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G. Pascal Zachary
The Global Geography of Innovation

Chipmaker Intel Corporation in Santa Clara, California, is one of the prominent players in the Silicon Valley cluster.

Silicon Valley and other geographic clusters of innovation emerge for practical reasons. G. Pascal Zachary is a journalist, author, and teacher who has published articles for the Wall Street Journal and the New York Times. This article appears in the November issue of eJournal USA, “Roots of Innovation.”


When a prominent financier in northern California raised an astonishing $1 billion in the summer of 2009 for investments in risky “green technologies,” Silicon Valley reminded the world that, in the arena of innovation at least, geography is destiny.

Vinod Khosla, the venture capitalist who raised the money, embodies the critical role played by location in inventiveness and technological change. Thirty years ago, Khosla moved from his native India to attend Stanford University in California, where he studied business. On graduation in 1981, he helped found an influential computer manufacturer, Sun Microsystems. More recently, Khosla has embraced the search for alternative energy, applying the skills and connections of his adopted home to a new set of problems.

Certainly other parts of the world are pursuing innovations in alternative energy, ensuring that no one place will gain a monopoly over these emerging technologies. Yet the ability of Silicon Valley to expand into the development of visionary energy technologies is a reminder of the power of location: Innovations don’t occur just anywhere, but arise most often from geographic clusters consisting of investors, major research universities, existing technology companies, and many engineers and scientists willing to try new things.

“The goal there is very much to take risks that nobody else will take,” Khosla says of his new fund.

Risk taking and reinvention are central to Silicon Valley. For nearly a half century, the region has been in the forefront of innovation, first in computing and electronics, and then in software, the Internet, media, and communications. Every time Silicon Valley seemed ready to fade, surpassed by innovation centers elsewhere in the world, a fresh wave of breakthroughs helped the region maintain its top position globally.

In the 1990s, biotechnology blossomed in northern California, partly because of the role computers play in molecular engineering and pharmaceutical research. Early this decade, the rise of Google made the region the world leader in search engines. More recently, Silicon Valley spawned social-media companies such as Twitter and Facebook and open-source content movements such as Wikipedia. And the iPod and iPhone, designed and engineered by Apple in its Silicon Valley labs, have revolutionized consumer electronics worldwide.

The breakthroughs produced by innovators in northern California explain why the region receives as much as 40 percent of the risk capital invested in the entire United States. Include the Los Angeles and San Diego areas, and California receives nearly half of all venture capital some years. Getting all this money reinforces the supremacy of the region, partly because money acts as a magnet for talent from around the world.

Connecting Clusters

Even when the technical talent returns home, the pull of geography exerts a strong influence. AnnaLee Saxenian, an expert on regional innovation at the University of California, Berkeley, has shown that innovators can effectively shuttle back and forth between California and other innovation clusters, some as far away as India and Taiwan. What Saxenian calls the “new Argonauts” essentially take advantage of a geographic hierarchy connecting lower-cost production in Asia with higher-value activities in the United States and Europe.

Geographic clustering has a self-reinforcing logic. Gain an edge, and it is surprisingly hard to lose it. British historian Peter Hall has chronicled the rise of great cities in world history and attributes their persistence, in part, to the benefits of being the first to establish dominance and inward migration of talent. Just as Manchester United or Real Madrid keep assembling top football teams year after year, so can cities or regional clusters maintain an edge. Top talent wants to join a winner, after all, and by so doing, leading cities or organizations stay strong.

The implication is clear: Investors look at the address of an innovator as much as at his or her technology and résumé. A Brazilian with a better idea for electric-car batteries might be wise to include offices in Japan and Germany in his business plan. An Indian train designer should budget for frequent trips to Europe. A brilliant designer of a new microprocessor, who insists on living in Russia, is unlikely to get funding at all; if he moves to Silicon Valley, his cash register may quickly ring.

President Lee Myung-bak in Daejeon, South Korea, examines a prototype vehicle powered by electric power strips in the road.

Fortunately for the people of the world, innovation clusters are fairly democratically distributed. France has important clusters in aviation, train technology, medicine, and nuclear power. Germany has been a world leader in automotive technology for 100 years. Bangalore, India, is a center for new software. Korea leads in design of “smart” electronic devices, from mobile phones to washing machines that sense the size of loads and the minimum amount of water to use. Brazil’s engineers excel in designing commuter airplanes. Israel leads in security for computer networks.

