Exposing the limitations of imitation for tech hubs

From Beijing to New York, London, Berlin, Tel Aviv and Bangalore, technology hubs around the world have drawn inspiration from Silicon Valley. While their number is growing, however, their model in many cases differs significantly from the original Californian template.

Emerging technology centres are typically located in cities rather than out-of-town business parks or suburban corridors like Silicon Valley, the nickname for the area around San Francisco Bay. Even within California, urban San Francisco and Los Angeles have grown in importance.

Not that the valley is about to hand over its crown. It remains the world’s pre-eminent technology hub, though some believe Asian cities may eventually overhaul it.

Silicon Valley is home not only to giants such as Facebook, Google and Apple, but also — if we include San Francisco — to a new wave including Uber, the taxi app company, Airbnb, the app challenging the hotel industry, Palantir, the software solutions company and Snapchat, the social media darling.

“Silicon Valley will continue to be in a class by itself,” says Bruce Katz, centennial scholar at the Brookings Institution think-tank in Washington DC and an authority on innovation. “Cities around the world shouldn’t try to mimic Silicon Valley, they should leverage their own, distinctive innovative strengths, of which there are many.”

The valley’s supremacy has been built during the 75 years since Fred Terman, who was provost at Stanford University, encouraged his engineering graduates to create companies, among them Hewlett-Packard.

Factors behind the valley’s rise included strong academic institutions, government research, availability of land and an attractive climate, along with a culture that was risk-taking, meritocratic and entrepreneurial.

Its current advantage, according to Reid Hoffman, co-founder of business network LinkedIn, lies not so much in start-ups, which many parts of the world do well, as in its ability to support “scale-ups” or fast-growth companies. That has been enabled, Mr Hoffman says, by its concentration of engineering talent and venture capital and by founders’ willingness to reshape their organisations and processes as they expand.

Silicon Valley is also heavily involved in the convergence of technologies such as mobile, robotic and artificial intelligence, producing applications and devices from voice-activated software to self-driving cars. Emerging city hubs, though, also see themselves as benefiting from convergence.

According to Atomico, the London-based venture capital group led by Skype co-founder Niklas Zennström, two-thirds of private software start-ups that have gained a $1bn valuation in the past decade — so-called “unicorns” — hail from outside Silicon Valley. It calculates that Silicon Valley and San Francisco account for 75 out of 236 unicorns, followed by Beijing (28), New York (17), London and Shanghai (10) and Berlin (8).

Unicorns are perhaps a crude yardstick, given uncertainty over valuations (Atomico’s tally is higher than some other estimates). Asia has been the fastest-growing region. North America accounted for $59bn of venture capital investments in the first nine months of 2015, Asia $28bn and Europe $10bn, according to research firm CB Insights and KPMG.

Beijing’s Zhongguancun district — home to search engine Baidu, computer manufacturer Lenovo and smartphone maker Xiaomi — is a particular hotspot, but Chinese cities including Shanghai, Guangzhou and Hangzhou also have concentrations. India’s Bangalore is home to unicorns including ecommerce champion Flipkart and taxi-hailing app Ola.

Michael Moritz, who chairs investment company Sequoia Capital, believes that “many non-US tech groups, particularly those born and raised in China, are better positioned for the next 25 years than their American counterparts”.

Many non-US tech groups are better positioned than their US peers

In the US and other countries, Mr Katz sees a shift in the geography of innovation towards cities rather than the suburban model. His work has tracked the rise of “innovation districts” in cities such as Atlanta, Baltimore, Detroit, Houston, Philadelphia, Pittsburgh and St Louis.

Globally, similar districts are found in places such as Barcelona, Berlin, London, Medellín, Montreal, Seoul, Stockholm and Toronto. Factors behind this, Mr Katz says, include young people’s preference for city living, the rise of “open innovation” (companies using networks of researchers) and the presence of advanced research universities. He adds: “What cities need to think about is what is that interplay between universities, companies, investors and the quality of place that will encourage companies to start up and grow?”

In Europe, fears persist that the region will lag behind the US and Asia despite an influx of venture capital and a growing pool of entrepreneurs and talent, notably in London, Stockholm and Berlin.

Gerard Grech, chief executive of Tech City UK, a government-backed body, says that while Silicon Valley has had decades to establish itself, London’s growth as a tech centre has largely been achieved in the past seven years. Its advantage lies in combining software with traditional strengths such as finance and advertising.

“You have got so many different types of expertise here, that mix in well with the world of technology and digital innovation, that it will definitely continue to develop,” he says.

Tech City UK has identified more than 20 digital clusters including Manchester, Liverpool, Bournemouth and Brighton.