Sunday, November 25, 2007

Technological Competence

It is a tale of two media stories. One is the front page article in San Jose Mercury News – ‘Silicon Valley’s edge: How globalization strengthens the tech economy’ and the other is Andy Mukherjee’s yet another solid opinion piece in Bloomberg online – ‘U.S. Patents Show Asia Decoupling Will Be Slow’.

(San Jose Mercury News, November 25, 2007
http://www.mercurynews.com/ci_7554207?nclick_check=1 )

(Bloomberg. Com, November 26, 2007
http://www.bloomberg.com/apps/news?pid=20601039&sid=abIekWwn1dNY&refer=home )

The first article is essentially follow up soft news item on how Valley is doing after Tom Friedman published his popular book ‘The World is Flat’. The conclusion of the article is that Valley is doing good and may be even thriving. To substantiate, the articles touts the ever larger outside USA sales of Valley companies, pouring of VC investment in Valley startups and how so many outside USA technological companies are trying to have their presence in the Valley to gain new technologies. Nothing is wrong with these arguments. But is it not the old news? It is one thing to point out that how Valley is back to it’s groves but quite another to have splash on the front page with a celebratory tone article about that. One wonders how can the article ignores the solid foundation of American Capitalism which makes it possible in the first place to have Silicon Valley’s of the world? How can one ignore the ready access to the American Market, still largest in the world? This means the real news will be about how Valley fares with other centers within USA itself and some other places from developed countries (To it’s credit, some time back Mercury News did ran a study of competitiveness of various American urban centers, compared with Silicon Valley) All other centers in rest of the world still loose on account of these obvious advantages – truly entrenched institutions of Capitalism, basic legal framework, access to a large home market and competitive infrastructure. In that sense it is the still unfair comparison with all those outside USA centers like Beijing, Taipei, Seoul, Shanghai, Bangalore and so on.

The question of ‘flattening of the world’ came into the picture for the simple reason of ‘wage arbitrage’ and to some extent availability of manpower; at least to start with. Hence Valley lost some of the 200,000 jobs in the Dot Com burst due to outsourcing. But in itself these outside USA centers never started as true challengers to Valley’s Tech dominance. And hence to compare now with those centers and then triumphantly (or gloatingly) declare that Valley is doing good does not do ‘any value’ addition to true challenges Valley faces, does not do true justice to Valley’s strengths and does not shed any light at all what the future holds for Valley. The San Jose Mercury News article is a case in point of useless journalism. At worst, it would instill a sense of complacency in Valley folks. (The worst kind of failure, the paper rightly recognized in case of Bangalore – how Bangalore is sleeping while many other Asian cities are stealing it’s march on outsourcing business as well as technological prowess.)

The real (and obvious) news is how ‘weak dollar’ is the shot in arms for the Valley. Not only it increases overseas sales, it makes Valley products more competitive and importantly make the Valley cost base not that expensive. However, the question is how long Valley economy can be in isolation from rest of the USA when larger American economy could be facing some serious challenges.

Andy Mukherjee’s online article attempts to answer that question and it does a good job of getting a handle on the subject. The basic point is not just Silicon Valley, but rest of the world itself cannot very easily decouple from the larger American Economy. Andy argues that such decoupling is difficult since in the end most parts of Asian economies (which are new, eager buyers of Valley gears and services) are dependent on consumption by Americans. Home grown consumption within Asia still lags the overall GDP growth in those economies. When domestic consumption of these economies would increase and those economies would create entirely new product lines and markets for those products based on technological innovations (think of Apple’s iPhone and Google’s search based ad revenue); then really those economies would cross the Rubicon of decoupling from America. (Nouriel Roubini – www. rgemonitor.com - has been arguing against such ‘decoupling’ for a long time. Andy Mukherjee’s online article is another take on the same thesis.)

When one looks at the patent data, Andy argues, it is clear that ‘prior art’ still refers to work done in America in so many cases. When ‘prior art’ in a patent application refers to the work done by teams in your local economy; you get the case of true manifestation of undeniable, sustainable building of competence in that area. That is a true evaluation of an economy in ascertaining whether it has acquired leadership position in a particular industry or technology. That is the ‘holly grail’ and hence Andy’s article explains what might be going right in larger American Economy as well as Silicon Valley Economy in specific. Mercury News article somehow misses that point and lands up as a superficial, useless media effort.

Umesh Patil
Cupertino, CA 95014
November 25, 2007

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