Historical legacy sometimes explains why a certain geography commands a decisive advantage in a specific field. Nearly 20 years after the breakup of the Soviet Union and the end of the Cold War, Russia remains the world leader in launch technology for space travel and the center for the “space tourism” industry. Even the United States’ National Aeronautics and Space Administration sometimes relies on Russian rockets to lift Americans into space.

Government also plays an important role in the innovation map. The French government has invested heavily in both train and nuclear-energy technology and, through centralized decisions, has reduced risks and removed uncertainties for innovators, improving their global competitiveness. U.S. spending on advanced electronics, often for military applications, spurred civilian innovators and partly explains why Intel has held for decades the No. 1 position among makers of microprocessors. And government policies that favored domestic producers created the environment for industrial innovations in India and aviation innovations in Brazil.

Not Forever

While location confers important advantages to innovations, a favorable geography is no guarantee against failure. “What makes a particular city, at a particular time, suddenly become immensely creative, exceptionally innovative?” historian Hall asks in Cities in Civilization, his seminal study. “Why should this spirit flower for a few years, generally a decade or two at most, and then disappear as suddenly as it came?”

When a city or region loses its technological edge, the reasons may become clear only in retrospect. The decline of Detroit’s automotive supremacy can be traced to technical, economic, and business decisions stretching back decades and even now poorly comprehended. Regaining lost supremacy can be very difficult, partly because new geographic centers of technological excellence can and do emerge on the world stage, seemingly out of nowhere.

Perhaps the most dramatic example in recent years is the rise of Helsinki, Finland, as a world center for mobile telephone technology. The success of a single company, Nokia, elevated Finland to the front ranks of the field and turned northern Europe, notably nearby Stockholm and Copenhagen, into a critical mobile cluster. In the 1990s, virtually every mobile innovator in the world opened offices in the cluster, drawing on local talent. The cluster also gave rise to important new telecommunications players such as Skype.

The success of Nokia — a very large innovative company in a very small country — has inspired many other small countries and marginalized cities to dream of finding their own Nokias. Yet governments face difficulties in creating clusters from scratch. The cost of overtaking another region can be high because necessary universities are expensive to grow and essential risk capital may be unavailable.

In the 1970s and 1980s, dozens of cities around the world tried to grow their own Silicon Valleys. Most of these efforts ended up being exercises in industrial recruitment: enticing technology companies to locate factories or even research facilities in certain places.

Sometimes, recruitment can produce an innovation cluster over time. The island nation of Singapore, for instance, is today the world’s leader in small-computer storage devices, after initially serving as a location for low-cost manufacturers of the devices. Yet Ireland, another island that attracted a large number of electronics manufacturers partly because Irish wages were low by European standards, hasn’t given birth to an innovation.

Recycling Skills

Another role for government or civic associations is to take know-how and skills, which are often place specific, and apply them to new opportunities, setting the stage for a region to reinvent itself technologically. One of Silicon Valley’s strengths, for instance, is finding ways to recycle older sets of technical skills or cultural norms: The electric car and sustainable energy industries are in Silicon Valley because people there have a lot of experience in battery design (because of the need for batteries in computers) and computer management of electricity grids.

The private sector remains crucial, even in places where the potential for achieving innovation leadership seems low. Consider the case of Kenya, which has given rise to one of the world’s most innovative money-transfer technologies, called M-PESA. Created by the country’s dominant mobile phone carrier, Safaricom, M-PESA combines the technology underlying text-messaging with the company’s vast network of retailers who sell “units” to pay-as-you-go customers. Through M-PESA, people send electronic money using their phones; recipients collect actual cash from retailers who deduct units from the recipients’ phone.

Partly because of the success of M-PESA, Nairobi is now home to a cluster of mobile innovators. Google, Microsoft, and Nokia employ researchers in the city, and new companies are forming around writing applications for mobile phones and the Internet.

Nairobi is not yet in the class of Bangalore or Shanghai, two cities of the developing world that support thriving communities of innovators. Yet the fact that innovation can occur even in Africa underscores a major shift toward what business consultant Henry Chesbrough calls “open innovation.” Knowledge spreads more quickly than ever before, and the ability of also-ran regions to catch up to, or even leapfrog, traditional leaders surely has grown. Geography still matters greatly, but clearly not as much as before.

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