Silicon Valley: Rust Belt 2.0

Once the high-tech bastion of American innovative spirit and entrepreneurism, we forecast Silicon Valley will lose its status as the global center of technological transformation, no longer attracting the top tier of tech talent or leading new discoveries.

As with other cutting-edge leaders in commerce and industry that faded throughout history into obscurity as times and needs change, Silicon Valley is on trend to become the Rust Belt 2.0.

This is unlike the Industrial Revolution, when manufacturing centers blossomed in regions where natural resources, from coal mines to rapid waterways, augmented the rapid growth of brick-and-mortar factories producing steel, textiles and other products.

Indeed, today’s technology revolution needs no natural center of development.
Rust Belt cities from Bethlehem to Birmingham, and from St. Louis to Detroit, decayed when industries were no longer vital and their location and natural resources didn’t matter. But Silicon Valley’s bust will leave only empty office parks with little value.

During the Industrial Revolution, manufacturing ignited in areas where proximity to transportation ports or natural resources were needed for industries to thrive. Today, in the technology economy, advances and discoveries will emerge from startups in remote, obscure locales, as well as new tech centers worldwide.

This Rust Belt 2.0 trend – the technology revolution sweeping the globe – knows no geographic, economic, cultural or social boundaries. From the Bering Sea to sub-Saharan Africa, countries big and small are exploring, inventing and creating new technologies to fuel and shape the future’s tech-based economy.
And the trend, now in an early stage but evolving rapidly, will rob America of its status as the startup capital of the world.

In this new technology-driven frontier, “Ontrendpreneur” minds are free. No country owns them. No government can rule their capacity to imagine and create within the boundaries of their own thinking. It is an equal playing field worldwide.

Silicon Valley, like much of America, is stuck in an exceptionalism mindset. It thinks it knows it all, has it all and will always rule the technology kingdom. But countries across the globe, including China, the world’s second-largest economy, whose entrepreneurial, innovative spirit is revving up, will challenge Silicon Valley’s dominance.

For a generation and longer, Silicon Valley, nestled in the southern corner of the San Francisco Bay area, was the undisputed champion of high-tech, venture-capital-funded startups that grew into global tech giants. Apple, Google, Intel, Oracle Corporation and thousands of other tech giants have their roots and still do business in Silicon Valley.

But the Trends Research Institute forecasts America’s longstanding status as the world’s “startup” nation, and Silicon Valley’s significant role in helping sustain that position, will decline. America’s status as a world leader in innovation and its free-spirit mentality will diminish because of multi-nationalism and the mass consolidation of businesses in virtually every sector of the US economy. From drug stores to stationery stores, from media to entertainment, and throughout the retail landscape to the high-tech world, the merger/acquisition trend has consolidated the nation into a one-stop listening, thinking and shopping nation.
Silicon Valley has shown the world that technological innovation will drive this century’s economy. But now that it is well-fed, it’s losing its edge to hungrier locales – across the US and across the globe.

Moreover, new technology means new discoveries don’t need a lab and don’t need to be produced in surroundings where like-minded tech innovators are within handshake distance.

Virtual reality, augmented reality, artificial intelligence, deep learning and ever-faster, smaller and more mobile and chip technology have erased the central-office necessity in new-technology development.

Unlike the Industrial Revolution of more than a century ago, the technology boom needs no center, no home office. And that represents a seismic shift in not only Silicon Valley’s, but America’s, legacy of creating centers of innovation.
Today, flourishing technology hubs outside of Silicon Valley help define America’s imprint on the global technology landscape. And what’s happening in the states is also trending worldwide.

In fact, on a global scale, America’s footprint in this dominant arena is shrinking.
Here’s a look at the new technology frontier, in the US and around the world.

Boston was the other original Silicon Valley. In the 1980s, Route 128 ringing the metro area was home to heavyweights such as DEC and Wang in the rambunctious personal-computer industry. Competition took some talent and venture funding elsewhere, but much of it never left.

Harvard and MIT are still hotbeds of startups and spinoffs in everything from green energy to bioscience. Schools such as Tufts and Northeastern universities and the Wentworth Institute of Technology also help account for more academic research and development money being invested there than anywhere in the US, including Silicon Valley.

That helps to explain why the Boston area raised more than $2 billion in venture capital in 2015, an increase of more than a third over the previous year. The region closed almost 25 percent more funding deals than in 2014.

South of Boston, North Carolina’s Research Triangle Park near Raleigh and Chapel Hill still draws talent and ideas not only from three nearby research universities, but also from around the world. An early center of development in virtual reality, the campus has expanded its expertise, thanks in part to nearby Duke University and its emphasis on bioscience and biometric engineering.

In 2015, the park fetched $378 million in venture capital, with $150 million alone going to Humacyte, which grows human-replacement tissues.

