From Brain Drain to Brain Gain

8/22/2019 From Brain Drain to Brain Gain

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F ro m Bra in D ra in t o Bra i nCirculat ion: Transnat ionalC o m m u n i tie s a n d R e g io n a lU p g ra d i n g in In d ia a n d C h i n aA n naL ee Saxen i a n

By 2000 , over one- th i rd o f S i l icon Val ley ' s h igh-sk i l led workers w ere fo re ign-born ,and overw helm ing ly f rom Asia . These U.S . -educated eng ineers are t ransfo rm ingdevelopm ental oppor tun i t ies fo r fo rm erly per ipheral reg ions as the y bu i ld p ro fes-s ional and business conne ct ions to thei r hom e coun tr ies . In a p rocess m ore ak in to"brain c i rcu la t ion" than "brain d ra in ," these eng ineers a nd en t repreneurs , a ided bythe lowe red t ransact ion costs associa ted wi th d ig i t iza t ion , are t ransferr ing techn icaland ins t i tu t ional know-how between d is tan t reg ional economies fas ter and moref lex ib ly than m ost large corporat ions . Th is ar t ic le exam ines how C hinese- and In-d ian-born eng ine ers are accelera t ing the developmen t o f the in fo rm at ion techno l-ogy indust r ies in thei r home coun tr ies- - in i t ia l ly by tapp ing the low-cost sk i l l inthei r home coun tr ies , and over time by con tr ibu t ing to h igh ly local ized p rocesses o fen t repreneur ia l exper im entat ion and upgrad ing , w hi le main ta in c lose t ies to the tech-no log y and m arkets in S i l icon Valley . However , these succe ssfu l mo dels a lso ra iseseveral quest ions abou t the b roader re levance o f b ra in c i rcu la t ion ou ts ide o f severalkey coun tr ies , and reg ions o f those coun tr ies , wi th in the g lobal Sou th .

G o b a l l a b o r m a r k e t s a r e b e i n g t r a n s f o r m e d a s t h e f a l l i n g c o s t s o f tr a n s p o r t a t i o na n d c o m m u n i c a t i o n s f a c i l i t a t e g r e a t e r m o b i l i t y a n d a s d i g i t a l t e c h n o l o g i e ss u p p o r t th e f o r m a l i z a t i o n a n d l o n g - d i s t a n c e e x c h a n g e o f l ar g e a m o u n t s o f i n f o r m a -t i on . I n t e r n a t i o n a l m i g r a t i o n , h i s t o r i c a l ly a o n e - w a y p r o c e s s , h a s b e c o m e a r ev e r s -i b le c h o i c e , p a r t i c u l a r l y f o r t h o s e w i t h s c a r c e t e c h n i c a l s k i l ls , a n d i t i s n o w p o s s i b l et o c o l l a b o r a t e i n r e a l t i m e , e v e n o n c o m p l e x t a s k s , w i t h c o u n t e r p a r t s l o c a t e d a tg r e a t d i s t a n c e s . A s a r e s u l t , s c i e n t i s t s a n d e n g i n e e r s f r o m d e v e l o p i n g c o u n t r i e s - -

AnnaLee Saxenian is dean and professor at the S choo l of Information Managem ent and S ystemsand professor in the Department of City and Regional Planning at the University of California,Berkeley. She is currently exploring how imm igrant engineers and scientists are transferring tech-nology entrepreneurship to regions in Asia.Studies in Comparative International Development, Sum mer 2005, Vol. 40, No. 2, pp. 35-61.


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36 S t u d i e s i n C o m p a r a t i v e I n t e r n a t i o n a l D e v e l o p m e n t / S u m m e r 2 0 0 5

o n c e f o r c e d t o c h o o s e b e t w e e n s e t tl in g a b r o a d a n d r e t u r n i n g h o m e t o f a r l es s a t tr a c-t i v e p r o f e s s i o n a l o p p o r t u n i t i e s - - a r e c o n t r i b u t i n g t o t h e i r h o m e e c o n o m i e s w h i l em a i n t a i n i n g p r o fe s s io n a l a n d e c o n o m i c t i es i n m o r e t e c h n o l o g i c a ll y a d v a n c e d e c o n o -m i e s . S o m e b e c o m e " t r a n s n a t i o n a l " a s t h e y w o r k , a n d e v e n m a i n t a i n r e s i d e n c e sa n d c i t i z e n s h i p i n m o r e t h a n o n e n a t i o n .T h e m i g r a t i o n o f ta l e n te d y o u t h f r o m d e v e l o p i n g t o a d v a n c e d c o u n t r i e s w a sv i e w e d i n t h e p o s t w a r d e c a d e s a s a " b r a i n d r a i n " t h a t e x a c e r b a t e d i n t e r n a t i o n a li n e q u a l i ty b y e n r i c h i n g a l r e a d y w e a l th y e c o n o m i e s a t th e e x p e n s e o f th e i r p o o rc o u n t e r p a r t s . A c c o r d i n g t o a c l a ss ic t e x t b o o k o n e c o n o m i c d e v e l o p m e n t ,

