New Geography

Tag: Silicon Valley

  • The Cycles of Industrial and Post-Industrial in Silicon Valley

    For many locals, Silicon Valley surrendered to the tyranny of development when it lost its last major fruit orchard in 1996. Olson’s family cherry orchards, a 100-year player in the valley’s agricultural history, shut down its main operations, and Deborah Olson mournfully told a local reporter then, “We’re down to 15 acres at this point.” There is a happy ending. With community support, the Olson family continues to sell its famous cherries at its fruit stand in Sunnyvale, Calif.

    Ultimately, Silicon Valley’s history is predicated on a continual progression from industrial to post-industrial. Adding to the chaotic ferment and success, multiple sectors co-exist at different stages of maturity at any given moment.

    Before its industrial period, the region was an agrarian economy. At the height of the farming boom in the 1920s and 1930s, over 100,000 acres of orchards blanketed the valley. In 2006, farming continued to thrive across the broader San Francisco Bay Area in resilient specialty pockets, which included organic farms, gourmet cheese producers, and wine vineyards. Stett Holbrook reported that roughly 20,000 acres of agriculture remained, most of it clustered in southern Santa Clara County around Morgan Hill, Gilroy, and the Coyote Valley. New technologies and tools modernized local farming practices, so that what exists today is a far cry from efforts a century ago. Now the region produces 1.3 million tons of food annually, according to the Greenbelt Alliance.

    By the 1920s, as farms began to industrialize, a big push occurred next in manufacturing, namely in automobile production, shipbuilding, and food canning.

    The local auto industry shows a constant rise and fall. In the 1920s, Oakland became known as the “Detroit of the West” with factories operated by General Motors, Chrysler, Fageol Motor Company, and Durant Motors. All closed over the next 30 years or so, as the auto industry first consolidated to the Great Lakes and later shifted overseas, as well as the southeast.

    The Bay Area saw a resurgent interest in car manufacturing in the 1980s when Toyota – a complete unknown in the earlier era – teamed up with GM to open the New United Motor Manufacturing Inc. (NUMMI) plant in Fremont, Calif. Now 25 years later, Toyota announced that all NUMMI operations will close by March in response to recent economic pressures.

    NUMMI’s closing is emblematic of the nature of employment change that accompanies broader industrial change. Currently, 4,700 people work at the auto factory, and another 50,000 people work for suppliers and other businesses that depend on NUMMI’s ongoing operations.

    Local and state leaders are concerned about the larger regional impact. Over the last 12 months, the East Bay has lost 4,400 manufacturing jobs, a decline of 5 percent in that industry, according to the U.S. Bureau of Labor Statistics. In comparison, Silicon Valley lost 13,800 manufacturing jobs, an 8 percent decline. Bruce Kern, executive director of the East Bay Economic Development Alliance, told the press, “You have the jobs from suppliers and other vendors that provide goods and services to NUMMI.” Most of these workers are stranded with skills only suitable for the industrial Silicon Valley, so Gov. Arnold Schwarzenegger announced that California state will focus on retraining them, as well as finding alternative uses for the roughly 5 million-square-foot NUMMI factory.

    On the other side of the Bay, Tesla Motors today is making the transition from a cottage to a production industry, and it has also shifted gears in its manufacturing plans. The highly subsidized company had originally planned to build an electric car factory in San Jose earlier this year, but Tesla is now close to a deal to build an electric car factory at the site of a former N.A.S.A. manufacturing plant in Downey, Calif., a blue-collar city south of Los Angeles.

    Shipbuilding offers a counter example. While efforts have largely vanished from the area, a few notable examples have survived in new form. For instance, Kaiser Shipyards in Richmond, Calif., developed a new medical system for its shipyard workers in WWII that eventually became the basis for Kaiser Permanente, a highly successful modern health care organization. Here is an early example of a company converting its business model from hardware to service.