Elsewhere, the Miami region is drawing notice for its concentration of health care tech. Orlando has grown its expertise in creating theme-park illusions into specialties in simulation as a training tool. Colorado’s “Front Range” (the east side of the Rocky Mountains) is fertile ground for green technologies. Pittsburgh has become a center of the robotics world, thanks to Carnegie Mellon University’s leading role.

Austin, Texas’ capital, also makes most lists of US tech hubs. It draws its share of venture capital and has a lower living cost than many competitors. But denizens note that the city lacks depth in high-tech support services – lawyers, accountants, etc. – and is isolated from other centers. Still, it ranked first in the Kauffman Foundation’s 2015 Index of Startup Activity.

In fact, almost every city in the US is burnishing its tech cred. Even Alaska, seeing its oil-based economy waning, has staked a claim. Its “Launch: Alaska” competition offers office space, coaching from experts and $25,000 to winning tech entrepreneurs. In return, the state owns 6 percent of the businesses.

Alaska also has opened the Pacific Spaceport Complex on Kodiak Island. The complex is owned by the government-run Alaska Aerospace Corporation, which hopes to establish the state as a center for aerospace research and commerce.

While North America has been growing fat and complacent, South America has been quietly setting its table. Cities like Colombia’s Medellin, once synonymous with cocaine and murder, are opening startup incubators, wiring the population for high-speed internet access. And they’re offering large carrots to attract tech entrepreneurs from across the continent and around the globe.

Also, perhaps because of its history of political and economic instability, the continent is infused with an entrepreneurial ethic. Latin America likes to say that i
t has traded revolutions for innovations.

Argentina-based NXTP Labs is putting its money behind that idea. Working in Argentina, Chile, Colombia, Mexico and Uruguay, NXTP makes a $25,000 investment in promising startups in exchange for up to 10 percent of the company. It also offers workspace and coaching. For the best performers, it will add as much as another $1 million to its stake.

In its four-year history, NXTP has funded more than 160 launches in 15 countries.

NXTP has an office in Santiago, Chile, a country that has branded itself Chilecon Valley. Chile has its own three-part Start-Up Chile initiative. Up to 60 female-led startups each year receive modest capital – about $14,000 in US dollars – and three months of intensive training, mentoring and networking. Also each year, as many as 100 companies with product prototypes and promising market studies are given more capital and more mentoring. In the third stage, fledgling companies that achieve liftoff are given the equivalent of about $85,000 if they promise to incorporate and operate in Chile. None of the funds granted give the government equity in the businesses.

The program’s unique carrot: a one-year work visa for foreigners with an idea that could turn into a company.

Buenos Aires, in Argentina, offers Startup Buenos Aires. The boot camp for entrepreneurs offers classes in pitching ideas and crowdfunding and fosters a community of creative energy.

The country has a lot to offer eager tech entrepreneurs. A third of the population holds a post-high-school certificate or degree, but wages average less than $1,000 US per month. For that reason, several global tech companies have made Argentina their landing place in South America.

In addition, Buenos Aires is home to MercadoLibre, a wildly successful combination of Amazon and eBay (eBay owns a minority interest in the company). Hernan Kazah, MercadoLibre’s founder, also runs Kaszek Ventures, a wealthy venture-capital fund ready to back Latin America’s next round of good ideas.

On the continent’s northwest coast, Colombia’s tech economy has more than tripled since 2000. It now accounts for about $7 billion each year in economic activity. HubBog, in the capital city of Bogota, is the country’s chief incubator of startups. Facebook, Google and Microsoft have opened offices there. Reasons that speculative capital is giving Colombia a second look: The middle class has grown by 50 percent in the last decade, the 50-year civil war has ended peacefully – and the murder rate is at its lowest in a decade.

Put a pin in a map anywhere from Lapland, Finland to Athens and you’ll land on or very close to a place calling itself “the new Silicon Valley” or gearing up to make the claim.

There are good reasons. Outside the US, Europe is the logical place for American tech to seek a second home. The culture is similar, familiar legal frameworks are in place, and the two continents are linked by 400 years of trading history.

London was the first and obvious choice. Most recently, London’s “tech central” was the Old Street Roundabout neighborhood. Startups moved into the rundown district where rents were cheap after the Great Recession settled in.

By 2010, the British government was investing in the area. A year later, there were more than 200 tech firms there, including Google, which bought a seven-story building nearby. Imperial College London and University College London, among other schools, put roots there to nurture startups and commercialize technologies they had fostered. Also, the neighborhood abuts London’s financial district, a ready market for new technology.

In 2015, the city lured $2.3 billion in tech-oriented venture capital, a 75 percent bump from the year before.

