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AnnaLee Saxenian, The New Argonauts: Regional Advantage in a Global Economy (Cambridge: Harvard University Press, 2006, 424 pages). $27.95 hardback; paperback (2007), $18.95.

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Reviewed by Heidi Lo*

AnnaLee Saxenian´s The New Argonauts: Regional Advantage in a Global Economy details the journey of the foreign-born, U.S. educated workforce. Having developed within the Silicon Valley ecosystem, the new Argonauts are technology entrepreneurs who eventually return to help build IT ecosystems in their native countries. These regional economies, or foreign ecosystems, are successful today because they do not replicate, and thus compete directly with, Silicon Valley. The Argonauts, armed with knowledge of the Western community and their home countries, cross-pollinate business relationships and identify business opportunities between these outposts and Silicon Valley. Through specialization, each ecosystem — Silicon Valley included — has become a node in a world tech ecosystem.

Many of the foreign-born, U.S.-educated engineers in Silicon Valley were the byproduct of brain drain in countries previously lacking abundant higher education and professional opportunities. U.S. universities attracted high numbers of doctorate-seeking graduates from engineering programs of elite universities from countries such as Taiwan and India. Immigration reforms like the Hart-Celler Act of 1965 had made it easier for Asians and others to come to the U.S. Between 1965 and 1967, the annual number of scientists and engineers who emigrated from Taiwan jumped from 47 to 1321. Later reforms such as the 1990 Immigration and Nationality Act launched the H-1B program, encouraging skilled immigration and providing visas for those with highly sought occupational skills.

Early on, united by their common experiences, ethnicity and (usually) language, these workers formed professional and alumnae networks (e.g., Chinese Institute of Engineers, Silicon Valley Indian Professionals Association, Monte Jade Science and Technology Association, The Indus Entrepreneur) as a way of providing a forum to share and address concerns, seek advice that would help them to advance within their professions, and support start-ups of members with entrepreneurial aspirations. It was the presence and rallying within these networks that enabled these new Argonauts to quickly straddle two countries, build their start-ups, and make the most out of the strengths of partners in each tech ecosystem.

In Silicon Valley, as well as the subsequent technology outposts that have arisen, the groups of individuals who pioneer innovation, research and development, are those who feel like outsiders in their current environment (e.g., early Silicon Valley engineers saw themselves as outsiders experimenting with technology, the Argonauts saw themselves as outsiders and work horses in Silicon Valley). They have external knowledge and skills to bring to the table. If this is indeed the case, it would provide an argument for immigration with special visas since these technology workers have much to contribute to the U.S. economy, and many Argonauts only leave to take risks in their home country knowing that they have a guarantee to return to Silicon Valley. The U.S. would continue to benefit from attracting a diverse pool of top talent and encouraging brain circulation. The reverse would also be feasible and desirable, in a scenario where large foreign firms seek to attain multinational status and focus on recruiting U.S. talent both for their operations in the U.S. and abroad. Attracting such talent would not be too difficult if the economic and professional opportunities had lucrative potential. And with the advent of increasingly sophisticated unified communications technologies and business tools such as telepresence, the location of talent is less of an obstacle to productivity as it may have traditionally been in the past.

Acclimated to Western business practices, with knowledge of the Silicon Valley ecosystem and its contacts, and armed with knowledge of the local market, customs, and language of their native countries, these enterprising Argonauts were ready to embark onto new ventures in their home countries once they identified opportunities and saw avenues for entry in these now more developed and robust economies. However, despite the advantages these Argonauts possessed, establishing entrepreneurial roots in their native countries came with distinct challenges and varied results.

In Taiwan, a major challenge to technology start-ups in Hsinchu Science Park was funding for start-ups. The Taiwanese had previously regarded Venture Capital as a foreign practice, alien to their long-established reliance on family members controlling a business´s financial affairs. Establishing financial incentives and subsidies for new entrants, Taiwan´s government put tax breaks and matching funds into place that supported the flow of venture capital from individual and corporate investors. The establishing of a publicly-funded research and development agency, the Industrial Technology and Research Institute (ITRI) and its subsidiary, the Electronics Research and Services Organization (ERSO), also helped to transfer knowledge of foreign-developed technology to domestic firms that mass-manufacture products. For example, in semiconductor technology, ITRI with the help of advisors in the U.S., brought together a group of 37 engineers from the U.S. and Taiwan — the RCA-37 — to help form leadership in the Taiwanese integrated circuit (IC) industry. Hsinchu found its niche in production, process, design, and systems integration capabilities, allowing it to complement and not directly compete with Silicon Valley, which pursues more leading edge technology and features.