    But the high point of the industrial era dates from the 1950s when U.S. defense contracts spurred the area’s growth, building aerospace and other military equipment largely through Lockheed Martin. Then, as magnetic core memories were replaced by semiconductor memory chips in computers, semiconductor and chip manufacturing soared in the 1960s and 1970s, dominating the Valley with industrial fervor.

    By the late 1970s, however, Silicon Valley had lost its lead in memory chips, thanks to several revolutionary measurement tools from Hewlett-Packard’s Japanese partnership. The Japanese soon took over the memory chip business, going from less than 10% to over 80% of worldwide chips in six short years. Today, the memory chip market is an $18 billion worldwide market with virtually no U.S. manufacturers. In order to thrive against this fierce competition, Silicon Valley companies had to re-invent themselves, such as Intel’s adoption of the microcomputer chipsets now known as Pentium.

    Other areas of the information technology (IT) industry have also undergone reinvention. Charles House, in The HP Phenomenon, points out that Hewlett-Packard has re-invented itself six times in seven decades. Apple has also done so in spectacular fashion, first with computers, then with music, and now smartphones. Since 1976, Apple has gradually evolved from a computer hardware manufacturer into a consumer electronics company. The company originally handled most manufacturing locally, but by 1992, Apple had closed its plant in Fremont, Calif., and moved all operations out to Colorado, Ireland, and East Asia. For a time, Apple elevated its role in the industrial process, noting on its products: “Designed in California, assembled in China.”

    Apple’s decision reflects a larger trend in Silicon Valley to shift more to post-industrialized work, marked by higher value technology services within a knowledge economy.

    Another example is VIA Technologies, a chip manufacturer founded in Fremont in 1987, which moved its headquarters in 1992 to Taiwan. Richard Brown, vice president of international marketing at VIA, explained, “The main reason was that we saw that Taiwan would replace Silicon Valley as the global hub for PC, notebook, and motherboard design and manufacturing.” He added, “It enabled us to get closer with key manufacturing partners in Taiwan.”

    Now expanded as a fabless semiconductor design company, VIA has kept a strong presence in Silicon Valley these last two decades. About 250 employees work locally. Brown said, “We conduct advanced R&D work on chipsets and graphics in our Fremont office, and we also have extensive customer support and sales operations covering the U.S. and Latin America.”

    Beyond IT, where is new industrial growth occurring in the Bay Area?

    One economic indicator is demand in office and warehouse space. The U.S. industrial vacancy rate hit a decade high last quarter, marking the eighth consecutive quarter of increasing vacancy, according to real estate services firm Colliers International. Nationally, warehouses under construction declined to the lowest number Colliers has on record, and both bulk warehouse space and tech/R&D space showed larger decreases in rental rates than prior years.

    The Silicon Valley market was the third largest contributor to the national drop after Chicago and the Los Angeles basin. Jeff Fredericks, senior managing partner out of Colliers’ San Jose office, has observed that no sector has been left unscathed locally.

    He noted, “Very little manufacturing or industrial space has been built in Silicon Valley in the last 10 years, and that trend is likely to continue.” Fredericks believes, however, that some light manufacturing will continue to exist within the region, either to support local technology companies or simply because the business owners choose to live here.

    He added, “Certainly, green tech is a market favorite right now, but that really only forms a small percentage of Silicon Valley’s total market. Nonetheless, it is a sector that is experiencing better growth than others.”

    Richard Ogawa has seen a similar regional boom in the clean tech industry. As an intellectual property attorney with Townsend and Townsend and Crew LLP, Ogawa currently advises several clean tech start-up companies that are funded by Khosla Ventures, among others. Several companies, such as Stion Corporation and Solaria Corporation, have built pilot production lines. Part of the clean tech growth can be attributed to stricter state regulations, which push for greater reliance on renewable energy sources. He said, “It’s very geographic-centric.”

    Ogawa has also seen a rise in small-scale manufacturing in other industries. For example, within the local apparel business, Levi Strauss & Co. shuttered its last operating factory in 2002, which had been operating since 1906. Many locals were discouraged to see the longtime factory close. Today, retail manufacturers like Golden Bear Sportswear and Timbuk2 actively operate in San Francisco, but of course with far smaller workforces.