But, despite successes such as Tweetdeck and SongKick, few of the district’s firms have broken into the major leagues. Now, talent and venture capital are looking north to the “Silicon Fen” area around Cambridge University or east across the Irish Sea to Dublin.

Twitter has opened an international office in Ireland’s capital, as did Nuance Communications, the team that gave us Apple’s voice robot Siri. A 2012 deal between clean-tech firms in Silicon Valley and Dublin boosted jobs here in research and development, and has been forecast to add as many as 20,000 tech jobs in the city.

Also, Ireland is hoping for a “Brexit boost.” With England and Scotland leaving the European Union, both countries will have a harder time attracting investment, skilled workers and open markets from the rest of the continent. Ireland, with its direct cultural and trade links to the US and Britain, will make a play as the new landing spot for those ingredients of tech success.

And that accounts only for the two islands off the European coast.

Onshore, Berlin has been a magnet. Its tech scene deflated when the dot-com bubble burst in the late 1990s. But it has been growing again, despite Germany’s notoriously stodgy business and investment culture. The city now sports the Rocket Internet incubator to help hatch and fledge new tech companies. The Earlybird venture-capital firm has amassed a nine-figure nest egg to nourish local startups.

But Berlin isn’t Germany’s only tech hub. In 2014, Munich snagged more venture capital than any other European city.

Europe’s other comers include Amsterdam, where the private sector has opened an initiative to cultivate tech startups. It’s also where Google and The Next Web are helping to build a campus that will host 120 new tech ventures.

Portugal now boasts its first billion-dollar tech firm. An online fashion boutique called Farfetch now has offices around the world. Romania is flexing its still-small tech muscles. A project called “Startup Hub Poland” is trying hard to attract attention.

Stockholm – home of Skype, Spotify and Candy Crush – holds almost 10,000 tech firms and a related workforce of more than 50,000. Partly due to its STING incubator, the city claims more billion-dollar startups than any other city in Europe. It also boasts that in 2014, it was the world’s second fastest-growing center for tech-related venture-capital investment.

In nearby Estonia, entrepreneurs starting a business are rewarded with a national ID card enabling them to open businesses and bank accounts without the bureaucratic dance that foreigners normally are subject to. Neighboring Latvia hosts the annual TechChill, a confab for Baltic techies and their potential investors.

But the most heroic effort belongs to SiliconMalta, a venture of two native brothers and a friend from New Orleans attempting to lure coders to make the tiny Mediterranean island nation “the most important tech hub in Europe.”

Keep going south from Malta. You’ll arrive in the self-proclaimed “Silicon Wadi,” Israel’s coastal plain, laden with tech-strong cities from Tel Aviv and Rehovot. The northern inland city of Yokneam – once conquered by Egyptian pharaoh Thutmose II – is known as Israel’s “startup village.” It has more than 100 companies exporting about $5 billion of techware annually.

Here as elsewhere, politics doesn’t interfere with business. Outsourcing from Israel, as well as homegrown talent, has fostered a nascent tech industry in the Palestinian territories. In the city of Kafr Kassem, near the Green Line separating Israel from the West Bank, a public-private partnership has established TRI/O Tech, an initiative that cultivates Arab tech talent, boosts tech-job creation in Palestinian lands and runs a school of entrepreneurship for both Arabs and Israelis.

Africa wants in, too. South Africa, the continent’s most developed economy, has its share of tech successes, such as Takealot Online, an Amazon clone. Kenya has bet big on its Silicon Savannah, setting up summer tech camps for kids and funding the iHub in capital city Nairobi. The tech incubator has fostered more than 150 startups with the help of Microsof
t, Google and Intel. At the Nairobi Industrial and Technological Park, Taifa Laptops is starting to produce the country’s first native computers.

Kenya is counting on tech to make up more than 8 percent of its economy by 2017.

But when Facebook’s Mark Zuckerberg visited Africa in September, he didn’t go to Kenya or South Africa. His first stop was Lagos, the capital of Nigeria – largely due to a coterie of influential Nigerians who work with him at Facebook. E-commerce bloomer Jumia, an Amazon clone based in Nigeria and active in nine countries on the continent, raised more than $500 million in recent venture-capital rounds. The Africa Internet Group, another Nigerian company, has joined the exclusive club of startups that have raised $1 billion or more.

But Zuckerberg had come to Lagos primarily to see Andela, the firm bankrolled by Facebook and several US venture-capital firms. Andela recruits, sifts and places top tech talent across the continent in hopes of jolting Africa’s tech economy into higher gear.

Farsighted money is planting seeds in Africa now. Talent comes cheap there and the domestic market will begin producing modest yields in the next decade.

India is rising up to compete on a global scale for tech talent and venture capital. The country surprised many by logging more tech startups through 2015 than any country other than the US and UK, according to an August 2016 study by the Association of Indian Chambers of Commerce.