T h e p e o p l e w h o m i g r a t e l e ga ll y f r o m p o o r e r t o r i c h e r la n d s a re t h e v e r y o n e s t h a t T h i r dW or ld co unt r ies can least a f fo rd to lose , the h igh ly educa ted and sk i ll ed. S ince the g rea tm a j o r i t y o f t h e s e m i g r a n t s m o v e o n a p e r m a n e n t b a si s, t h i s p e r v e rs e b r a i n d r a in n o t o n l yr e p r e s e n t s a l o s s o f v a lu a b l e h u m a n r e s o u r c e s b u t c o u l d a l s o p r o v e to b e a s e r i o u s c o n -s t ra in t on the fu tu re eco nom ic p rog ress o f Thi rd Wor ld na tions . " (Todaro, 1985)

D a t a o n t h e s e t r e n d s a r e h a r d t o f i n d , b u t t h e U N h a s e s t i m a t e d a to t a l o f t h r e eh u n d r e d t h o u s a n d h i g h l y s k i l l e d e m i g r a n t s f r o m a l l d e v e l o p i n g c o u n t r i e s t o t h eW e s t d u r i n g t h e 1 9 6 0 s ( R a p a p o r t , 2 0 0 2 ) ; t h e 1 9 9 0 U . S . C e n s u s s h o w e d 2 . 5 m i l l i o nh i g h l y s k i l l ed i m m i g r a n t s , e x c l u d i n g s t u d e n t s.

M u c h o f th e m o v e m e n t o f s k il le d i n d iv i d u al s f r o m d e v e l o p i n g to a d v a n c e d c o u n -t r ie s d u r i n g t h e l a t te r p a r t o f t h e t w e n t i e t h c e n t u r y h a s i n v o l v e d m i g r a t i o n t o t h eU n i t e d S t a te s , s p e c i f i c a l l y S i l i c o n V a ll ey . T h e r e g i o n ' s t e c h n o l o g y p r o d u c e r s g r e wv e r y r a p i d l y f r o m t h e 1 9 7 0 s t h r o u g h t h e 1 9 9 0 s, a b s o r b i n g s c i e n t i s ts a n d e n g i n e e r sv o r a c i o u s l y a n d i r re s p e c ti v e o f n a t i o n a l o r i g in . T e n s o f th o u s a n d s o f i m m i g r a n t sf r o m d e v e l o p i n g c o u n t r ie s , w h o h a d i n it ia l ly c o m e t o t h e U . S. f o r g r a d u a t e e n g i -n e e r i n g e d u c a t i o n , a c c e p t e d j o b s i n S i l i c o n V a l le y r a t h e r th a n r e t u r n t o th e i r h o m ec o u n t r i e s , w h e r e p r o f e s s i o n a l o p p o r t u n i t i e s w e r e l im i te d .~ B y 2 0 0 0 , o v e r h a l f ( 5 3 % )o f S i l i c o n V a l l e y 's s c i e n t is t s a n d e n g i n e e r s w e r e f o r e i g n - b o r n . I n d i a n a n d C h i n e s ei m m i g r a n t s a l o n e a c c o u n t e d f o r o v e r o n e - q u a r t e r o f t h e r e g io n ' s s c i en t is t s a n d e n g i -n e e r s , o r a p p r o x i m a t e l y 2 0 , 0 0 0 I n d i a n a n d 2 0 , 0 0 0 C h i n e s e ( 5 ,0 0 0 T a i w a n - a n d 1 5 ,0 0 0M a i n l a n d - b o r n ) e n g i n e e r s. 2

