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November 16, 2005

Silicon Valley and/vs. China

John Markoff recently had an interesting piece in the New York Times (and International Herald Tribune) about Silicon Valley's complicated affair with China:

Silicon Valley's views of investment in China have tended to swing between wild optimism and deep anxiety - with the anxiety going beyond a fear of losing money. Some worry about helping Chinese start-ups move up the technology food chain. These days, the Valley venture capitalists are sharply divided in two camps: one rushing into China and one holding back.

"The Valley is excited and it's scared at the same time," said Richard Shaffer, editor in chief of VentureWire, a venture capital newsletter publisher.

The dominant perspective is that China is a vast sea of opportunity, from its low-cost skilled labor pool to its enormous consumer market. In fact, it is now routine for venture investors to demand that their start-ups place the bulk of software development and manufacturing efforts in China or India.

For skeptics, the concern is that American investment will help energize a formidable competitor, which could come to dominate both markets and technologies. The fear is based in the Valley's complex ties with China as supplier, partner, customer and rival. Most venture capitalists say this evolving relationship will define the future of the Valley and maybe even technology development in the United States.

The point about venture capitalists expecting to see an outsourcing plan from Day 1 deserves a little elaboration.

Several of my friends, who moved to the Valley in the early 1980s and made careers at places like Sun and SGI in the 1980s and 1990s, note that they came of age in a system that distributed both the work and the wealth. Long hours were the norm, but even the janitors could get stock options-- and of course, the software developers, testers, project managers, et al were also rewarded.

This vast upper-middle class of tech workers is something of a miracle. And the current mania for outsourcing development to China or India cuts it off at the knees. Far fewer Chinese companies have stock options programs, and thus the wealth isn't being distributed in Silicon Valley-- but neither is it being used to reward Chinese programmers to even remotely the same degree as their American counterparts. Over the long run, the question is whether Silicon Valley can survive, in some recognizable form, in the absence of the reward system that drove its rise.

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Posted by dymaxion at November 16, 2005 08:40 PM


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