    Personally, Ogawa is a wonderful embodiment of industrial and post-industrial Silicon Valley. As a third generation Northern Californian, whose father owned a farm in the Central Valley, Ogawa specializes in post-industrial work. His clients in semiconductors, software, networking, and lately clean tech mix industrial and post-industrial work, either shifting manufacturing abroad or undertaking light production locally.

    Reflecting on the changes he has witnessed over time, Ogawa said, “I’m not aware of any industry that’s left the area, at least in my lifetime.” In Silicon Valley, most industries simply take on new form as part of the constant evolution from industrial to post-industrial.

    Tamara Carleton is a doctoral student at Stanford University, studying innovation culture and technology visions. She is also a Fellow of the Foundation for Enterprise Development and the Bay Area Science and Innovation Consortium.

  • A Slow Job Recovery in Silicon Valley

    Although job growth is gradually returning to Silicon Valley, don’t break out the champagne quite yet.

    Lucia Mokres moved to the area five years ago. Last year, when she was working at a contract engineering and manufacturing firm, she saw several clients lose their jobs, as well as both large and small companies go under in the economic crunch. She remembers one conference vividly. While manning the event booth, instead of seeing people pitch work they had for her firm, they instead passed out resumes, asking her team for work.

    Soon after, her job was cut back from 5 days per week to 4 days, which included a 20% pay cut. Mokres said, “That was really hard, as my rent and student loans did not also get cut 20%.”

    She persisted over “many months” to find a better position, which ultimately resulted in a higher salary and better benefits as a clinical scientist in a medical device company based in Menlo Park, Calif. Looking ahead now, Mokres feels optimistic about her future in Silicon Valley and said, “I am in the medical industry, and there will always be a demand for medical technology and healthcare.”

    “There are worse places to be,” she added. “I’m in one of the top two biotech hotspots in the country. Silicon Valley breeds innovation, and therefore will survive.”

    Harold Lee* feels less cheerful. He was the class president at a tier one university several years ago, and since graduating in 2004, he has worked at several of the top companies in Silicon Valley. He is now a product manager at a social networking startup based in Mountain View, Calif. While he couldn’t imagine leaving the area, he summarized his long-term prospects in one word: “limited.”

    Lee counts himself lucky to have a job at a popular startup, when the signs around him are still troubling. “There’s definitely a palpable feeling of companies scaling back,” he said. “Free lunches are no longer free, snacks are rationed out a bit more, and there’s a lot more focus on measured productivity.”

    Reports from friends and peers, particularly those who have been laid off in the last year, have not lifted the gloom. Said Lee, “Things have settled down to the point where people aren’t frightened, but I doubt anyone would be surprised if they got a pink slip tomorrow.” He added, “Trying to get a job is immensely difficult. I have friends who returned to get their graduate degrees in business, who now can’t land anything.”

    The lagging indicator in economics is jobs, which, for the average worker, has the biggest personal impact. Over the last year, California lost 732,700 jobs, the worst hit of all U.S. states, according to the U.S. Bureau of Labor Statistics.

    The job situation in Silicon Valley has not rebounded as quickly as hoped. The area’s jobless rate is nearly double what it was a year ago, according to the state’s Employment Development Department. Nearly three times as many people are actively looking for work, versus during the dot-com bust, when the jobless rate peaked at 9.2 percent in early 2003. The recent number of unemployed is 110,900, representing an 87 percent increase from the prior year, according to the EDD.

    The technology industry has continued to take a beating in the past six months. Cisco cut 700 local jobs in July, and Lockheed Martin slashed nearly 500 local jobs in August, based on state filings. Most recently in October, Sun Microsystems Inc. announced that it would eliminate up to 3,000 jobs across all sites, or 10 percent of its worldwide work force through the new year, due to the takeover by Oracle Corp.

