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New study analyzes challenges to Silicon Valley's Internet industry leadership
High-Level Panel to Discuss Why Valley Internet Companies Might Leave Home PALO ALTO, CA (July 21, 1999) – Silicon Valley's historical dominance of the high-tech industry places the region at the forefront of the new economy, but growing operational and infrastructure challenges, coupled with increasing competition from other U.S. regions, may jeopardize the Valley's position as the geographic center of the Internet industry, according to a new study released today by Joint Venture: Silicon Valley Network and management consulting firm A.T. Kearney. "We've relied on our technology foundation and unique entrepreneurial culture to become the region of choice for the Internet industry," said Ruben Barrales, President and Chief Executive Officer of Joint Venture. "The emergence of 'clusters' of Internet companies in other regions around the country clearly indicates that other factors play a crucial role in attracting and retaining Internet companies. To remain the leader of this vital industry, Silicon Valley needs to shore up its relative advantages and address the internal challenges that can undermine our competitive position." Performed for Joint Venture by A.T. Kearney's Global High Technology Electronics Practice, the Internet Cluster Analysis includes results from a survey of more than 100 Internet executives around the nation. The executives identified seven U.S. regions that have emerged along with Silicon Valley as leaders of the Internet industry: Seattle's Silicon Forest, San Francisco's Multimedia Gulch, Los Angeles' Digital Coast, Austin's Silicon Hills, Boston's Route 128, New York City's Silicon Alley, and Washington, D.C.'s Silicon Dominion. "Interestingly, location matters as much in the virtual world of the Internet as it does in more traditional industries," said Bruce Klassen, vice president of A.T. Kearney and co-leader for the firm's Western region. "And to remain the leader, Silicon Valley must develop new approaches that deliver the best environment for Internet content and hardware providers." The analysis and its implications for Silicon Valley will be discussed today by a panel of high-level officials from government and the high-tech industry, including San Jose Mayor Ron Gonzales, AltaVista President and CEO Rod Schrock, and Pradeep Jotwani, a Senior Vice President at Hewlett-Packard. The analysis reveals several challenges that, if not addressed by the Valley's leadership, may jeopardize the region's attractiveness to Internet companies: Access to talent. The factor influencing company location decisions cited most often by the Internet executives surveyed was access to a large and skilled talent pool. Three-quarters of the executives indicated access to talent is a primary concern. With a high-tech workforce numbering more than 450,000, Silicon Valley offers a rich supply of this sought-after resource; however, the region's domestic high-tech workforce is not keeping pace with industry demand. In fact, roughly one-third of the area's high-tech employers' demand is not being met by the region's workforce. This shortage is driving up salaries and increasing costs related to recruitment and productivity loss, resulting in incremental costs to area high-tech employers of at least $3 billion a year. Proximity to other industries/support services. The high concentration of high-tech 'pillar' companies in Silicon Valley produces synergies that promote the growth of Internet companies. Other regions, however, offer proximity to pillars in different industries, giving these regions their own unique advantages. For example, Internet advertising companies prefer New York City's Silicon Alley because of its proximity to Madison Avenue advertising firms. Access to capital. Silicon Valley's wealth of capital–one-fourth of venture capital invested in the U.S. goes to Silicon Valley–creates a symbiotic relationship between investors and Internet entrepreneurs. Increasingly, however, funding for Internet start-ups requires 'seed-level' investment that may not be large enough amounts to land on the radar screen of many Silicon Valley venture capitalists. Quality-of-life issues. Despite bountiful natural advantages, such as a temperate climate and an active outdoor lifestyle, the Silicon Valley region is facing growth-related issues that have arisen mainly as a result of the Valley's economic success. Ever-mounting traffic congestion and long commutes, expensive housing, upward pressure on salary levels and the loss of talent may undermine Silicon Valley's leadership of the Internet industry. Joint Venture: Silicon Valley Network is a non-profit regional collaborative focused on preserving and improving Silicon Valley's economic vitality and quality of life. The organization brings together leaders from business, government, education and the community to develop solutions to issues affecting the Valley. Funded by more than 120 local private- and public-sector investors, Joint Venture currently implements a number of policy programs in Silicon Valley, including the 21st Century Education Initiative, the Smart Permits Program, and the Healthy Communities Program, and has incubated several successful initiatives, such as Smart Valley. In addition, Joint Venture provides reliable regional information about trends affecting the Valley through reports like the annual Index of Silicon Valley. A.T. Kearney is one of the world's fastest growing management consulting and executive search firms. With a global presence spanning every major and emerging market, A.T. Kearney provides strategic, operational and information technology consulting and executive search services to the world's leading companies. The firm's Global High Technology Electronics Practice, located in the heart of Silicon Valley, specializes in serving those companies that are creating the technologies that enable the Internet Age, and assists companies across all industries in the development and implementation of e-services and e-commerce strategies. The full text of the Internet Cluster Analysis and a downloadable PDF version (2.5 MB) are available on Joint Venture's Web site at http://www.jointventure.org. |