Is America Losing Its Edge?
There is a huge difference between original breakthroughs and incremental improvements in science and technology and new applications. What often passes as innovation in China and India and other emerging nations almost always fits in the latter category. Examples of the former category include Gutenberg printing press, incandescent light bulb, internal combustion engine, radio, telephone, transistor, semiconductor chip, microprocessor, the computer operating systems and programming languages, the Internet, and the discovery of the DNA Helix. All of these original ideas have come from the West, most of them from the United States.
It is healthy for Americans to be constantly looking over their shoulders to see how several emerging nations, including India and China, are making significant strides in trying to catch up with them. However, I believe a lot of the concerns today about the US losing its edge anytime soon are overblown, just like the concerns in the 1980s about Japan leaving the US behind in semiconductors. I remember how the Intel founder Gordon Moore responded to such concerns by the US media in the 1980s. He analogized Intel with a driver driving on a dirt road in the dark with no maps or signs, and the Japanese semiconductor industry following the tail lights of Intel as the leader in front. As long as the Intel tail lights are there, others can follow them. But the situation changes dramatically when the tail lights are no longer there and the follower has to find his or her own way. The situation is quite similar today, except that the number nations following the US tail lights has increased beyond the Japanese to include BRIC nations.
There are many ingredients that account for the significant edge the Americans continue to have over others. These include a)America's education system that emphasizes openness, free inquiry, creativity, reasoning, research, and debate rather than submissive rote learning, b) the culture of risk-taking backed by the availability of risk capital from venture capital firms, c) massive government investments in basic research, higher education, infrastructure, and human development, and d)insatiable demand for new ideas, products and services in the marketplace.
There have been many attempts to replicate Silicon Valley in many parts of the world, but none have had successes comparable to the original Silicon Valley in California. The original Valley is not the result of any planning, but the outgrowth of the culture of achievement, innovation and risk-taking that is hard to replicate. At least part of the success of the Valley comes from its ability to absorb people and ideas from across the world. Most high-tech companies in the Valley resemble the United Nations, with representation of men and women of all ethnicities, religions and races from all parts of the world, including China, India, Israel, and Pakistan.
Here is a New York Times story on the subject of innovation in India:
BANGALORE, India — In the United States and Europe, people worry that their well-paying, high-skill jobs will be, in a word, “Bangalored” — shipped off to India.
People here are also worried about the future. They fret that Bangalore, and India more broadly, will remain a low-cost satellite office of the West for the foreseeable future — more Scranton, Pa., in the American television series “The Office,” than Silicon Valley.
Even as the rest of the world has come to admire, envy and fear India’s outsourcing business and its technological prowess, many Indians are disappointed that the country has not quickly moved up to more ambitious and lucrative work from answering phones or writing software. Why, they worry, hasn’t India produced a Google or an Apple?
Innovation is hard to measure, but academics who study it say India has the potential to create trend-setting products but is not yet doing so. Indians are granted about half as many American patents for inventions as people and firms in Israel and China. The country’s corporate and government spending on research and development significantly lags behind that of other nations. And venture capitalists finance far fewer companies here than they do elsewhere.
“The same idea, if it’s born in Silicon Valley it goes the distance,” said Nadathur S. Raghavan, a investor in start-ups and a founder of Infosys, one of India’s most successful technology companies. “If it’s born in India it does not go the distance.”
Mr. Raghavan and others say India is held back by a financial system that is reluctant to invest in unproven ideas, an education system that emphasizes rote learning over problem solving, and a culture that looks down on failure and unconventional career choices.
Sujai Karampuri is an Indian entrepreneur who has struggled against many of these constraints.
His Bangalore-based company, Sloka Telecom, has developed award-winning radio systems that are more flexible, smaller and less expensive than equipment used by phone companies today. Mobile phone companies and larger telecommunications equipment suppliers are buying and testing his products, but he has not been able to interest Indian venture capitalists. For the last five years he has run his firm on $1 million he raised from acquaintances.