T h i s p a p e r a r g u e s t h a t t h e s a m e i n d i v i d u a l s w h o l e f t t h e i r h o m e c o u n t r i e s f o rb e t t e r l i fe s t y l e s a b r o a d a r e n o w r e v e r s i n g t h e b r a i n d r a i n , t r a n s f o r m i n g i t i n t o " b r a i nc i r c u l a t i o n " a s th e y r e t u r n h o m e t o e s t a b li s h b u s i n e s s r e l a t i o n s h i p s o r to s t a r t n e wc o m p a n i e s w h i l e m a i n t a i n i n g t h e i r s o c i a l a n d p r o f e s s i o n a l ti e s t o t h e U n i t e d S t a te s .W h e n f o r e i g n - e d u c a t e d v e n t u r e c a p i ta l i st s i n v e s t i n t h e i r h o m e c o u n t r i e s , t h e y t ra n s -f e r f ir s t -h a n d k n o w l e d g e o f t h e f i n a n c ia l i n s t i tu t i o n s o f t h e n e w e c o n o m y t o p e ri p h -e r a l r e g i o n s . T h e s e i n d i v i d u a l s , o f t e n a m o n g t h e e a r l i e s t r e t u r n e e s , a l s o t y p i c a l l ys e r v e a s a d v i s e rs t o d o m e s t i c p o l i c y m a k e r s w h o a r e a n x io u s t o p r o m o t e t e c h n o l o g yg r o w t h . A s e x p e r i e n c e d e n g i n e e r s a n d m a n a g e r s r e t u r n h o m e , e i th e r te m p o r a r i ly o rp e r m a n e n t l y , t h e y b r in g t h e w o r l d v i e w s a n d i d e n ti ti e s th a t g r o w o u t o f t h e i r s h a r edp r o f e s s i o n a l a n d e d u c a t i o n a l e x p e r ie n c e s . T h e s e c r o s s -r e g i o n a l te c h n i c a l c o m m u -n i t i e s h a v e t h e p o t e n t i a l to j u m p - s t a r t l o c a l e n t r e p r e n e u r s h i p , a n d t h e y s u c c e e d o v e rt h e l o n g t e r m t o t h e e x t e n t t h a t t h e y b u i l d a l l i a n c e s w i t h t e c h n i c a l p r o f e s s i o n a l s ,b u s i n e s s e s , a n d p o l i c y m a k e r s i n th e i r h o m e c o u n t r ie s .