    The larger question is if the recovery in Silicon Valley will be technology-led. Many believe that the tech industry, which dominates local economics, will lead other companies out of the recession. Does a rising tide lift all boats? Due to the slower return of jobs, it will likely take more time for tech companies to generate the tax revenue needed to support the service sector and other programs again.

    However, local leaders and economists feel that the worst has passed. The usual suspects are optimistic. Stanford University recently hosted its fourth annual roundtable, and the panel discussion dove immediately into the economic crisis. Moderated by television host Charlie Rose, the panel included Eric Schmidt, chairman of the board and chief executive officer of Google; Penny Pritzker, who serves on President Barack Obama’s Economic Recovery Advisory Board; Guillermo Ortiz, governor of the Bank of Mexico; Stanford Economics Professor Caroline Hoxby; Garth Saloner, dean of the Stanford Graduate School of Business; and Stanford President John Hennessy.

    Google’s CEO Schmidt told the audience: “We know that things are improving. We’re seeing everyone come up at the same time, which is a good sign.”

    Other experts, who track economic growth, echo similar sentiments. The perennially optimist Stephen Levy of the Center for Continuing Study of the California Economy has told press that, while Silicon Valley will continue to lose some jobs, revival signs are encouraging. He said, “We’re on the road to recovery.”

    Not everyone has the same rosy forecast. Job growth in the Valley has not been creating net jobs for over a decade. Some individuals have done well, but the path to upward mobility may not be as cheery as the professional boosters and Valley insiders suggest. While the information sector for the three major Valley cities – specifically the cluster of San Jose, Sunnyvale, and Santa Clara – grew the fastest of all nonfarm sectors at nearly 31 percent since 2003, overall employment has actually dropped by 6 percent over the last 12 years, according to data from the U.S. Bureau of Labor Statistics.

    Judy Huang has learned this lesson the hard way. After working nine years with local technology companies, she has returned to job hunting and found that the road to recovery is much rockier up close. After witnessing several friends struggle similarly, she set up a community group called “Yes We All Can” to support other job seekers with emotional support and job tips. Huang explained, “We have more fun doing it with a little help from our friends.” Since she started the group in May, roughly a quarter of group members have found job positions.

    Hiring specialists have also seen slow growth. Andrew Adelman has not seen any particular sector bounce back yet in Silicon Valley, although he thinks that the recovery will likely start with companies that focus on efficiencies in operations. Adelman directs CoreTechs, Inc., a temporary contract staffing firm that specializes in technical and accounting positions. He noted, “Most companies we speak to are on freezes until they feel confident in either maintaining their current revenue or some pick up. Until they have that confidence, nothing is going to change.”

    He felt that the last economic crash was focused mainly on Internet companies and supporting services. In his view, the current downturn is much more widespread. Many companies outside the tech industry have had to face staff cutbacks and shrinking revenue, and their paranoia feeds a deeper dread. He said, “The fear this time around is much more pervasive and thus much more damaging in the stagnation it causes. Once the fear starts to wane will be when a true recovery starts to take hold.”

    Lei Han agrees. Based in San Francisco, she started a blog, “Career Coach – I am in your corner,” in February, which allows her to mentor and encourage individuals on a broader scale. From the worker’s perspective, she said, “They are all worrying more about their careers and jobs. Almost everyone I know knows someone who has been laid off.”

    She added, “Ironically, people who have a job are also worried. There is a bit of survivor guilt, as well as survivor nonchalance.”

    Despite recent challenges, there are several reasons for workers to be optimistic. At the top of the list, Silicon Valley still remains the world’s hotbed of innovation.

    John Lekashman, an engineering executive who has lived in Silicon Valley since 1983, has seen the region survive many downturns. He laughed, “We have been iron oxide valley, and silicon valley, and software valley, and social media valley and biotech valley, and solar valley, and nanotech valley, and any of a bunch of other random new ideas that fly.”

    From his experience, workers in Silicon Valley persevere. The region fosters a culture of renewal and failure, which will provide an economic buffer until the jobs become plentiful again.

