checking and savings accounts, money market accounts, certificates of deposit, individual retirement accounts), personal loans (credit lines, home equity lines, consumer loans), business loans (lines of credit, term loans, letters of credit, sba-loans) and real estate loans (mortgages and construction loans). With total assets of $233 million as of June 30, 2000, the bank is very small but has grown rapidly since its purchase by local investors in 1995 and has become a very succesful and profitable bank. During my internship BoLA and its parent company Western Holdings Bankcorp have been merged with Heritage Commerce Corp, (NASDAQ: HTBK, www.herbank.com). In fact it was an acquisition and the CEO of BoLA resigned immediately after the official announcement of the "merger". Heritage Commerce Corp, a bank holding company established in 1998, is currently the parent of three commercial banks: Heritage Bank of Commerce, Heritage Bank East Bay and Heritage Bank East Valley. Upon completion of the merger, assets of the Holding Company and the combined four banks are projected to exceed $800 million. I had an insight in most activities within the lending business, such as customer aquisition, customer advice, credit request, credit analysis, approval process and customer retention. I was so struck by the way the credit officers handle customer care and how they can provide a personalized service to every single customer. 1.2 Why an SRP about Silicon Valley My internship at BoLA was definitely a learning experience. However, I decided not to write an SRP about my on-the-job assignment, because many reports about customer care, customer satisfaction, credit analysis, credit approval process and other topics within the credit department have already been written by former participants. As participant of the IRBP and in addition to the on-the-job assignment I had the opportunity to assist classes, given by Golden Gate University professors, to visit some Silicon Valley banks and high technology companies, to listening to very interesting guest lecturers, to read a book about this enterpreneurial region and to live for three month at Sand Hill Road in Palo Alto, considered the heart of Silicon Valley. Therefore I decided to focus my SRP on Silicon Valley itself. 2. What is Silicon Valley Driving on the Highway one wouldn't find any sign with the direction to "Silicon Valley". Not because they are hidden are because they have been stolen...actually there is no geographical region called Silicon Valley. The area became commonly known as Silicon Valley by 1975 as a result of a report written a couple of years earlier by Dan Hoefler, a reporter for Electronic News, on the history of the semiconductor industry in the Bay Area. But the Valley's history goes back to the beginning of last century. Geografically spoken, "Silicon Valley" includes the south-western part of the San Francisco Bay Area and stretches from Belmont to San Jose. It encompasses some fifteen hundred square miles, with a population of 2,3 milion, rapidly growing. About one-fourth of the residents are foreign born. Silicon Valley, as it is nowadays, is a leading-edge industrial economy, which is dominated by rapid innovation and commercialization in an expending set of new technologies, including computer (Apple, Sun Microsystem, Hewlett Packard), microelectronics/semiconductors (Intel, AMD), computer networking, both hard- and software (Yahoo, Cisco, 3Com, Netscape) and biotechnology along with medical devices, all growing and developing very fast within a very dynamic environment. The area has added about two hundred thousands jobs since 1992, with about fifty-three thousands being added in 1997. About 4,000 new firms were incorporated in the Valley in 1997. Silicon Valley is a very prosperous region. Income data, which rely on wages and salaries, are more than 150% of the national average. Not included are the capital gains from stock options, commonly used as employee's incentive plans throughout the Valley's companies and as compensation for founders and early investors for start-ups, which add hugely to the Valley's wealth accumulation. Silicon Valley is unique, because it's difficult to think of any other region that has been able to commercialize so many significant new technologies in such a short period. According to an article in the California Management Review it's a "ecosystem consisting of interdependent institutions, social norms and communities that create an environment encouraging the evolution of existing firms and, especially, the creation of new firms", all based upon expected capital gains generated especially by start-ups. Silicon Valley is also a cultural area, because it's almost bounded spiritually by people who have a common allegiance to a certain set of engineering problems or commitment to develop certain kinds of technology. 