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Technology Innovation Goes Global

Asia gains ground in IT, Europe a cleantech hotspot

By Margo McCall

Previously, startups had little chance of being funded if they weren't located in California's Silicon Valley, home to a robust venture capital community and birthplace of countless technology innovations. Likewise, technologists had to be physically located there to have any hope of keeping their fingers on the pulse of the latest cutting-edge developments. 

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Back then, venture capitalists wouldn't bother investigating companies that weren't on the East Coast or within a two-hour drive of the Silicon Valley, recalls Mark Jensen, national managing partner of Deloitte's Venture Capital Services. The rest of the country was referred to as "the flyover states." 

Now, however, Silicon Valley-based venture capitalists routinely travel the world  in search of promising investments. And entrepreneurs can pursue innovation from any distant outpost and still remain connected with the innovation mainstream.

"The Internet has created an environment where throughout the world you have the information available that is fundamental to an innovative economy," said Jensen. "That's created a drive in a lot of parts of the world, where really smart people, who in other times didn't have role models or access to the flow of information, now have access to all of the information they need."

Dispersal of talent

Another factor leading to the globalization of innovation is the dispersal of science and engineering talent. In previous decades, technology-minded individuals from around the world were drawn to the US's highly rated educational institutions. After graduation, most continued their careers in the United States.

But now that opportunities are opening up around the world, some are returning home. That's particularly true with India, which has its own high-quality educational institutions and is a software development center in its own right. 

"It might be a case of national pride or they wanted to go home to be with their families," said Jensen. "They don't have to be in the US anymore. Being in the US is optional. The global markets are so big that you don't have to be in the US market now to be successful." 

New hotspots emerge 

Evidence of that can be found in a March survey by Deloitte and the National Venture Capital Association of 400 venture capitalists' views on global innovation hotspots. Although the United States is still a primary hotbed for technology innovation, the survey found that many regions around the world are beginning to distinguish themselves. 

The majority of venture capitalists still consider the US the global leader in all information technology sectors. Yet  Asian countries in recent years have developed strong reputations in key information-technology areas. Survey respondents recognized both Japan and Israel as leaders in telecommunications. They credited Japan's strength, in part, to the government-backed construction of a countrywide high-speed broadband infrastructure. 

Chinese entreprenuerial surge 

China's developing economy and population of 1.3 billion have long drawn investor interest. But in order to penetrate China, companies previously had to go through the arduous process of establishing operations there. Now, Chinese entrepreneurs are helping open up new opportunities. 

"China's always had a lot of smart entrepreneurs. Many were educated in the US and went home, and that created the nucleus of an innovative economy," Jensen said. "I think China will continue to be a real hotspot. A lot of US VCs are interested in China." 

Rather being first movers or embracing new business models, Chinese entrepreneurs are more inclined to adapt existing approaches for the Chinese market. For example, Baidu isn't the world's first search engine, but it's one of the first search engines in China. 

Taiwan's semiconductor successes 

The venture-capital community recognized Taiwan, Japan, and China for their innovations in semiconductor technology. In Taiwan's case, said Jensen, the government encouraged US chip manufacturers to locate there two decades ago, which attracted the supporting chip designers and manufacturers, and enabled it to become "the chip manufacturing rival of any country in the world." 

And because building a fab is difficult, other countries won't easily catch up. "You need to have assembly-line workers who know how to manufacture them. You can't go to Des Moines, Iowa, to hire a local construction company to build a fab," Jensen said. 

India taking the software lead 

In the software sector, 41 percent of the surveyed venture capitalists considered India to be right behind the US in terms of innovation. The United Kingdom is also developing expertise with software. 

By virtue of its lower-cost labor and educated and English-speaking workforce, India staked its claim in the outsourcing arena more than a decade ago. The types of outsourced services offered have expanded from call centers and medical transcription to software services and some research and development. 

Although government support helped fuel the emergence of many of the world's technological hotspots, India's innovation was spurred by it being an emerging economy with an abundance of highly educated workers. 

Now, said Jensen, engineers working in India's software industry are becoming entrepreneurs. And an in-country venture-capital community is emerging to support them. The timing is perfect, since salaries are rising there and the cost-structure benefit to selecting India for outsourcing work is dissipating. 

European life sciences 

Europe, meanwhile, is challenging the US's innovation leadership in the life sciences and clean technology. Nearly half of the respondents recognized Germany as possessing the best expertise with clean technology, just behind the United States. A strong technology base and stable and well-conceived public policy are credited with boosting its position in the sector. 

Some 39 percent of the venture capitalists said Germany was the second-most-recognized country for medical device technology, followed by the UK at 20 percent, and Israel at 14 percent. The Alpine region's strong position in medical device innovation is attributed to a favorable regulatory environment and world-class medical research institutions. London, the Medicon Valley in Denmark and Sweden, and centers of excellence in Switzerland also serve as hubs for biotech innovation. 

Globalization of innovation isn't a one-way street. Jensen said venture capitalists from around the globe are also taking an interest in US companies. In addition, startups don't need to be on US trading exchanges to be successful. "You can go public in China or Taiwan. What we're seeing is the rest of the world catching up to where we've been," he said. 

Although some lament that the US is no longer home to all technological innovation, Jensen sees a bright side. "I believe the whole world will benefit through greater technology. If you look at the problems of the world—managing the population—we have a huge challenge ahead of us in terms of new technologies. Having the entire world engaged in innovative solutions is really important." CW (September 2008)

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