Bangalore led the field with 26 percent of the country’s new technology ventures. Food, travel, e-commerce and financial tech were the strongest sectors.

The country has 100 tech incubators, 200 angel investors and 150 venture-capital funds. Their money is supplemented by Amazon’s $5 million investment in the country so far, creating a cloud-services center in Hyderabad. That’s also the city where Apple is setting up a complex that will employ as many as 4,000 people to enhance its maps app.

The city of Pune is earning a reputation as a hub for health-care tech ventures.
A growing middle class and an entrepreneurial culture, not to mention a domestic market of 1.3 billion people, fertilize India’s tech garden, even though less than a third of Indians have access to high-speed internet connections. But they make up for it by spending an average of almost three hours daily per person on their cellphones, making the country a ripe market for apps.

At least some Indian startups are likely to branch into other countries over the next 12 months, focusing even more attention on the subcontinent.

Silicon Valley can still modestly compete with other centers vying to replace it. But it’s not likely to be able to outcompete China. From a macro evolving-trend perspective, what China isn’t going to invent, it will buy. Unlike America, whose business is war, China’s business is business.

In the tech world, China is unique. It has a network of world-class research universities, a growing middle class, and its 1.4 billion residents make up a domestic market that’s one-fifth of the entire planet’s population.

Through July, Chinese tech firms drew about $10 billion in venture capital, about twice that raised by companies in North America. Much of the money went to mobile devices and apps, areas in which China leads the US. (Most Chinese never bought a personal computer; China’s middle class began to grow only as smartphones became the rage.)

Much of the energy that attracted the funding is in Shenzhen, across the Sham Chun River from Hong Kong. It was an enclave of fishing villages in 1979 when Chinese President Deng Xiaoping made it the first target of China’s new manufacturing strategy.

Investment, migrants and homegrown talent flooded in to what is now a city of 11 million. The concentration of investment and permissiveness has created a commercial culture that is raucous and freewheeling, unlike many Chinese business districts still mired in bureaucracy.

The city’s manufacturing base of supply chains and transport connections has fostered successes such as Huawei, an international maker of telecommunications gear, and OnePlus, a cellphone maker that sold a million phones based on social media buzz.

According to city officials, the tech business now accounts for almost half of Shenzhen’s economy.

Shenzhen is also the base of the new UK-China TechHUB business partnership.
But Shenzhen has siblings. The Zhongguancun district in northern Beijing has been designated by the government as a high-tech development zone, due in large measure to the presence of the Chinese Academy of Sciences, Peking University and Tsinghua University. The area’s seven R&D parks that have made the area a center of China’s electronics industry includes the Lenovo Group, which bought IBM’s personal-computer division.

And there’s Hong Kong, known for decades as a place dedicated to commerce. Western entrepreneurs and their backers feel at home here, with a business-friendly culture and regulations. (Opening a bank account on the mainland can take 60 days; in Hong Kong, it takes two.)

US entrepreneurs who know China report that its startups tend to reach the commercial stage faster than in the US and elsewhere. They also note that China no longer copies others’ innovations, but now is spawning its own.

Chinese entrepreneurs, like those in many countries outside of North America, are hungry. They, perhaps more than in any other country, are embracing an entrepreneurial spirit that not only celebrates innovation, but rewards it by bringing new technologies to market quickly and efficiently, and by acquiring what it hasn’t yet invented to accelerate its competitive momentum.

In the Rust Belt 2.0 world, sophisticated technology, once exclusively the property of large corporations, is now affordable and available to anybody. Creative tech-savvy individuals and small companies virtually anywhere in the world, equipped only with smartphones, database access and desktop-publishing capability, can create, market and sell internationally. In this new technology-driven global economy, the value of a company is based more on the innovations it brings to market, not its physical assets.

In America’s and the Western Hemisphere’s merger/acquisition economy – driven by money-pumping schemes since The Panic of ’08 that injected countless trillions of dollars, yuan, euros, yen, pounds, etc., into financial sectors with quantitative easing and zero/low-interest-rate policies – Wall Street stands tall.

Main Street, weakened and demoralized, stands in the shadows. Rigged economies in the last near-decade killed capitalism and thus, small business.

The slow death of American entrepreneurism on Main Street is well documented. A spate of studies during the last few years, especially the work of the Kauffman Foundation and Brookings Institute, has demonstrated that startup businesses are fewer in number and fail quicker. That net loss of small businesses is an accelerating trend.

And that trend comes at a time when the global economy will be transformed by a technological revolution unlike any other cultural and socioeconomic trend before it. America’s traditional entrepreneurial startup model is no longer on trend. From Silicon Valley to new, smaller tech centers emerging across the country, American technology now finds itself on an equal plane with the rest of the world… in the era of Rust Belt 2.0.   – TJ  

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