Cities all over the world are attempting to emulate Silicon Valley's cluster of high-value tech companies, writes Monty Munford.
London's so called 'Silicon Roundabout' is home to Europe's leading cluster of tech start-ups
In most areas of life, everybody is looking for the next big thing, be it a heavyweight boxer, a globally-appealing band of musicians or the next Facebook.
The search for the "new Silicon Valley" borders on the ridiculous. Banglaore in India calls itself Silicon Plateau. Davos City in the Philippines purports to be Silicon Gulf, Ireland’s Dublin refers to itself as Silicon Bog and, most risible of all, the South American city of Santiago wants to be ‘Chilecon Valley’. The list is endless.
But what is it about Silicon Valley that makes all these global cities want to replicate its model and why? After all, the transistor was not invented there, neither was the PC, the internet, the World Wide Web, the search engine, social networks or the smartphone. In our connected global village where remote workers can collaborate online, why should a collection of tech companies in the same place matter?
It is about money, status, talent, investment and prestige. Silicon Valley is what every modern city wants to emulate. It's as if every Olympics takes place around San Francisco every day. The media love it, the world's smartest people flood into it, umpteen jobs are created and the taxes those people and those companies pay make the managing of that city a budget planner's dream.
Silicon Valley is the result of more than 50 years of development, growth and investment that started with the defence sector and continued with NASA’s Space Programme. It began to form after World War II when the R&D divisions of companies such as Lockheed Martin (the company is still there) bred a generation of scientists and engineers.
This was supported in the 1960s by the Californian government when it initiated an education strategy to support those companies, which turned Stanford, UCLA, UCB and UCSC into some of the top universities in the US.
Since 1995 the Silicon Valley Index has measured the area’s economic and social clout compared to the rest of the US and the rest of the world. In its 2011 report it estimated that $176 billion derived out of the Valley putting it at 57th in the world’s GDP rankings between Ireland and Finland. No wonder that the world’s other cities want to emulate it.
So what of these competitors in Europe? London has staked a claim and the 2012 Olympics did much to raise the profile of Tech City and its so-called Silicon Roundabout. The Tech City Investment Organisation (TCIO) is funded by the UK Trade & Investment, which supports companies exporting from or investing in the UK.
It recently hired ex-Facebook COO Joanna Shields as CEO and, among other initiatives, is evangelising a 50% tax relief for angel investors on investments of up to £100,000. Benjamin Southworth is Deputy CEO of TCIO and supports the Silicon Valley model.
“We're seeing a new generation of businesses emerge in London's tech and creative industries. A number of factors are contributing to this - one is the collision of ideas that happens in a cluster - from being surrounded by other entrepreneurs and innovators.
“This collaboration and creativity is translating into jobs and economic growth. We are fostering this growth with policies that make London the place for innovation and support such as world-class mentors for the next stage of entrepreneurs,” he says.
Jack Gavigan, a Silicon Valley veteran of the original Dot-com boom in the late 1990s, has studied the differences between Silicon Valley and London, and recently led a group of 25 entrepreneurs from London to experience the Silicon Valley culture at first hand.
“If you look at all the existing and potential tech cluster locations across the world, Silicon Valley is a complete outlier in all respects. It's not the norm. It's highly unusual. So, there's no point in obsessing over it too much.
“Aspiring tech clusters should play to their strengths instead of trying to reproduce Silicon Valley and taking its name in vain. London, for example, has its own unique set of circumstances. It's a capital city, a global financial centre, and one of the world's leading cities for media, advertising and fashion. Silicon Valley has none of those things,” he says.
London’s tech cluster is increasingly being challenged by the European rival cities of Berlin and Moscow that are beginning to not only emerge from the notion of being Silicon Valley copycats, but are challenging the early model of the valley with one that is 21st Century.
The core components of Silicon Valley of talent, investment and status remain, but lower taxes, reasonable rents and more reliance on the private sector rather than the defence industry are pushing these clusters forward. Their geographical locations and costs are also a factor. Silicon Valley was always US-centric, rather than a global hub to link territories, and it is expensive to live there.
The Skolkovo Foundation in Russia is doing this with a countrywide tax rate that is only 13%. Set up in 2010, the Foundation’s mission is to change Russia from a country that is perceived as a mineral-producing country of oil and gas to one that is friendly to the entrepreneur community. It incubates more than 800 start-ups in Moscow, as well as encouraging global corporates to set up R&D departments in the city.
"This is probably the biggest R&D project in the world and we want Moscow to be the place for foreign companies to invest and a legacy for Russian kids so they become entrepreneurs and stay in Russia, not seek their fortune elsewhere, especially California. We respect the Silicon Valley model, but we are our own city", says Alexander Chernov, VP Communications of the Skolkovo Foundation.
The 800 start-ups that are participants in the Skolkovo project work across the energy, IT, nuclear, space technologies, communications and biomedicine sectors. One such Skolkovo-backed company is Vizerra, a company that has created a software platform for architects, engineers and designers to build real-time 3D models. Its CEO Arman Gukaysan is confident that Russia is slowly creating an entrepreneurial spirit that welcomes all types of companies setting up in Skolkovo.
“In three to five years we will see Moscow start-ups go global and become a global ‘Silicon Valley member’. That would be the best result and eventually help to make the global shift in this country. What should be remembered is that Silicon Valley may have been a successful model, but it was an early model and all models improve over time”, he says.
But what defines a city cluster? There are many aspects to creating a successful one. There has to be great universities nearby, scope for commercial expansion, a large population, a strong work ethic that can speak many languages, especially English, and ‘reasonable’ costs.
Berlin is such a city and while Moscow may still suffer from the hangover of being seen as a dangerous place to live and do business, Berlin suffers no such stigma. It is seen as a cool place to live and it was this essence that led UK social media monitoring company Brandwatch to open up an office there.
“We shortlisted four cities when we researched the sector. Apart from Berlin the others were Paris, Madrid and Sofia. We chose Berlin as it scored high or very high on all the dimensions we looked at. Surprisingly, cost was near the bottom of our list in terms of weighting.
“When it comes to creating something, quality is far more important than cost. Berlin has some great development talent and is beginning to attract people from other cities and countries - we didn't have to ask twice for volunteers from the UK to go and run the new Berlin team and that wasn't just because Berlin is a cool city,” says Brandwatch CEO, Giles Palmer.
The battle in Europe between the three major cities of Berlin, London and Moscow, not to mention other regional clusters such as Paris, Helsinki and Israel’s Tel Aviv, appears to be ongoing. Whether it is low taxes, urban coolness or Government support, it appears the Silicon Valley model shows little sign of wearing out just quite yet. The search for the Next Big Thing goes on.
Source: telegraph.co.uk