3. The background of Silicon Valley The roots of the region's history can be traced back to the radio industry of the early 20th century. Federal Telegraph Corporation (FTC), a company based in Palo Alto and founded in 1909 by a Standford's graduate named Cyril Elwell, invented the world's first global-scale radio communications system (long-waves technology) . Stanford University was heavyly involved in the formation of the company providing capital and know how. The company grew very fast because of the U.S. Navy's huge demand for transmitter during World War I. The "age of electronics" is said to have started with the development of vacuum tubes in 1912, that could generate short-wave radio signals and be applied to all aspects of radio communications: transmission, reception and signal amplification. These tubes were also developed in Palo Alto, in the laboratory of the FTC. This company later generated spinoff companies, such as Magnavox (loudspeakers), Fisher Research Laboratories (metal detectors) and many more. Along with new ideas and inventions (gammatron tubes, klystron tubes, electronic television, radar antenna, tape recorder, just to mention a few) new companies were founded in order to convert the idea in a marketable product. These start-ups and spinoffs are important to mention because they are a central feature of dynamic economic development. The agglomeration of electronics companies around Stanford University is attributed to Frederick Terman, a Stanford professor and dean of Stanford University's School of Engineering during World War II. He braught military-financed research and development to the area and encouraged enterpreneurship among his students. For instance, Terman helped two graduate students, William Hewlett and David Packard, to go into business. They started their own company in a garage in Palo Alto in 1939, building restistance-tuned oscillators and began their climb to the top of the electronic industry. The garage is commonly considered to be the birthplace of the first high-technology region. Due to the high demand for military high technology products for the U.S. Air Force and Navy during World War II and especially during the Cold War era, the U.S. government pumped (and continues to pump) billions of defense dollars into Stanford and into the high-technology companies that grew up around. Those dollars encouraged further investments in the region by established companies and encouraged local enterpreneurs to try their own hand in the defense business (for instance Varian Associates, a start-up company, which manufactured klystrons and could attract many contracts from the U.S. Navy and Air Force). Other start-ups like Lockheed Missiles and Space, Western Development Laboratories and Kaiser Aerospace broke into the missiles and space market by providing highly sophisticated communication systems for the Navy, the Air Force, the CIA and the NASA. Without these massive federal investments in Stanford's academic programs and in the industrial community, neither the university nor the region could have grown as strong as quickly. Besides these military requirements, the development of the high-tech industry is also due to the fact, that electronics began to influence more and more aspects of our society and the invention of the semiconductors (computer chips) in the mid fifties by Shockley Transistor Corporation/Fairchild Semiconductor laid the foundation for the success of the microelectronics industry. Companies such as Hewlett Packard or Varian Associates made the technical and cultural links between the microwave and the microelectronics industries and served as model for a subsequent generation of start-ups and spinoffs. Important, successful and well known start-ups within the information technology industry are companies such as Apple computers, Microsoft (headquarter is in Redmond, Washington), 3COM, Intel, Silicon Graphics, Oracle, Sun Microsystem, Cisco System, Yahoo, just to mention a few. 4. What are the driving forces of Silicon Valley 4.1 Universities As explained in chapter 3 Standford University played a crucial role in the history of Silicon Valley, but it was not the only one. There are two major research universities (Stanford and University of California in San Francisco and in Berkley), and many smaller universities and colleges. Besides pushing new technologies and innovation, they prepare students to work in the Valley and provide highly talented executive and technical workforce. But they do more than teach students, they actively promote enterpreneurship by encouraging their faculty to take what they know and to start companies or to contribute their talents to established companies in the area as consultants. In addition to this, through a well established community college system they help to assimilate skilled immigrants into the workforce and culture of the Valley. It was Stanford University who initiated three institutional innovations that encouraged the types of public and private partnerships and collaboration between universities, government and firms that helped to create an environment that made possible the networks of innovation in the Valley (see chapter 4.4 "Interfirm networks" and chapter 4.8 "Ecosystem"). The first one was the foundation of the Stanford Research Institute to conduct government supported research and to assist high-technology firms in securing government contracts. Second, Stanford opened its engineering classrooms to local companies, in which employees could enroll in graduate courses. Third, Stanford promoted the creation of the Stanford Industrial Park, which reinforced the cooperation between the university and regional electronics firms to the long-term prosperity of both. Important to know is that University of California, San Francisco, is one of the nation's leading medical research establishments with very important links to another emerging high-technology industry in which Silicon Valley is the world's leading center – the biotechnology industry. 