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S a x e n i a n 37

Th e s p r ead o f v en t u r e cap i ta l f i n an c i n g p r o v i d es a w i n d o w i n to t h is p r o ces s . I nt h e ea r l y 1 9 8 0s , r e t u r n i n g i mm i g r an t s b eg an t o t r an s fe r t h e S i l ico n V a l ley mo d e l o fear ly - s t age h igh - r i sk i nves t i ng t o Ta iwan and I s rae l, l oca t i ons t ha t U .S . ven tu re cap i -t a l is t s t yp i ca l l y had ne i ther i n t e res t in no r t he ab i l i ty t o se rve . N at ive-bo rn i nves to r sp r o v i d ed t h e cu l t u ra l an d l in g u i s ti c k n o w - h o w n eed ed t o o p e r a t e p r o f i t ab l y i n th e s ema r k e t s . I n ad d i t i o n t o cap it a l, t h ey b r o u g h t t e ch n i ca l an d o p e r a t i n g ex p e r i en ce ,k n o w l e d g e o f n ew b u s i n es s m o d e l s , an d n e t w o r k s o f co n t ac ts i n th e U n i t ed S t a te s .I s r ae l and Taiwan today boas t t he l a rges t ven tu re cap i t a l i ndus t r i es ou t s ide Nor thA m er i ca , an d b o t h h av e h i g h r at e s o f n ew f i r m f o r m a t i o n an d g r o w t h . I s rae l i s n o wk n o w n f o r s o ft w a r e an d I n t e r n e t f i r ms l ik e M i r ab li s ( an i n s t an t - m es s ag i n g p r o g r amd ev e l o p e r ) an d C h eck p o i n t ( secu r i ty s o f tw a r e ) ; Ta i w an h as b e co m e a c en t e r o f l e ad -i n g ed g e p e r s o n a l co m p u t e r ( P C ) an d i n t eg r a ted c i rcu i t (I C ) m an u f a c t u r i n g w i t hf i r m s l ik e A c e r T e c h n o l o g y V e n t ur e s ( P C s a n d c o m p o n e n t s ) a n d T S M C ( s e m i c o n -duc to r foundry . ) Al l have r e l i ed on r e tu rn ing sc i en t i s t s and eng ineer s as we l l as an ew b r eed o f t r an s n a ti o n a l v en t u r e i n v est o rs .B u i l d i n g u p o n t h e ex p e r i en ce o f I s r ae l an d Ta i w an , t hi s a r t ic l e ex p l o r e s t h e d e -v e l o p m e n t a l c o n s e q u e n c e s o f t h e h e i g h t e n e d m o b i l i ty o f h i g h l y s k i ll e d w o r k e r s i nt w o o f t h e w o r l d ' s l a r g es t d ev e l o p i n g eco n o m i es : I n d i a an d C h i n a . S p ec i f i c a ll y , itex ami n es h o w I n d i an an d C h i n es e i mmi g r an t s t o S i l i co n V a l l ey a r e i n f l u en c i n geco n o m i c d ev e l o p m en t i n th e i r h o m e co u n t r i e s d ir ec tl y, b y tr an s f e r r i n g tech n o l o g yan d k n o w - h o w w h en t h ey r e t u r n h o m e t o w o r k o r s ta r t b u s in es s e s , a s w e l l a s in d i -r ect ly , b y i n f l u en c i n g th e f o r m a t i o n o f p o l i cy an d o t h e r a s p ec t s o f t h e i n s t i tu t io n a len v i r o n m en t . N o t s u r p ri s in g l y , t h is h a s p r o v en t o b e a s i g n i f i can t ly ea s i e r p r o ces si n I sr ae l an d Ta i w an t h an in t h e co m p l ex p o l i ti c a l e co n o m i es o f C h i n a a n d I n d ia .N o n e t h e l e s s , t h e l o n g - t e rm i m p a c t s o f r e t u rn i n g e n t r e p re n e u r s a n d t h e i r c o m m u n i -t i es ma y wel l be m ore f a r - r eac h ing in t he l a t te r coun t r i es .Th e a r t i c l e focuse s on t he c rea t i on o f ven tu re cap i ta l i nd us t r i es wi th c lose l i nksto S i l icon Val l ey a p rocess t ha t en t a i l s ex t ens ive ins t i t u t iona l cha nge , par t i cu l a r lyi n d o m es t i c cap it a l ma r k e t s , an d i n t u r n h a s i mp o r t an t co n s eq u en ce s fo r th e p a t t e r no f eco n o m i c d ev e l o p m en t . B y 2 0 0 4 , v en t u r e cap it a l an d p ri v a te eq u i t y f i r ms w er ei n v es t in g mo r e t h an S 1 b i l li o n an n u a l l y i n en t e r p r i s e s l o ca t ed i n C h i n a an d a co m -parab l e a m ou n t i n Ind ia . W hi l e t h i s i s a f r ac t i on o f t he ven tu re cap i t a l i nve s t edan n u a l l y i n t h e U n i t ed S t a t e s o r ev en t h e amo u n t o f F D I i n t h e s e eco n o mi es , i ts u p p o r t s i n d i g en o u s en t r ep r en eu r s h i p an d h as c r ea t ed an a l t e r n a ti v e , i n c r ea s i n g lyco m p e t i t iv e , tr a j ec t o ry t o t h e d ev e l o p m en t o p p o r t u n i t i e s p r o v i d ed b y b o t h t h e e s -t ab l is h ed d o m es t i c f i r ms an d t h e m u l t in a t i o n a l co r p o r a t i o n s in t h e s e n a t i o n s .Th e f i rs t s ec t i o n o f t h i s p ap e r d i s cu s s e s t h e l im i t s o f t rad i t io n a l c o r e - p e r i p h e r yu n d e r s t a n d i n g s o f th e r e l a ti o n b e t w e e n d e v e l o p e d a n d d e v e l o p i n g e c o n o m i e s i n a nera o f g loba l l abor m ob i l i t y and "b ra in c i r cu l a t i on ," and par t i cu l a r ly t he f a i lu re t oan t i c ip a t e t h e d e v e l o p m en t o f i n d ep en d e n t t e ch n o l o g i ca l c ap ab i li ti e s i n t h e p e r i p h -e ry . Th e f o l l o w i n g s ec t i o n tr ace s t h e t r an s f e r o f t h e S i li co n V a ll ey m o d e l o f v en t u r ecap i t a l t o Ta i w an d u r i n g t h e 1 9 8 0 s b y n e t w o r k s o f U .S . - ed u ca t ed C h i n es e en g i -n ee r s . I n t h is c a s e t h e t r an s f e r o f i n s t i tu t i o n a l an d p o l i cy k n o w - h o w w as a r g u ab l y a sim por t an t as t he l a t e r t r ans fer o f sk i l ls and t echn ica l kn ow ledge . Th e th i rd and fo ur ths ec t i o n s d e ta i l mo r e r ecen t p r o ces s e s o f p o l icy r e f o r m an d i n s t it u t io n a l l e a r n i n g i nC h i n a a n d I n d ia . Th e v en t u r e cap i ta l i n d u s t r ie s i n th e s e t w o co u n t r i e s h av e g r o w nrap id ly , wi th c lose co nne c t ion s t o t he i r S i l icon Val ley and U.S . coun terpar t s , an d in