“I can only afford to trial with one customer at a time and that takes three months to materialize,” said Mr. Karampuri, who has considered moving the company to the United States to be closer to venture capitalists who specialize in telecommunications. “You are always worried about paying next month’s salary to people. Should you keep the money for this trial or next month’s salary?”
Companies like Sloka Telecom are important, analysts say, because they are more likely to create the next wave of jobs than large, established Indian technology companies, many of which are experiencing slower growth. These companies could also help offset some of the outsourcing jobs the country will likely lose because of greater automation and competition from countries where costs are even lower.
There are historical reasons that starting a business in India is difficult. During British rule, imperial interests dictated economic activity; after independence in 1947, central planning stifled entrepreneurship through burdensome licensing and direct state ownership of companies and banks.
Businesses found that currying favor with policy makers was more important than innovating. And import restrictions made it hard to acquire machinery, parts or technology. Inventors came up with ingenious ways to overcome obstacles and scarcity — a talent Indians used the Hindi word “jugaad” (pronounced jewgard) to describe. But the products that resulted from such improvisation were often inferior to those available outside India.
“We were in an economy where, forget innovation, expansion was discouraged, creating wealth was frowned upon, there was no competition to speak of,” said Anand G. Mahindra, who heads the Mahindra & Mahindra business group and has spoken about the need for more innovation.
Indian leaders began embracing the free market in the 1980s and stepped up the pace of change in 1991 when the country faced a financial crisis. Those changes increased economic growth and made possible the rise of technology companies like Infosys and Wipro, which focused on providing services for American and European corporations.
Yet, the government still exerts significant control, especially in manufacturing, said Rishikesha T. Krishnan, a professor at the Indian Institute of Management in Bangalore.
“To start a services company it really takes you just two or three days to get going,” said Mr. Krishnan, whose book, “From Jugaad to Systematic Innovation: The Challenge for India,” is to be published next year. “The moment you are looking at manufacturing, there are hundreds of inspectors and regulations.”
Raising money is one of the biggest challenges entrepreneurs face. Venture capital funds have flocked to India in recent years, but they are more likely to invest in established businesses than young firms.
In the United States, Israel and elsewhere, the initial, or seed, capital for many start-ups comes from rich individuals known as angel investors. But most rich Indians prefer to invest with family members or close friends because its considered safer and provides assurance that the lender will be able to borrow from relatives in the future.
“If you want to raise $3 to $4 million, it’s doable,” said Sumir Chadha, who co-heads Sequoia Capital’s Indian operations. “But it’s difficult if you want to raise $300,000 or $400,000,” a typical investment at the early stages of a company’s life.
When Cellworks Group, which has most of its operations in Bangalore, was looking to raise money last year, executives talked to venture capitalists here and abroad. But the company raised all of the money it needed in the United States, because most local investors did not have the expertise to evaluate the biotech firm, said Taher Abbasi, the chief executive.
Cellworks has planted its corporate headquarters and a small staff near San Jose so it can be close to investors and American universities for research collaboration on cancer drugs.
“To really kick off entrepreneurship without local money is very difficult,” Mr. Abbasi said.
Still, he said, India has its advantages. Engineers and biologists are plentiful, though they need to be trained more than their counterparts elsewhere. And operating costs are a lot lower than in the San Francisco Bay Area, which was critical more than two years ago when he and his partners started the company with their own money.
There may yet be hope for Indian innovation.
Some are looking to fill the venture fund vacuum. A group called Mumbai Angels holds Saturday meetings every two months at which entrepreneurs pitch ideas to affluent investors. Members of the group have invested in about 20 companies, said Prashant Choksey, a co-founder.
Separately, N. R. Narayana Murthy, the chairman of Infosys, recently sold $38 million worth of shares in his company to start a new venture capital fund. Mr. Raghavan, the former Infosys executive, has invested about $100 million in start-ups like Connexios Life Sciences, which is developing drugs to treat diabetes and other diseases. Many Indian universities have also started entrepreneurship programs and classes.