4.2 Venture capital Venture capital is money provided by professionals who invest in young, rapidly growing companies that have the potential to develop into significant economic contributors. Venture capital and private equity firms take higher risks with the expectation of higher rewards. Venture capital is an important source of equity for start-up companies. Far from being simply passive financiers, venture capitalists involve themselves in the management, strategic marketing and planning of the companies. They are entrepreneurs first and financiers second. Even individuals may be venture capitalists. These so called "angel investors" will mentor a company and provide needed capital and expertise to help develop companies. Angel investors are usually either wealthy people with management expertise or retired business men and women who seek the opportunity for first-hand business development. A venture capitalist may invest before there is a real product or a business plan, so called "seed investing" (although "seed money" often is provided by relatives and frieds of the enterpreneur), or provide capital to start up a company in its first or second stages of development known as "early stage investing." The venture capitalist also provide needed financing to help a company grow beyond a critical mass to become more successful, so called "expansion stage financing". The venture capitalist very often invests in a company throughout the company’s life cycle by providing financing to help the company grow to a critical mass to attract public financing through a initial public offering (IPO), which is the most glamourous goal for a venture investment or to attract a merger or acquisition with another company, which is the most common way of cashing a venture investment. Venture capitalists are a very important driving force for the growth of Silicon Valley's high technology and entrepreneurial communities resulting in job creation, economic growth and global competitiveness. Compared to other economic regions, in Silicon Valley it's not a big deal for start-ups to get money to commercialize good ideas and new inventions. In the fourth quarter of 1999, 362 Bay Area companies received $5.7 billion – almost five times more than in the fourth quarter of 1998. Investments reached a record in the second quarter of 2000 with $7 billion. Still, venture funding is, as the name suggests, an adventure and accoridingly quite risky. What happens with seed and venture money? The high-technology industry is a knowledge based industry. Invested money is therefore spent as wages to management, as wages to all the people and teams involved in doing research and development, as commission to lawfirms in giving legal advice and in providing all the necessary connections, and as commission and fees for all activities helping to develop the enterpreneurial idea and to start-up the company. Besides the fact that some money is of course invested in fixed asset facilities with a liquidation value in the worst case, a great deal of money is "invested" in costs, which have no immediately "return on investment", in this context meaning revenues. Spending seed and venture money is called "burn down" in the Valley. And the "burn down rate" relates either to how much money is burnt down in one month or for how long the invested venture money lasts until there might be another funding round or until the product should be developed and should start to generate revenues. A participant of the IRBP, working for a venture capital group of a Bay Area bank, told me about a new start-up company, which was founded one year ago and which got $160 million seed and first round capital. The burn down rate is $9 million per month, investing half of them in remodeling, renewing and operational installation needs, the other half in developing the vision/idea that should lead to marktable product or service. In 6 month the company will have burned down all the venture capital and probably they still have no product and consequently no revenues. Nobody knows, if there are more equity financing rounds, if they will once succeed and will be acquired or will go pulic....or if they will fail, if the venture will be "burnt out" and therefore the investors will loose all their money. 4.3 Lawfirms High-tech start-up comanies need legal help to go into business and to protect their intellectual property, such as patents and copyrights. But besides being a legal advisor, Silicon Valley's lawyers play several important roles: As dealmakers, lawyers link their clients to potential transaction partners, especially providing them the entrance into the venture capital market. Lawyers also introduce customers to various suppliers, to licensees, to joint venturers and even to filling out top management teams with appropriate persons. Generally spoken, they play a very important role in binding together the Silicon Valleys network. As councelor, they offer business advice to new enterpreneurs about how to set up the corporate structure and to operate the organization, like common business consultants do. As matchmaker, lawyers help to facilitate cooperative relationships between enterpreneurs and venture capitalists, taking cultural rules of compatibility into account. That's a very important issue, because, the venture capitalist doesn't just finance but involves itself in the management and decision making process. To sum up, lawyers are a driving force because they reflect Silicon Valley's unique configuration of industrial, financial and legal forces and play a critical role in sharing knowledge and providing network of connections. 