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The Geography of Innovation

Silicon Valley and other geographic clusters of innovation emerge for practical reasons. 

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

Connecting Clusters
Infosys Technologies  employees break  for lunch at the  company headquarters in Bangalore.  Photograph by  AIJAZ RAHI © AP-WWP

Even when technical talent returns home, the pull of geography exerts a strong influence. AnnaLee Saxenian, dean of the School of Information 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. 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. Fortunately, innovation clusters are fairly democratically distributed. Germany has been a world leader in automotive technology for 100 years. Bangalore 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.

—G.P.Z.

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 India to attend Stanford University in California, where he studied business. On graduation in 1981, he helped co-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.

Risk taking and reinvention are central to Silicon Valley. For nearly half a 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 played in molecular engineering and pharmaceutical research. Then, 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. Getting all this money reinforces the supremacy of the region, partly because money acts as a magnet for talent from around the world.

Government also plays an important role in the innovation map. American spending on advanced electronics, often for military applications, spurred civilian innovators and partly explains why Intel 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.

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.

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 Peter 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 telecommunications players such as Skype.

—G.P.Z.

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 due to 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 the money transfer technology called M-PESA. Through M-PESA, people send electronic money using their phones and 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 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.

 

G. Pascal Zachary is a journalist, author and teacher who has published articles for the Wall Street Journal and The New York Times.