Vivek Wadhwa, a former technology entrepreneur who now researches innovation, said the climate for start-ups in India was a lot better than it was a few years ago. It should continue to improve, he said, in part because companies like General Electric have hired tens of thousands of engineers in India to work in research and development.
“Once they have been working on these projects for a few years they will outgrow the companies that they are working for,” he said. “They will hook up with these entrepreneurs that failed” on previous start-up attempts and create new companies.
Another change may augur well. Until early this decade, the Indian market was too small and isolated to make it very lucrative for businesses to develop products here, so most technology companies focused on selling services to the West, said Girish S. Paranjpe, joint chief executive of Wipro’s information technology business. “That will change dramatically because the Indian market has become bigger,” he said.
In the last eight years, the size of the Indian economy has roughly doubled along with the importance of foreign trade. There could still be something to envy and fear.
Related Links:
South Asians Primary Duty to Children
Teaching Facts Versus Reasoning
Is America Losing Its Mojo?
Facts and Myths in Globalization Debate
Pakistan's Multi-Billion Dollar IT Industry
Poor Quality of Higher Education in South Asia
South Asia Slipping in Human Development
Selling Jugaad to the West
Asia Gains in Top Universities
Pakistani Entrepreneurs in Silicon Valley
Venture Investing in India, China and Pakistan
Doing Business Rankings of Countries
It is healthy for Americans to be constantly looking over their shoulders to see how several emerging nations, including India and China, are making significant strides in trying to catch up with them. However, I believe a lot of the concerns today about the US losing its edge anytime soon are overblown, just like the concerns in the 1980s about Japan leaving the US behind in semiconductors. I remember how the Intel founder Gordon Moore responded to such concerns by the US media in the 1980s. He analogized Intel with a driver driving on a dirt road in the dark with no maps or signs, and the Japanese semiconductor industry following the tail lights of Intel as the leader in front. As long as the Intel tail lights are there, others can follow them. But the situation changes dramatically when the tail lights are no longer there and the follower has to find his or her own way. The situation is quite similar today, except that the number nations following the US tail lights has increased beyond the Japanese to include BRIC nations.
There are many ingredients that account for the significant edge the Americans continue to have over others. These include a)America's education system that emphasizes openness, free inquiry, creativity, reasoning, research, and debate rather than submissive rote learning, b) the culture of risk-taking backed by the availability of risk capital from venture capital firms, c) massive government investments in basic research, higher education, infrastructure, and human development, and d)insatiable demand for new ideas, products and services in the marketplace.
There have been many attempts to replicate Silicon Valley in many parts of the world, but none have had successes comparable to the original Silicon Valley in California. The original Valley is not the result of any planning, but the outgrowth of the culture of achievement, innovation and risk-taking that is hard to replicate. At least part of the success of the Valley comes from its ability to absorb people and ideas from across the world. Most high-tech companies in the Valley resemble the United Nations, with representation of men and women of all ethnicities, religions and races from all parts of the world, including China, India, Israel, and Pakistan.
Here is a New York Times story on the subject of innovation in India:
BANGALORE, India — In the United States and Europe, people worry that their well-paying, high-skill jobs will be, in a word, “Bangalored” — shipped off to India.
People here are also worried about the future. They fret that Bangalore, and India more broadly, will remain a low-cost satellite office of the West for the foreseeable future — more Scranton, Pa., in the American television series “The Office,” than Silicon Valley.
Even as the rest of the world has come to admire, envy and fear India’s outsourcing business and its technological prowess, many Indians are disappointed that the country has not quickly moved up to more ambitious and lucrative work from answering phones or writing software. Why, they worry, hasn’t India produced a Google or an Apple?
Innovation is hard to measure, but academics who study it say India has the potential to create trend-setting products but is not yet doing so. Indians are granted about half as many American patents for inventions as people and firms in Israel and China. The country’s corporate and government spending on research and development significantly lags behind that of other nations. And venture capitalists finance far fewer companies here than they do elsewhere.
