Global business: Is Silicon Valley's time as the world's dominant tech destination coming to an end?
Updated: May 19
Part 1 of a three-part report
By BISMA AHMAD
Global Business Journalism reporter
For almost 50 years, Silicon Valley was the undisputed leader of the global startup ecosystem. Entrepreneurs of many nationalities, driven by innovative ideas, would flock to California for its culture of innovation and access to venture capital.
"Silicon Valley has remained a synonym for innovation and tech-savviness for decades," Gabrielle Athanasia wrote for the Centre for International and Strategic Studies.
However, with tech startup ecosystems rising around the globe and the American technology capital rocked by the crash of Silicon Valley Bank and increasing inflation, the question arises: Will Silicon Valley be able to maintain its hegemony?
According to the global ecosystem report of 2022, the world of technology has undergone significant changes over the past decade. The infusion of $1.65 trillion in funding caused the emergence of 1,227 startups, each worth more than 1 billion dollars globally, and we call them unicorns in the startup arena. Despite a global pandemic, there have been revolutionary changes in artificial intelligence, social media, autonomous vehicles, and precision medicine.
Rising multipolarity and proliferation of technology hubs have enabled us to consider the digital economy to be the economy's future. This has been possible due to the rising multipolarity and expansion of technology hubs worldwide.
This shift towards multipolarity began with the proliferation of startup ecosystems. As technology has made it easier to work remotely and collaborate across borders, startups have emerged and thrived in previously considered less viable regions.
Rich Robinson, a seasoned entrepreneur and professor at the University of California, observed that we are experiencing extensive diversification at these epicenters of technology. Previously, they were just limited to Silicon Valley and Beijing.
“Credit for it goes to talented graduates from universities like Stanford, and a great place to attract international talent,” said Wilfried Buiron, a former Schwarzman scholar and founder of Zaapi. He further added that what Silicon Valley offers is almost same as Beijing, the problem may be that more people would still want to go to Silicon Valley rather than to China.
Silicon Valley as global tech epicenter
The world has positioned Silicon Valley is a benchmark because it used to be the sole epicenter of technology-savvy corporations, including over a thousand businesses listed in the Fortune 1000 and thousands of startups working to become unicorns.
It gave the world phenomenal success stories like Apple, Facebook, Google, and Uber. According to the Economist, even in 1999, the Valley attracted one-third of global V.C. investments. By 2011, 90% of the world's unicorns had headquarters in this Valley in California's San Francisco Bay area.
"It got the hype and vibe from a few of the success stories that grew exponentially," observed Serna Leka, a Ph.D. researcher working on bridging sustainability and digitalization with impact.
She added that it was in the interest of multiple ecosystem players for Silicon Valley to thrive. The U.S. government, industries, and conglomerates interested in developing that area were among them.
Athanasia wrote that while taking notes from the success of this Valley is essential, it is crucial to be mindful of why its growth eventually became unsustainable. Many things are going wrong there, such as "unaffordability and declining quality of life."
It is arguable how the Silicon Valley models may run their course Ken Leaver, a Fractional CPO and tech contractor, believes that the hegemony of Silicon Valley remains.
"It is still a home of coming up with completely new models with a really high-quality set of concentrated talent and much good funding," he added.
According to Leaver, Silicon Valley has an edge because it is filled with entrepreneurs who have done startups their entire life. They serve as better mentors and are eager to fund new startups in that ecosystem. Whereas both these elements are rare to be found in developing countries.
Fahad Aziz, cofounder of Camrege, agreed with this. It took almost 50 years for Silicon Valley to be where it is today. We cannot expect a competitor to be created in just a few years.
"It might take decades to build another Silicon Valley," he said.
Experts like Serena Leka, a Ph.D. researcher working on bridging sustainability and digitalization with impact, pointed out that the world does not need another Silicon Valley. As long as each technology hub can build its own support systems.
"Why has Silicon Valley become the measuring standard for the success of the rest of the ecosystems," she added.
Beyond Silicon Valley: the emergence of multipolarity in startup ecosystems
Each of the startup ecosystems has something unique to offer.
For example, it is so easy to get investments in Silicon Valley. Just as a passionate entrepreneur is sipping coffee at a café there, he would find a venture capitalist willing to invest in his idea. They are either investing in real estate or technology. Having deep pockets of venture capital and decades of experience as an innovative hub gives the Valley an edge.
However, she added that other technology hubs can build support systems for their startups without being intimidated by Silicon Valley.
Some might think that, like beginners in startup ecosystems, they need to look up to someone. Which players should these new startup ecosystems should be looking up to for guidance.
"Why should any of them be the next Silicon Valley?" asked Leka. "Why have we made Silicon Valley the measuring standard?" as long as they all function well independently.
The Startup Genome reported that in 2023 more than half of the global GDP would be driven by these "digitally transformed" enterprises.
A 2022 report on global startups by Startup Genome stated that countries such as Korea and India, for the first time, have joined the traditional tech havens such as Silicon Valley, Beijing, Boston, Austin, London, and New York City.
Leka said that small and medium-sized tech enterprises are becoming the backbone of many countries.
The U.S. realized this decades ago, and therefore promoted Silicon Valley, she noted. American policymakers made Silicon Valley easily accessible for international entrepreneurs to come and create their products in Silicon Valley, even if 90% of the startups fail.
"Failures eventually outweigh the opportunities," observed Mohammad Osama Rizvi, a former commonwealth scholar, and an economic analyst.