4.4 Interfirm Networks Another driving force of Silicon Valley's success is due to the loosly integrated interfirm networks that were a response to the market volatility experienced in the 1960s and 1970s. These interfirm collaborations involve specialist firms in the region, which maintain a trust-based relationship among each other due to proximity. From the perspective of a start-up firm, interfirm networks and out-sourcing activities could be explained as follows: A contract manufacturing firm develops the prototype, a public relation firm provides assistance with strategic marketing and trade shows, an accounting firm provides the processing of all the financial issues, an executive search firm recrutes new management teams, a real estate firm provides customized facilities and a law firm performs initial incorporation, patent filings, stock allocation issues and alliance agreements Out-sourcing was found to be more efficient than vertically integrating the entire production system, because the firms and their local suppliers spread the costs and risks of developing new products while allowing them to focus on their core competences and enhancing their ability to adapt rapidly to changing merkets and technologies. 4.5 Labor market / Teamwork The unemployment in the U.S. is at a quarter century low and in Silicon Valley there is even a lack of knowledge workers available. The consequences is that the federal and state government facilitate the deployment of highly skilled people from all over the world. The deployment of immigrants from India is remarkable. Another consequence is the fact, that many managers, engineers and other employees move from one firm to another firm in pursuit of more interesting projects, improved conditions, higher wages, better stock option packages and many other benefits. That's the reason, why the turnover rate in the Valley is so high. Silicon Valley's firms meet the majority of their labor requirements swiftly and at low cost by hiring skilled and experienced workers from the local labor market. The technological dynamism and forms of manufacturing flexibility in Silicon Valley are predicated upon fluid employment relations and efficiencies in job search and interfirm worker mobility within the local labor market. These labor market transactions require a localized network of linkage relations among institutions, subcontractors and firms. Silicon Valley firms fill 85% of engineering job vacancies and 98% of fabrication operatives job vacancies locally, compared to 33% and 54% for firms located elsewhere within the U.S. One could think, that a high turnover rate is destructive for research teams and for firms. Yes, it could be, but in Silicon Valley the flexible employment and the interfirm mobility initiated the rapid circulation of information, specialized knowledge, skills and experience among firms and thereby upgrading the entire region's capabilities. These labor market dynamics can definitely be considered a driving force. It's important to know, that within a typical high-technology firm the working environment and the way managers and employees behave and work together is based on an informal and participative corporate culture. The organizational structure is flat and cross-functional teams are put together. The Valley's companies focus very much on teamwork to get things done and there is a belief that if you put the right team together and get people working in the right direction it would solve the problem. The Hewlett Packard way with ist decentralized corporate structure and informal management style, its emphasis on teamwork, shared responsability, and entrepreneurship, became very typical for Silicon Valley. 4.6 High-technology industry The high-technologgy industry has been an emerging and fast growing industry. For instance, the semiconductor industry, the initial shaper of Silcon Valley, has grown by about 3,000 % over the past twenty years. The commercialization of the Internet since 1995 has induced the greatest wave of start-ups and initial public offerings in Silicon Valley's history. Due to this enormous development and with the perspective of a high growing potential, especially in the biotechnology and medical devices industry, the industry itself is a driving force of Silicon Valley's success story. Moreover, the high-technology industry is a knowledge-based industry. Silicon Valley's companies and enterpreneurs are at the source of new inventions and of new research laboratories results. In addition to this, having only people and know-how as the most valuable assets (compared to other industries with a great deal of tangible assets) they are very flexibel and can adapt very quickly to new developments. 4.7 Capital gains Founders, executives and employees often hold stock-options and shares to a high percentage of a firm's capital value. Venture capitalists/investors, involved lawfirms hold stocks and most banks, which help to finance start-ups providing loans, get warrants. This practice rewards success with giant capital gains and is definitely a motivation factor for involved firms and involved individuals. Money has always been a driving force and it generates intense commitment. Silicon Valley is the best example. 