“The same idea, if it’s born in Silicon Valley it goes the distance,” said Nadathur S. Raghavan, a investor in start-ups and a founder of Infosys, one of India’s most successful technology companies. “If it’s born in India it does not go the distance.”
Mr. Raghavan and others say India is held back by a financial system that is reluctant to invest in unproven ideas, an education system that emphasizes rote learning over problem solving, and a culture that looks down on failure and unconventional career choices.
Sujai Karampuri is an Indian entrepreneur who has struggled against many of these constraints.
His Bangalore-based company, Sloka Telecom, has developed award-winning radio systems that are more flexible, smaller and less expensive than equipment used by phone companies today. Mobile phone companies and larger telecommunications equipment suppliers are buying and testing his products, but he has not been able to interest Indian venture capitalists. For the last five years he has run his firm on $1 million he raised from acquaintances.
“I can only afford to trial with one customer at a time and that takes three months to materialize,” said Mr. Karampuri, who has considered moving the company to the United States to be closer to venture capitalists who specialize in telecommunications. “You are always worried about paying next month’s salary to people. Should you keep the money for this trial or next month’s salary?”
Companies like Sloka Telecom are important, analysts say, because they are more likely to create the next wave of jobs than large, established Indian technology companies, many of which are experiencing slower growth. These companies could also help offset some of the outsourcing jobs the country will likely lose because of greater automation and competition from countries where costs are even lower.
There are historical reasons that starting a business in India is difficult. During British rule, imperial interests dictated economic activity; after independence in 1947, central planning stifled entrepreneurship through burdensome licensing and direct state ownership of companies and banks.
Businesses found that currying favor with policy makers was more important than innovating. And import restrictions made it hard to acquire machinery, parts or technology. Inventors came up with ingenious ways to overcome obstacles and scarcity — a talent Indians used the Hindi word “jugaad” (pronounced jewgard) to describe. But the products that resulted from such improvisation were often inferior to those available outside India.
“We were in an economy where, forget innovation, expansion was discouraged, creating wealth was frowned upon, there was no competition to speak of,” said Anand G. Mahindra, who heads the Mahindra & Mahindra business group and has spoken about the need for more innovation.
Indian leaders began embracing the free market in the 1980s and stepped up the pace of change in 1991 when the country faced a financial crisis. Those changes increased economic growth and made possible the rise of technology companies like Infosys and Wipro, which focused on providing services for American and European corporations.
Yet, the government still exerts significant control, especially in manufacturing, said Rishikesha T. Krishnan, a professor at the Indian Institute of Management in Bangalore.
“To start a services company it really takes you just two or three days to get going,” said Mr. Krishnan, whose book, “From Jugaad to Systematic Innovation: The Challenge for India,” is to be published next year. “The moment you are looking at manufacturing, there are hundreds of inspectors and regulations.”
Raising money is one of the biggest challenges entrepreneurs face. Venture capital funds have flocked to India in recent years, but they are more likely to invest in established businesses than young firms.
In the United States, Israel and elsewhere, the initial, or seed, capital for many start-ups comes from rich individuals known as angel investors. But most rich Indians prefer to invest with family members or close friends because its considered safer and provides assurance that the lender will be able to borrow from relatives in the future.
“If you want to raise $3 to $4 million, it’s doable,” said Sumir Chadha, who co-heads Sequoia Capital’s Indian operations. “But it’s difficult if you want to raise $300,000 or $400,000,” a typical investment at the early stages of a company’s life.
When Cellworks Group, which has most of its operations in Bangalore, was looking to raise money last year, executives talked to venture capitalists here and abroad. But the company raised all of the money it needed in the United States, because most local investors did not have the expertise to evaluate the biotech firm, said Taher Abbasi, the chief executive.
Cellworks has planted its corporate headquarters and a small staff near San Jose so it can be close to investors and American universities for research collaboration on cancer drugs.
“To really kick off entrepreneurship without local money is very difficult,” Mr. Abbasi said.
Still, he said, India has its advantages. Engineers and biologists are plentiful, though they need to be trained more than their counterparts elsewhere. And operating costs are a lot lower than in the San Francisco Bay Area, which was critical more than two years ago when he and his partners started the company with their own money.