    * Not his real name

    Tamara Carleton is a doctoral student at Stanford University, studying innovation culture and technology visions. She is also a Fellow of the Foundation for Enterprise Development and the Bay Area Science and Innovation Consortium.

  • Can Silicon Valley Attract the Right Workforce for its Next Turnaround?

    In less than 30 years, Silicon Valley has rocketed to celebrity status. The region serves as the top magnet for innovation, often occupying the coveted #1 position of global hot spot rankings. More of an informal shared experience than a physical place, Silicon Valley capitalizes on being centrally located in the San Francisco Bay Area, a broader regional zone that is an economic powerhouse.

    Keeping this leadership position requires constant transformation. The region has weathered and reinvented itself through previous downturns. These next few years, in the wake of what some have termed the Great Recession, will provide another test of economic recovery and relevance.

    Based on a recent in-depth research study of global innovation networks, several elements will be essential to the future success of the Bay Area. Two critical but often overlooked factors are specifically community colleges and local demographics. Both are tied directly to people.

    Almost any conversation of innovation assumes that the top research institutions are prerequisites. Boston has MIT and Harvard; the Bay Area has Stanford University and the University of California at Berkeley. One university professor said frankly, “Stanford is part of what the outside world sees as part of the Silicon Valley secret.”

    These tier-one universities do play a critical role within the local economy, receiving the greatest doses of federal research dollars and enjoying their pick of top young talent. They also soak up the spotlight, so much so that the tiers below them are often ignored by local policymakers.

    This elitist mentality dominates the top of the Bay Area food chain. An eminent faculty leader of a biotech institute was astounded when asked about the role of the other local schools for regional growth. He remarked, “We are more focused on the entrepreneurs than the foot soldiers. We kind of believe that [latter] part will take care of itself.”

    This kind of thinking is delusional. In truth, community colleges provide the bedrock for the region’s university ecosystem. They channel bright students up the local educational chain, helping train and transfer them to the upper tiers. Within the Bay Area, the Foothill-De Anza Community College has served a diverse student body, which includes a combination of younger, older, and re-entry students, for over 50 years.

    In particular, community colleges serve as a gateway to ambitious foreign-born talent. Foothill-De Anza admits more international students than any other community college in the U.S., notes Peter Murray, Foothill’s Dean of Physical Sciences, Mathematics and Engineering. Many of these students from outside the U.S. seek a natural entry to Silicon Valley. Once on a student visa, they aggressively pursue their career interests, often transferring to another state school, such as Stanford or the University of California system, to finish their degrees and join the local workforce. Others gain critical technical skills – such as in database management or bioinformatics – critical to operating sophisticated, technology-based companies.

    The community colleges also learn to do more with less. Although state-assisted, Foothill-De Anza funds students at a relatively low rate of $4019 per student, even compared to other national community colleges that average $8041 per student, according to Community College League of California statistics. This is far below what it costs to send students to Berkeley or Stanford.

    Most recently, the school’s administration has faced painfully deep state budget cuts, re-juggling curriculum priorities and teaching staff loads. They adjust by being flexible. The community college system recently announced a partnership with the University of California at Santa Cruz with ambitious plans to build a new billion-dollar multi-university campus at the NASA Ames Research Center. Carnegie-Mellon University in Pittsburgh and San Jose State University in San Jose, Calif., have joined the unique venture that mixes private, public, and industry spheres.

    The new campus will include a new School of Management, major science laboratories, engineering facilities, classrooms, and homes for 3,000 people on 75 acres. The backers are hopeful that this will lead to a “sustainable community for education and research.” If all goes accordingly to plan, this university will offer a new model of education that combines the best of a local community college, local metropolitan school, two universities at a distance, and a strong industry partner.

    Education constitutes only one part of the region’s human capital outlook. Local population trends can reflect the overall strength of the workforce and its ability for continued growth. On a more fundamental level, innovation efforts rest on people who start and grow new ventures. By understanding current demographics, you garner strong hints for future gaps and issues.