The flexibility of the Hsinchu ecosystem mirrors that of Silicon Valley, with relatively easy entry, exit, and competition within the system. This has helped Hsinchu to survive (weathering the Asian Financial Crisis of 1997 relatively unscathed, for example) as a node in the world tech ecosystem, and as some Taiwanese operations migrated over for cheaper land and labor, emerge as a catalyst for the IT industry in mainland China. This in turn has put into place a local source of electronics suppliers to support Chinese start-ups. As more hardware manufacturing shifts over to the mainland, the IC industry in Taiwan is poised to move faster into high-growth communications-related markets and focus more on higher-value research in partnership with chip designers and customers.

In China, competition among provinces, the Chinese financial and judicial system, and government policies and intervention made it a more daunting environment for returning entrepreneurs, offsetting the government-laid foundation of 53 nationally-designated technology zones and hundreds of science parks meant to help speed development. Funds were hard to come by. The dominant state-owned banks of China´s financial system favored state-owned enterprises. As a result, the first generation of start-ups were university spin-offs supported by government connections, later becoming large corporations. The venture capital investment system meant to help start-ups came with government restrictions and managerial expectations that were unrealistic for technology businesses — 0% risk with investment, 20% cap on the contribution of intangible technology in valuation of an enterprise. And, of course, the challenge of protecting intellectual property has been a thorn in the side of small start-ups and large multinationals alike in China.

Today, there are two leading technology zones in China — Zhongguancun Park in Beijing, an incubator for domestic firms, and Zhangjian Park in Shanghai, where most technology-related foreign investment is concentrated due to the park´s offering of subsidies, tax incentives, utilities, infrastructure, and streamlined customs procedures. There is little room for small private companies in these parks with policies that cater to large corporations and multinationals, and a government that oversees the Internet. Hua Ming, who serves as executive director of Zhangjiang, outright admits, “People who work for large corporations or multinationals don´t like to take the risk to start a company.” Of the small private domestic companies that do call the science parks home, there appears to be very few that are commercially successful.

The situation is similar in India in Bangalore where small local start-ups have difficulties with commercial success and acquisition of venture capital funds. Additionally, the larger enterprises that dominate the Bangalore ecosystem are reluctant to serve the domestic market because the returns are not as great as exporting their services. India´s challenges also lie in its infrastructure — frequent power outages, outdated transportation system and poor roads, barriers to internet and telecom access — and lack of adequate facilities and resources for elementary and secondary education. Successful Indian entrepreneurs in Silicon Valley recognized the challenges, helping out as angel investors as well as taking on active roles to help change government policies. For example, these entrepreneurs worked with policy makers to redefine telecommunications regulation, promote venture capital in India, and create business advisory groups. The giants in this ecosystem — Wipro, TCS, and Infosys — have found their niche in the world ecosystem as software services firms, providing competition for global consulting and services firms such as IBM, Accenture, and EDS. These giants, and other Indian business process outsourcing firms have established a foothold through providing cost-effective and efficient delivery of services.

The Argonaut advantage is their ability to be cross-country entrepreneurs and adapt existing foreign technologies and products to the local market given local restrictions. They can lead successful start-ups despite domestic challenges through links and partnerships both within the same ecosystem and another node of the world tech ecosystem, be it for funding, support of a multinational, managerial talent, or co-innovation and co-development. They see the value in and have the ability to leverage the strengths of each ecosystem. This cross-country collaboration has helped to mold each of these ecosystems and allow it to secure a place in the world ecosystem. Silicon Valley serves as an incubator and pool of new product and business vision, technology architecture, and product marketing. China provides the low-cost engineering resources. Taiwan offers a sophisticated, fast-moving supply-chain infrastructure. India has its advantage as an IT services provider. As these individual ecosystems evolve, others may be created in locations such as Vietnam, Russia, and Latin America to complement existing ones. As a whole, for each economy, it is a bit of an alternating game of both leapfrogging and piggybacking, pushing and pulling each other up. Resources are also, hopefully, allocated more efficiently as a result.

We can see how significant of an impact government, domestic policy, and infrastructure has in determining the success of a given ecosystem and the economies that it touches. These Argonauts have made America richer, not poorer due to the cross-country operations and partnering that have given rise to these distinct tech ecosystems. The U.S. can clearly see what advantages it has upon examining the struggles of the countries that these other ecosystems highlight. However, it is by no means an excuse for not strengthening the U.S. education system or reviewing and reforming policies (e.g., immigration). The success of the U.S. and foreign ecosystems can be based on an interdependence that may allow both to adapt to external changes, ultimately accelerating global innovation in harmony with America´s best interests.

* Heidi Lo is a Senior Research Associate at Forrester Research. She holds a B.A. from Wellesley College in Economics and Studio Art, with honors, and has also studied at the Chinese University of Hong Kong.


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