There may yet be hope for Indian innovation.
Some are looking to fill the venture fund vacuum. A group called Mumbai Angels holds Saturday meetings every two months at which entrepreneurs pitch ideas to affluent investors. Members of the group have invested in about 20 companies, said Prashant Choksey, a co-founder.
Separately, N. R. Narayana Murthy, the chairman of Infosys, recently sold $38 million worth of shares in his company to start a new venture capital fund. Mr. Raghavan, the former Infosys executive, has invested about $100 million in start-ups like Connexios Life Sciences, which is developing drugs to treat diabetes and other diseases. Many Indian universities have also started entrepreneurship programs and classes.
Vivek Wadhwa, a former technology entrepreneur who now researches innovation, said the climate for start-ups in India was a lot better than it was a few years ago. It should continue to improve, he said, in part because companies like General Electric have hired tens of thousands of engineers in India to work in research and development.
“Once they have been working on these projects for a few years they will outgrow the companies that they are working for,” he said. “They will hook up with these entrepreneurs that failed” on previous start-up attempts and create new companies.
Another change may augur well. Until early this decade, the Indian market was too small and isolated to make it very lucrative for businesses to develop products here, so most technology companies focused on selling services to the West, said Girish S. Paranjpe, joint chief executive of Wipro’s information technology business. “That will change dramatically because the Indian market has become bigger,” he said.
In the last eight years, the size of the Indian economy has roughly doubled along with the importance of foreign trade. There could still be something to envy and fear.
Related Links:
South Asians Primary Duty to Children
Teaching Facts Versus Reasoning
Is America Losing Its Mojo?
Facts and Myths in Globalization Debate
Pakistan's Multi-Billion Dollar IT Industry
Poor Quality of Higher Education in South Asia
South Asia Slipping in Human Development
Selling Jugaad to the West
Asia Gains in Top Universities
Pakistani Entrepreneurs in Silicon Valley
Venture Investing in India, China and Pakistan
Doing Business Rankings of Countries
Comments
... China's 1.3 billion upwardly mobile people are voracious consumers of everything from cars to smartphones to Kentucky Fried Chicken. Through its relentless exports, China has amassed a mountain of cash reserves and made itself Washington's biggest foreign creditor.
However, the China that vacuumed up factories to become the Workshop of the World is fading into history. The country is a victim of its own success. Decades of nonstop growth have forever altered China's place in the global economy and changed how it must compete with rich nations like the U.S. and emerging economies like India. The tools that China has used to spark its economic miracle — government support, cheap labor, state-directed finance — cannot ensure its future. The country can no longer rely on just making lots of stuff; China has to invent things, design them, brand them and market them. Instead of following the leaders of global industry, China has to produce leaders of its own.
Such a transition is not easy. Few emerging nations in modern times have made the leap from assembler to inventor, copycat to innovator. For China, this would mean an overhaul of its economy. Many of the products China manufactures today aren't really very Chinese at all. Apple iPads might be exported from assembly lines based in China, but the Chinese themselves do little more than piece them together. The core technologies come from elsewhere, and even the factories are run by foreign firms (like Taiwan's Foxconn). For Chinese companies to compete with the world's best, they have to create products of their own that have a similar impact as the iPad. That requires a set of skills and know-how they don't yet possess and a level of managerial expertise they haven't yet developed. Economist William Janeway, author of the book Doing Capitalism in the Innovation Economy, says what has gotten China thus far won't be enough for the next step: "It is hard to start the process of pushing the frontier with [such] practices and policies."
Chinese policymakers fully realize that. The new leadership team in Beijing, ushered into office a year ago, has pledged to press ahead with free-market reforms — liberalizing finance, supporting private enterprise and cracking open protected sectors. "China's modernization will not be accomplished without reform, nor will it be achieved without opening up," Premier Li Keqiang recently conceded. So far, though, progress has been slow. Few meaningful initiatives have been introduced, and even headline-grabbing measures — like the September launch of a special zone in Shanghai to experiment with freer capital flows — have proved mere baby steps. Li and his mandarins must take on vested interests and rein in an overbearing bureaucracy, which will require formidable political will. China's leadership "is not ready yet to deliver a comprehensive reform package with executable specifics and clear timetables," Bank of America Merrill Lynch economists warned in October.
