Whilst the former First Minister Rhodri Morgan proposed only last week that South Wales could become the “UK’s answer to Silicon Valley”, he is not alone in the world with such a suggestion for his local area. With imitation often being the sincerest form of flattery, many others regions across the globe have tried to emulate the ‘secret sauce’ that has led to this small valley to the South East of San Francisco becoming the seedbed for world-leading companies such as Hewlett-Packard, Apple and Google.
But after fifty years of success, can it maintain its position as the premier location for innovation in the World?
This is a question that its own business community has recently been asking itself. This has culminated in a report published earlier this year by the Silicon Valley Leadership Group and Silicon Valley Community Foundation that has examined the area’s competitiveness going forward.
The good news is that innovative industries continue to be the most significant contributors to Silicon Valley’s success, generating 33 per cent of GDP and employing a quarter of the workforce. This ability to develop new technologies and firms means that it also remains stronger than other up and coming innovation hotspots such as New York City which have seen rapid growth in commercialisation activities. For example, Silicon Valley still has 30 percent of venture capital deals and 46 percent of venture capital investment.
What is also a less lauded factor in the success of the region is the productivity of the workforce, an issue that has recently been seen by economic commentators to be a lag on the economy in the UK. Indeed, data suggests that labour productivity was 62 percent higher in Silicon Valley than the U.S. average in 2013. This is largely due to the ability of the region to attract talent from all over the World with the majority of the science, technology, engineering and mathematics (STEM) workforce is no longer American, with 56 percent being foreign born.
More relevantly, especially given the area’s industrial focus, nearly 70 percent of its software developers were immigrants who had been attracted to work in some of the World’s most innovative companies.
Despite these positive indicators, Silicon Valley does face some serious issues in the future.
Whilst it is attracting overseas talent, its own record in developing numerate and literate future employees is not good. For example, only 59 percent of eight year olds in Silicon Valley were proficient in reading. Worst still, just 54 percent of 13 year olds were proficient in algebra.
With higher educational attainment being critical in securing an innovative region, it is clear that if Silicon Valley is to retain its lead without an overreliance on foreign workers, then it must ensure greater investment into its local educational system.
But that is not the only problem. As would be expected with such a successful region, there are growing issues with house prices and congestion which is not only leading to a higher cost of living for young people in the area but, more significantly, has led to the cost of doing business being a fifth higher than for the USA as a whole.
Indeed, with house prices rising by 33 per cent between 2012 and 2014, nearly 1 in 6 of workers are forced to travel more than two hours or more each day to work, which is one of the worst average commute times of any of the major innovation regions in the USA.
With quality of life being a key issue for many young families – and one of the initial attractors for those who started and grew their companies in the area – other innovation hotspots of the USA may soon become more attractive to those twenty-something professionals that drive the industries of the future.
Finally, Silicon Valley seems to be falling behind in investment in research and development within the higher education system that, through institutions such as Stanford University, has led to commercialisation and innovation over the last five decades.
Not only has funding from the US Government fallen in recent times but R&D expenditure in Silicon Valley universities has only grown at 9 per cent as compared other innovation regions such as New York (42 per cent), Austin (34 per cent) Boston and Seattle (26 per cent), and Southern California (14 per cent).
So whilst Silicon Valley continues to be the leading global innovation region, there are issues that it will need to deal with urgently in ensuring it retains that position.
And for those nations across the World, such as Wales, that wish to emulate its success, it would seem that whilst a focus on R&D and innovation is critical, other factors such as ensuring higher educational standards amongst local students and an improved quality of life could become equally as important in the future.