The Lessons of Silicon Valley

The world’s preeminent hub for technology, Silicon Valley is a byword for innovation. Today, it is home to many of the world’s largest high-tech corporations, including more than thirty businesses on the Fortune 1000 as well as thousands of promising start-ups. Further, Silicon Valley accounts for one-third of venture capital investment throughout the U.S.

But Silicon Valley itself came into being through a curious series of events and happenstances. A key question for policymakers seeking to develop new technology dynamos is to consider whether and what elements of this experience can be replicated.

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(i) A Tradition of Entrepreneurship and Research

Located in Santa Clara Valley in California’s San Francisco Bay Area, Silicon Valley got its nickname from journalist Don Hoefler in a 1971 Electronics Magazine article that chronicled the region’s newfound pre-eminence in the business of semiconductors, for which silicon is a prominent ingredient. While the semiconductor industry arose in the 1950s, Silicon Valley’s success is rooted in the establishment of Stanford University in 1891. Leland Stanford, a leading entrepreneur of the 19th century who made his fortune in railroads, bought an 8,000-acre property in Santa Clara Valley upon which he then built Stanford University.

Leadership also mattered in the evolution of Silicon Valley. In 1946, Frederick Terman became Stanford’s Dean of Engineering. Dreaming of invigorating the West Coast’s electronics industry, Terman worked to strengthen the university’s electronics and innovation programs. Terman developed new administrative guidelines for Stanford’s research: all sponsored research was to benefit the educational mission of the university, would pertain to the specific interests of faculty members, and would be carried out by both students and faculty. Globally, this development coincided with the end of World War II- which left the manufacturing capacity of other advanced economies in tatters, but from which the U.S. emerged stronger than before.

(ii) The Rise of Fairchild

Fairchild Semiconductors was founded in 1957 with funding from Sherman Fairchild. Fairchild Semiconductor’s earliest customers were federal agencies, including the Department of Defense and NASA. The business was immensely successful: by the end of their third year, their annual revenues were over $20 million and reached $90 million annually by the mid-1960s.

Over the years, many of its engineers and managers left the company to form new start-ups in the semiconductor industry. In 1980 alone, Fairchild Semiconductor gave birth to over fifty new companies throughout Silicon Valley. The legacy of this gradual exodus is what we know as Silicon Valley today. In 1970, semiconductor businesses in the Valley employed about 12,000 people. Today, about 70% of the over 130 Bay Area companies trading on the NASDAQ or NY Stock Exchange can be traced back to the founders and employees of Fairchild.

(iii) People, People, People

Silicon Valley has been the preeminent worldwide hub for technological innovation of the last several decades. Beyond its role in the history of semiconductor chips and computers, the area has a remarkable concentration of talented individuals, high-tech research universities, corporate R&D laboratories, and the largest concentration of venture capital funding in the nation. Innovators from the region have not only commercialized new, groundbreaking products, but have pioneered entire new industries. The technological advances spawned by Silicon Valley’s brightest minds have played a significant role in furthering the United States’ status as a global technology leader.

As its distinctive history shows, the much-desired Silicon Valley model cannot be artificially replicated. A haphazard combination of gold rush prospectors, shipping magnates, and railroad tycoons set on building a college in a quiet valley in central California created a focal point of microelectronics research and production, funded generously by the federal government. These ingredients may not be available or suitable in other parts of the world. But one key ingredient cuts across all innovation hubs – to have the brightest minds to develop new technologies and disrupt those existing.

Do we do that? Cyberjaya started with great promise but it is focused on buildings and roads, not so much on people and ideas!

Reference:

The lessons of Silicon Valley: A world renowned technology hub, Gabrielle Athanasia, Center for Strategic & International Studies, 10 February 2022