4.8 Ecosystem An ecosystem is a clearly defined, recognazible and self-regenerating system. Applied to Silicon Valley it suggests on one hand the innovativ spirit resulting in continual creation of new ventures, spinoffs and start-ups and on the other hand a rapid recycling of failures. Several components have turned Silicon Valley into a ecosystem: corporate and government research institutes and universities, the venture capital and law community and interfirm networks (see chapters above). Besides these institutionals components there are other points, which are important to understand the ecosystem: The pioneering spirit and the determined work ethic born out of Californian history of pioneers has definitely to be considered very important. A culture of learning by doing and by failing is widespread in Silicon Valley. Enterpreneurs are measured by what they currently are, not by what they did in the past, whether their previous venture was a success or a failure. New products in technology-based industries are refined as the result of a learning process, in which innovators not only learn by doing, but also by failing. Another point that has to be taken into account is the continuous interfirm mobility. Executives move from high-tech companies into venture capital, investment banking, consulting or even leave the security of an established firm to join smaller one or to start their own companies. And consultants move on to become managers or executives. Bill Krause for instance (we had the opportunity to have him as guest lecturer in our class), had a successful career with Hewlett Packard where he could learn all the necessary skills. He left the company as an executive and started with two friends 3Com and created a highly successful comany. Currently Bill Krause is a Mentor-Capitalist, supporting and sponsoring young enterpreneurs. The interfirm mobility of engineers and professionals, the proximity of companies, the fast-moving nature of high-technology industries, the frequent formation of partnerships and alliances are the main reasons that in Silicon Valley it's difficult to keep secrets. Information about products, markets and competitors is quickly obsolete in the Valley's ecosystem and have a deep impact on innovation and competition. Overall, the unique and self-regenerating ecosystem of Silicon Valley might be characterized by fleeting opportunities, changing customer preferences, great deal of technological innovations, brutally short product life cycles, furious global competition, interdependent institutions and huge capital gains. The ecosystem itself is the strongest driving force of Silicon Valley, because it is self-regenerating. 5. Some effects resulting from Silicon Valley's development 5.1 Banking Commercial and community banks in general: Overall, the banking industry has been quite successful in Silicon Valley over the last years, growing in assets, revenues and profits according to the region's strong economy development. The annualized ROA for the region's institutions was 1.35% and net interest margins mostly increased during the first quarter 2000. The aggregate asset quality continued to be strong with a total past-due loan ratio at 1,69%. Loan portfolios of the region's institutions continue to grow, particularly in the commercial real estate market and in the construction and development lending. A significant share of this growth is occuring at institutions located in markets benefiting from strong growth in the high-tech sector. Median overall loan growth of 22%, reported in the first quarter of 2000, reflected strength in the region's economy. However, the other side of the medal is that bank's portfolios in high-tech areas are becoming more and more concentrated in traditionally higher-risk loan types. That could be reason for concern in the event of a stock market downturn. (Information source: Federal Deposit Insurance Corporation (FDIC): San Francisco Regional Outlook, Third Quarter 2000). Venture Banking Group: The Venture Banking Group is part of the Greater Bay Bankcorp and it's specialized in providing innovative banking services to emerging growth technology comanies in Silicon Valley. It is by far the market leader in this kind of business in the Bay Area. Our IRBP class had the great pleasure to having Clay Jones, Senior Vice President and Group Manager, as our guest lecturer. The Venture Banking Group is as opposed to a venture capitalist not an equity provider, but a debt financier, known as venture lender. The venture bank gets involved at a very early stage of the start-up and provides customized loans as bridge debt financing, overcoming interim equity short falls, equipment term dept financing and working capital financing during the different venture funding rounds. On the long run and if the start-up is successful, venture banks might be also involved as traditional lender. Compared to commercial banks, the Venture Banking Group takes much higher risks, because they finance a start-up company which at the early stage has no product to launch on the market and therefore no cash flow. As reward for the early commitment and consequently for taking higher risks, the venture bank beside earning appropriate interests rates very often get warrants. This contractual rights to purchase company's shares might be very valuable and are a critical part of the venture bank revenues. As far as the analysis is concerned it is not based on existing financial statements and on experienced business history, because there are none. Instead, the evaluation of a start-up company is based on prospectiv issues, such as the quality of management teams and investors, business relationships, access to capital, dynamics of the specific industry, market opportunity, validity of the business plan and so forth. 