    Looking just at Silicon Valley, the area’s population grew modestly by 1.6% to a total of 2.6 million residents for 2008, according to the latest Silicon Valley Index. Compared to California and the U.S., Silicon Valley’s population consists of fewer children and more people between working ages (25–64). This combination bodes well for work productivity, but also indicates that many who start families soon drift to other states to raise the next set of young workers.

    Silicon Valley does better attracting and retaining foreign talent, who seek new opportunity and prosperity. AnnaLee Saxenian, a dean at the University of California at Berkeley, considers this global migration and circulation to be critical in maintaining regional advantage. Foreign immigration has driven Silicon Valley’s population growth. Looking solely at U.S. Census data estimates for the period of 2000 and 2003, foreign migration to the metropolitan cluster of San Francisco, Oakland, and Fremont rose by 10 percent each year, while domestic migration dropped by nearly 14 percent on average.

    Another good sign is that foreign students, particularly those receiving degrees in science and engineering, continue to stay higher in Silicon Valley than other U.S. regions. Unfortunately, when the student visas end, many of these bright workers, who would otherwise stay in the area, take their skills and dreams back home.

    More worrying, college graduates – both foreign and domestic – are leaving the region on their own volition. No city in the greater Bay Area sits in the top 20 list of places to work after college. If American youth are relocating to other areas, then the region may be destined to simply age in place. Local parents in my recent research study simply did not make the connection that nearly all their grown children lived elsewhere – and what that implication entailed for long-term regional vitality.

    Part of this difference in understanding can be explained by generational biases. Each generation brings a dominant set of traits that shape the tone and direction for local innovation. Baby Boomers (born 1943–1960) are focused on their own pursuits. Even when retired, Boomers stay active as consultants and independent contractors, partly to offset decreased life savings as well as enjoy a self-sufficient lifestyle. Often criticized for being narcissistic, they can help to influence innovation activities for others through policy and funding decisions. A senior research policymaker said emphatically, “What are we going to do for the generations out ahead of us? That’s what I care more about than anything.”

    Generation X (born 1961–1981) is the most entrepreneurial generation in U.S. history, but the smallest in size, so policymakers easily overlook them. Certain tensions exist with the prior generation. Research from Neil Howe and William Strauss show that the Boomers are increasingly resisting the decisions made by Gen X to the point of overlooking their contributions in favor of the next generation.

    This is a drastic mistake for two reasons. First, the average age for a U.S.-born technology entrepreneur to start a company is 39, which sits squarely in Gen X. This generation has already become the primary engine for Silicon Valley. Second, this generation has the best academic training and international experience in American history. They may be small in their weight class, but Gen X packs a hefty punch overall. The challenge will be for the Bay Area to retain this population group, as their family and career needs shift.

    In contrast, the Millennials (born 1982–2005) are generally focused on social bonding, authority approval, and civic duty – attributes that may make parents happy, but do not usually drive new economic growth. As the largest generation in American history, they are proving to be massive consumers of technology and social advocates. By and large, Millennials steer away from high-risk ventures, preferring community-oriented activities, and they bring a different set of demands to the Bay Area.

    In the innovation lifecycle, if Boomers serve as advisors and Gen Xers as the entrepreneurs, then the Millennials could provide potent networkers. Each plays an essential role in regional growth, and all frequently vote with their feet. The critical question is whether the Bay Area is positioned to retain the right workforce mix to harness its next turnaround, or whether the dynamism will shift to other regions both in America and abroad.

    Tamara Carleton is a doctoral student at Stanford University, studying innovation culture and technology visions. She is also a Fellow of the Foundation for Enterprise Development and the Bay Area Science and Innovation Consortium.

  • Silicon Valley’s Working Class Walks Tightrope

    It may be home to Google, Cisco, Oracle and the other gleaming companies of the New Economy, but times are tough for the Silicon Valley’s working class.

    “Working people in Silicon Valley are walking an economic tightrope, and any unexpected medical bill or even a car breakdown can push them over the edge.”

    What happens to a community like this when the working class can no longer afford to live there?