Inside-Out: Regional Networks and Industrial Adaptation in Silicon Valley and Route 128

Anno Saxenian was dean of the UC Berkeley School of Information when I taught there: A wonderfully interdisciplinary community, then and now, housed in the oldest building on campus; when I was there, they had an open "tea and chocolate" hour once a week where the computer scientists and economists, sociologists and legal scholars, entrepreneurs and academics mingle. I actually got semi-tricked into teaching. Xiao Qiang at UCB emailed me that he was starting a "reading group" around my recently published Smart Mobs. Sounded to me like a book group. Informal. Definitely NOT a course. But one of the students, who some of my patrons may know of -- danah boyd -- petitioned the Dean to make it a course so she could get credit. I didn't know anything about teaching, but I did know the subject matter and did know about lively conversations, online and off. Then Fred Turner at Stanford noticed that I was teaching and invited me to take over the Digital Journalism course there. Noticing that there was little formal study or discussion of the media more and more of the students were using (circa 2005, before the term "social media" was widely used, I proposed to the Dept Chair that I teach a course on "Virtual Community/Participatory Media." It later became "Virtual Community/Social Media." Finally, "Social Media Issues." The Chair of the Sociology Dept at Berkeley noticed my Stanford course and asked that I create one for them, which was co-sponsored with the iSchool. For several years, I taught at Berkeley one day a week and Stanford one day a week. Very different scenes.

Pub:  Cityscape: A Journal of Policy Development and Research 2(2, May 1996):41-60.
Publication Date:  May 1996

Authors:

Saxenian, AnnaLee



Findings:

• Silicon  Valley's advantage in the 1980s was primarily a change of mindset from  'what is best for my company' to 'what is best for the development of  the technology,' and from a firm-based perspective to a network  perspective. "By institutionalizing longstanding practices of informal  cooperation and exchange, they formalized the process of collective  learning in the region."

• While a vertically integrated company with proprietary standards  could thrive and eventually monopolize a stable market, the intrinsic  characteristics of the developing electronics market prevented such a  company from surviving.  "Innovation in all segments of the industry  meant that it was more and more difficult for a single firm to produce  all of the components, let alone remain at the forefront of the  underlying technologies."

One Sentence:

The  decentralized organizational form, non-proprietary standards, and  tradition of cooperative exchange (sharing information and outsourcing  for component parts) of electronics firms in California's Silicon Valley  explain why the region was able to keep up with the fast pace of  technological progress during the 1980s, while the vertically integrated  firms of the Massachusetts Route 128 beltway fell behind.

One Paragraph:

Typically,  scholars of regional development use the cases of Silicon Valley and  the Route 128 beltway to demonstrate the concept of external economies:  "cumulatively self-reinforcing agglomerations of technical skill,  venture capital, specialized input suppliers and services,  infrastructure," and shared technical knowledge.  However, external  economies cannot explain why Silicon Valley had usurped the dominant  market position of Route 128 by the end of the 1980s.  Both regions had  to respond to international competition and a lowered domestic military  budget.  The crucial difference, Saxenian argues, is that Route 128  firms encouraged secrecy and company loyalty, aiming at corporate  self-reliance.  On the other hand, Silicon Valley had a much more open  labor market, with specialists cross-pollinating firms and spreading  technical knowledge through the region's social networks.  Competition  was just as fierce between firms, but the informal horizontal  communication typical of Silicon Valley allowed the region to adapt to  the rapidly changing market.  Silicon Valley firms were more likely to  look to the market for components, while the vertically integrated Route  128 firms tried to develop all components internally and keep  proprietary ownership of technical advances.  These firms "find  themselves locked into obsolete technologies and markets, and their  self-sufficient structures limit their ability to adapt in a timely  fashion."

One Page:

The statistics of  differences in growth between Silicon Valley and Route 128 are  startling: "in 1990 Silicon Valley was the home of 39 of the nation's  100 fastest growing electronics companies, whereas Route 128 claimed  only four" and "Silicon Valley during the 1980s collectively accounted  for more than $22 billion in sales, whereas their Route 128 counterparts  had generated only $2 billion."  At one point Route 128 firms had  dominated the high technology market, but the firms could not keep up  with its rapid, unpredictable pace.  Saxenian argues the key was the  decentralized organization form of Silicon Valley firms and that they  were embedded in a social and institutional network that encouraged  learning.  The fate of two start-up companies, Sun Microsystems of  Silicon Valley and Apollo Computer of Route 128 help to frame the story.

Although Sun and Apollo were equally positioned during the mid-1980s,  Sun specialized on hardware and software for workstations, outsourcing  for component parts, while Apollo "adopted proprietary standards and  chose to design and fabricate its own central processor and specialized  integrated circuits."  Sun was able to develop complex new products  quickly, relying on market competition between external vendors to  ensure quality, state-of-the-art component parts.

Sun also kept its decentralized form "to preserve the flexibility and  enthusiasm of a start-up company even as it grew."  Similar to the  corporate strategies of Japanese companies, decisions at Sun emerged  more organically than in the hierarchical Apollo.  Having autonomous  division representatives contribute to company strategy also provides a  training ground for future executives, as was the case at HP.  "Former  HP executives were responsible for starting more than 18 firms in  Silicon Valley between 1974 and 1984, including such notable successes  as Rolm, Tandem, and Pyramid Technology."