5.2 Real estate On average real estate prices in the valley have doubled within a couple of years. For instance, a property in Los Altos Hills was appraised $755,000 nine month ago. Recently, the value of the same property has been appraised $1,200,000 by the same appraisor. As a result of the strong economic growth of the Valley, even San Francisco's real estate market is affected by the enormeous and still increasing demand for accomodations. The headlines of an article in the San Francisco Examiner titeled: "In the city – two buyers per seller". Among other things the author of the article refers to the fact, that a tenant of a two-bedroom flat paid $1,900. After he had given notice, the landlord raised the rent up to $3,000...and he got it. According to a home value survey in San Francisco the average increase of the tracked resale prices within a period of six month from October 1999 to April 2000 is 10.5%, that means that real estate prices could double in five years even in San Francisco. Start-up companies that would have needed 5,000 square feet office or industrial space 5 years ago are opting for 20,000 – 30,000 square feet in an effort to avoid the need for one or two moves in the coming years. In San Mateo office buildings vacancy rates dropped from 17% to just 1% and the rents shooted up from $2 a square foot to $8 and more, per month! In Santa Clara County building permits valued $3,3 billion were issued from January through October 2000, a 27% increase over 1999. 5.3 Changing landscape Suburbs are dying. Let's take the example of San Mateo/Foster City at the intersection of Highways 92 and 101. It used to be a typical suburb and as business expansion came up, it turned to a big city downtown business district with high technology office buildings and corporate campuses. Over decades, businesses have been pushed south by the lack of vacant space in San Francisco and pushed north by the increasing demand for available space in Silicon Valley. In addition to this, the convergence of freeways, the San Mateo Bridge connecting the Peninsula with the East Bay and the convenient access to San Francisco International Airport enhanced the attraction of San Mateo. The result is that there has been a boom construction in the last 10 years. Before there were large blocks of unbuilt land and large vacancies in the already existing buildings. Siebel System, the fast-growing maker of software for e-business that didn't exist 10 years ago and that only five years ago occupied a 50,000 square-foot building, built a complex of retail space, 150 hotel rooms, 450 apartments and 450,000 square feet of office space. Visa, the world's largest credit card company, has built two buildings, is putting up a third one and has plans for a fourth one. It will have a total of nearly 1 million square feet of office space by the middle of this decade. In coming to the Peninsula, the companies and the workers have changed the suburb into a city, converting unbuilt land into huge office space buildings and bringing rising housing prices, traffic and high-end restaurants. The building activity grows dramatically in the Bay Area and the competition for space for residential, industrial and office purposes increases rents, that have already climbed among the most expensive in the world, and changes the Bay Area landscape. 5.4 Quality of life There is a strong overall economic growth in Silicon Valley with consequently positive and negative impacts on the qualitiy of life. On one hand, low unemployment and rising income bring wealth to the Valley, which can be considered as a strong positiv effect. On the other hand the real estate prices are dramatically increasing and housing is getting very expensive. People who cannot profit from higher income, or not enough to keep up with the real estate prices, have to leave the Valley in order to find affordable accomodation elsewhere. As a result, people have to commute and in addition to the fact, that the population and job supply are growing anyway, the traffic is dramatically increasing on the area's roads and freeways. Moreover, there is an environmental impact of high-tech manufacturing and of growing traffic, meaning the spreading smog in the Bay Area. Many people argue, that the quality of life in the region is decreasing. 