As Alex Lazarow explained, in Silicon Valley, most startups fail as they follow the formula of cash trajectory. They fail long before they can see profitability. Nevertheless, it did not stop them from keep on trying, and out of hundreds of success stories like Apple, Uber, Facebook, and Amazon emerged.
China's startup ecosystem: The next Silicon Valley?
In recent years, there has been increasing buzz about a new challenger to Silicon Valley's pre-eminence: China.
With its massive population, rapid economic growth, and government support for innovation, various experts have written that China is poised to become the next Silicon Valley.
China's leading tech hub – the Zhongguancun neighborhood in north-western Beijing – was "countryside" in 1973 when Chinese novelist Ning first saw it. Farms and hutongs have been transformed into the heart of China's technology industry.
Rich Robinson tells a similar story. In 1996, when he arrived in China, the only people online were government officials and academics. There were fewer opportunities for international people. Now, it has become a market with well over one billion users.
He gave credit not only to the cooperation between the Chinese government and entrepreneurs but also to hundreds of graduates from top-ranked universities such as Tsinghua and Peking. Whose standards are quite similar to universities like Stanford and MIT.
They played a vital role in creating an ecosystem to be the next Silicon Valley by 2025.
However, some unique aspects make it different from Silicon Valley. Firstly, Rizvi mentioned that the Chinese startup ecosystem is very much guided by the government.
"Their government highlights the areas for entrepreneurs to work on," he added.
Government involvement is viewed by many Western analysts as an ideological and regulatory burden on the free market and a threat to innovation, Jennifer Conrad has written in Wired. However, some Zhongguancun entrepreneurs challenge the view that theirs is a state-run economy. Lopez says the international reach of companies such as Didi, Oppo, ByteDance, and Xiaomi proves they can successfully operate within the Chinese system.
"They observe, replicate, and then try to improve it," he said.
This feature of guidance from the state should be included in the startup ecosystems of developing countries of Southeast Asia and the North African region. Unlike Silicon Valley, these countries lack a tapestry of capital and all structures required to build a thriving startup ecosystem. That is why guidance from the government could help them work on the problems that their local markets are facing by using suitable business models.
Alex Lazarow termed these emerging ecosystems as Frontiers, as they are thriving in the least favorable situations. We may need to take notes from them rather than only studying the inner circle of Silicon Valley.
Pakistan, India, Ukraine and other tech upstarts
Challenges for emerging startup ecosystems (talk about Pakistan, India, and Ukraine)
Asian countries are among the top emerging startups, such as India, Singapore, and Hongkong. Pakistan is a little behind because, according to Rizvi, Pakistan is not "copying" the right things.
He added that Pakistani entrepreneurs are still inspired by Silicon Valley models, which might create a short-term profit trajectory, but there is no growth in the longer run.
So Aziz discussed that Pakistan majority of startups in Pakistan were based on models of marketplaces such as Daraz, Bazar technologies, Kravemart, and many more. This is one of the most challenging models even for the startups in the U.S. Still, because success stories came out of it, so everybody started doing it.
"There is one success story, and everyone tries to follow it," he added.
Nevertheless, in an interview for McKinsey & Company at Startups, Daniel Eisenberg said that Bazaar and Airlift secured $200 million of funding from top-tier investors such as Target Global and Dragonneer.
It will take time, but these emerging ecosystems will learn from their mistakes. Because according to Rizvi, failures are not a bad thing.
Another reason why developing countries still have a long way to go is that they do not function in the most favorable environments. They either are subject to political and economic instability or need to be provided more resources.
For instance, Leaver added that while working at an accelerator in Ukraine, Russia-Ukraine began, and their economy began to shrink and eventually shut down. The same is the case with Pakistan: rising inflation, unfair distribution, limited funding, and a lack of role models.
"Due to lack of funding in emerging startup ecosystems," Aziz added, "we focus on today's problems rather than tomorrow." It is a safe playing game, as in Silicon Valley and even in China, entrepreneurs focus on tomorrow's problems, making them stand out.
Moreover, these hubs are unique because they have enormous untapped resources and millennials who want to either work in a startup or want investors to invest in their idea.
Eisenberg said in the interview that Pakistan has the fifth-largest population, which is "overwhelmingly" young, the fourth-largest number of English speakers, millions of broadband subscribers, and tech professionals, making Pakistan the next "fertile market" for digital enterprises.
Atif Awan, founder and managing partner of Indus Capital Valley, also said in the same McKinsey interview that Pakistan was a latecomer to this trend because people did not have a driving reason to innovate or take risks in its economy before. The reason for the shift is the emergence of the millennial generation in Pakistani business.
Neighbor India remains far ahead in the race for tech startups. Hanisha Jain, a technopreneur, posted on LinkedIn that India has the potential to be among the world' top tech havens because, unlike the U.S., its real estate and labor costs are significantly lower, and there are more existing opportunities to build on.
A global valley
While nations continue to engage in regional rivalries, Rizvi says that these Silicon Valley alternatives each have unique assets and do not need to compete with each other. Instead, they need to build their own local ecosystems. Chinese startups start from their local markets using this inward approach, noted Lopez.
Leaver agrees that all of these ecosystems would continue to play in their own areas before overlapping geographically.
"I do not think they would overshadow each other," he added.
If these ecosystems follow the pattern of anarchy, there might be fierce competition. Some would be rich or poor, some would have resources, while others lack them. Likewise, some might advance in technology, like Silicon Valley and China, while others remain stuck in political and economic instability.
"There will be a highly unequal system," said Rizvi."It would mimic the world order."