Whether China succeeds or fails will determine where everything from sneakers to cars to smartphones are manufactured, the brands that appear on them and who sells them. Failure could stall China's economic miracle and dampen global growth with it. Here are five challenges China must address:
1. Labor is no longer cheap
2. Companies lag behind in technology
3. Innovation doesn't come easy
4. There are too few global brands
5. Good managers are hard to find
http://content.time.com/time/magazine/article/0,9171,2156209,00.html
https://www.investopedia.com/articles/markets/100214/inside-intel-look-mega-chipmaker.asp
Never has a corporation done so much with something so little. Founded in 1968, Intel Corp. (INTC) has been the world’s leading manufacturer of microprocessors and chipsets almost since its inception. Today Intel is easily the largest semiconductor company in the world, about half again as large as closest competitor, Samsung Electronics Co., Ltd., and more than triple the size of the next-largest domestic producer, Qualcomm Inc. (QCOM).
What separates Intel from most other semiconductor companies is that it fabricates its products in-house. The bulk of semiconductor “manufacturers” farm the actual work of creating the products out to foundries in China. Intel even fabricates chips for other companies, for the most part ones too small to be considered true competitors. Is that a conflict of interest? Not really. Fabrication plants can cost several billion dollars to build, and it makes sense for Intel to keep its busy. (For more, see: The Semiconductor Industry Handbook.)
Intel does indeed assemble chipsets in China, but at Intel-owned facilities. It is received wisdom among some American doomsayers that low labor costs make China the default base of manufacturing operations for U.S. corporations that want to save a few pennies per unit and “ship jobs overseas.” That claim is more accusatory than it is true. At the end of 2016 Intel had a multitudinous workforce of 106,000, approximately half of whom were employed in the United States. Almost half of Intel’s chipsets and microprocessors are manufactured at home, at facilities in the suburbs of Phoenix, Albuquerque, N.M., and Portland, Ore. Outside of China, most of the remaining Intel products are developed in Israel. (For more, see: A Primer for Investing in the Tech Industry.)
The Incestuous World of Chip-sourcing
Even given that Intel fabricates other companies’ chips at its facilities, the business of developing internal computer hardware, selling it, and branding it is more incestuous than you might think. For instance, as of 2007 Apple Inc. (AAPL) began using Intel chips exclusively in its Macs, supplanting the PowerPC CPUs that Apple itself helped develop as part of a consortium. In 2018, it was reported that Apple may use Intel chips exclusively in its new iPhones. By comparison, smaller companies subcontracting to Intel isn’t even that big of a deal.
Moore's Law
Intel’s surviving cofounder, Gordon Moore, lends his name to the most famous observation in all of technology. Formulated in 1965, Moore’s Law states that transistor density doubles every two years. Not only has the observation held ever since, but Intel has officially incorporated the law into its company strategy. The company is behind the development of 450mm wafers, the widest in existence, yet still less than a millimeter thick. Once in production, they should allow the exponential progress of Moore’s Law to continue for at least another generation.
So who’s buying all these Intel chips? In 2008, the answer was unambiguous. Hewlett-Packard Co. (HPQ), Dell and International Business Machines Corp. (IBM), not coincidentally the three-biggest computer manufacturers at the turn of the century, were together responsible for $3 of every $4 Intel took in. A mere six years later, with bulky personal computers no longer the devices of choice for a global clientele that values portability and speed, Intel now has eight major customers that are responsible for 75% of its revenues. In 2016, Intel's three largest customers were responsible for 31% of the firm's accounts receivable. Intel might obey Moore’s Law, but the Pareto Principle (a.k.a the 80/20 rule) is a different story.