5.5 Social aspects Multicultural: Another social aspect is the great ethnic diversity of people living and working in Silicon Valley. Besides Mexicans, Europeans and people from the far east, who already populated the Bay area before the upcoming of the information technology, today there are many immigrants especially from India coming to the Valley, because it's fast growing economy requires technology-skilled people. This ethnic diversity forces people to interact in a more polite or tolerant fashion. Actually it doesn't matter if out of courtesy or because some day that other person might be useful. Measuring success: Most people living in Silicon Valley are wealthy. First of all, the high-tech industry pays good wages and it's very common, especially as far as start-ups are concerned, that companies offer a stock-option incentive plan, which is a very lucrative income source, as long as the Nasdaq Index in general (which is actually not the case in 2000) and the company specifically is doing well. Secondly not everybody can afford to live and to buy property in Silicon Valley, because life is so expensive compared to other locations throughout California and the States. Still, walking around on the streets and going out at night, you wouldn't recognise who is billionaire, who is millionaire and who is earning "only" $60'000 a year. In my opinion it's a typical cultural characteristic of the Valley. It's not a question of money and there is no need to show it buying status symbols, because many could do the same. They diffentiate among each other by discussing and comparing the value of their own stock portfolio and the value of last year's capital gains. Thast's how success is measured in the Valley and people are usually not jealous of each other's success, it's more a motivation to catch up. Belief in new technologies: It's unbelievable, how much money an idea and the involved people are worth. Venture capitalists believe in ideas and people, they rely on entrepreneur, on lawyers and on the possibility of success, spending a great deal of money without seeing a soon return on investment. The investments are long term and very speculativ. Bad luck this time, good luck next time...it's a risky game. But there is a strong belief in new and marktable technologies, not only among investors, but among all involved actors in the Valley. Workification of life: The "workification of life", as called by an University Professor, is an emerging phenomenon in Silicon Valley. As companies have built workers' loyality by treating them like a familiy, such as organising barbecues, private partys, entertaining events and providing any kind of incentives, workers use the workplace for "fun" and often use home and family time for working. Nowadays, work is transportable. That's great if one doesn't want to get in the office and stay home and work, but it's sad because the are no breaks from work, unless one has the discipline to set limits. It's not uncommon to bring the laptop in a café and work there during the whole Sunday afternoon. Moreover, people increasingly are using e-mail massages, paging or cellphone calls throughout the day to stay in touch. That's the glue that keeps business or personal friends together. Our class had the opportunity to visit Yahoo. Although they were not as well prepared to present their company as we expected, we were struck by the company's culture. All employees are dressed very casual and behave in a very relaxed manner, they have fun at work and organize lots of events in order to socialize among all team members and to celebrate company's and team's successes. Hard work is recognized and appreciated. The lacations and cubicles employees work in, are colorfully and casually decorated. Company or team goals are sprayed on the wall. Unique spirit: Silicon Valley is a region of teams and interpersonal relationship management, to be brief, a place with a unique spirit. "This "company-town" is more focused on selling a way of life than on making a product for people to buy" so says a San Jose State University anthropologists who has been studying the culture of Silicon Valley for the past decade. 6. Conclusion Although Silicon Valley has eperienced secular growth since the end of World War II, it has regularly been beset by severe slumps, which have brought with them pessimism regarding the future. In 2000, for instance, Nasdaq Index is not doing well and in the third quarter the venture funding fell by 1%. And yet, there is reason to believe that the driving forces and the institutions for new firm formation may have reached such critical mass that they can now recover from any temporary setback that might occur, especially if Silicon Valley's firm keep on riding the wave of today's Internet, of today's biotechnology and of future emerging technologies. However, there are some concerns about such a fast economic growth within a relatively small region. The economic growth is mostly due to the development of the high-technology and therefore very much concentrated on a volatile and higher-risk industry. In case of a stock market downturn Silicon Valley might be more vulnerable than other regions. In addition to this, Silicon Valley's growth has a strong impact on real estate and housing prices, on the traffic situation, on the environment and on the quality of life in general. Can Silicon Valley be copied? This SRP is an argument about the uniqueness of Silicon Valley. From this perspective it would be attempting to assume that the complicated environment or ecosystem encouraging the formation of new firms can't be reproduced in other regions. But if it's true that the world is entering a knowledge- and information-based economy, like Silicon Valley is already in, it is possible that features and practices typical of Silicon Valley may find other locations in which to spread. |
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