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38 S t u d i e s in C o m p a r a t i v e I n t e r n a ti o n a l D e v e l o p m e n t / S u m m e r 2005

b o t h co u n t r ie s , e co n o m i c d ev e l o p m en t i n ce r ta i n r eg i o n s is ch a r ac t e r ized b y h i g hr a te s o f en t r ep r en eu r s h i p an d ex p e r i men t a t i o n . Th e a r ti c le co n c l u d es w i t h t h o u g h t sab o u t t h e ex t en t t o w h i ch i t is p o s s i b l e to g en e r a l iz e f r o m t h es e ca s e s o f p e r i p h e r a len t r ep r en eu r s h i p t o o t h e r l a t e -d ev e l o p i n g eco n o m i es .E c o n o m i c D e v e l o p m e n t in a n E r a o f G l o b a l L a b o r M o b i l it yT r a d it io n a l a c c o u n t s o f e c o n o m i c d e v e l o p m e n t a s s u m e t ha t n e w p r o d u c t s a n d t e c h -n o l o g i e s em er g e i n i n d u s t ri a li z ed n a t io n s t h a t co m b i n e s o p h i s t ic a t ed s k i ll an d r e -s e a rc h c a p a b i li ti e s w i t h la rg e , h i g h - i n c o m e m a r k e t s - - a n d t h at m a s s m a n u f a c t u r in gi s s h i f ted t o l e s s co s t l y l o ca ti o n s o n ce t h e p r o d u c t is s t an d a r d i zed an d t h e p r o c es ss t ab il iz ed . S u cce s s i n th i s v i ew b u i l d s o n s u cce s s i n ad v an ce d eco n o m i es , w h i l ep e r i p h e r a l e co n o m i es r ema i n f o ll o w er s . Th i s d i v i d e i s p e r p e t u a t ed b y b o t h t h e s tr a t-eg i e s o f mu l t i n a t io n a l co r p o r a t i o n s an d t h e t en d en c i e s to w ar d ag g l o m er a t i o n c re -a t ed b y t h e e co n o m i cs o f in c r ea s i n g r e tu r n s .T h i s m o d e l l ea v e s l it tl e r o o m f o r t h e d e v e l o p m e n t o f i n d e p e n d e n t t e c h n o lo g i c a lcap ab i l it ie s i n t h e p e r i p h er y . A t b e s t, f o r e i g n i n v es t me n t f r o m t h e co r e m i g h t co n -t ri b u te t o t h e i n c r e m e n t a l m a s t e r y o f m a n u f a c t u r i n g te c h n i q u e s a n d u p g r a d i n g o fl o ca l s u p p l i e rs . E v en t h e m o s t s u cce s s f u l n ew l y i n d u s t r ia l i z in g co u n t r i e s a r e d e s -t i n ed t o r em a i n i m i t a to r s a s l o n g a s l e ad i n g - ed g e s k i ll an d t ech n o l o g y re s i d e i n t h eco r p o r a t e r e s ea r ch l abs an d u n i v e r s it ie s i n th e co r e . Th e p r i ma r y r o u t e t o d ev e l o p -m en t i n t he per iphery , i n th i s v i ew, i s t he m obi l i za t i on by the s t a t e , in con junc t ionw i t h l o ca l b an k s an d i n d u s tr y , o f t h e r e s o u r ces t o e i t h e r d ev e l o p o r i mp o r t t h e ma s sm an u f ac t u r i n g cap ab i l it ie s t h a t w e r e p e r f ec t ed i n t h e co r e .

T r a n s f o r m a t i o n s in t h e w o r l d e c o n o m y h av e u n d e r m i n e d th e p o w e r o f th i s c o r e-p e r i p h e r y m o d e l , h o w ev e r. Th e i n c r ea s i n g mo b i l i ty o f h i g h l y s k i ll ed w o r k e r s an di n f o r m a t i o n o n t h e o n e h an d , an d t h e f r ag m en t a t i o n o f p r o d u c t i o n in i n f o r m a t i o na n d c o m m u n i c a t i o n te c h n o l o g y s e c to r s o n t h e o t h e i, p r o v id e u n p r e c e d e n t e d o p p o r-t u n i t ie s f o r f o r mer l y p e r ip h e r a l e co n o m i es . R eg i o n s t h a t m i s s ed t h e p o s t w ar eco -n o m i c b o o m , i n p a r ti cu la r , h av e p r o v i d ed f e r t il e en v i r o n m en t s fo r a d ecen t r a l iz edg r o w t h b as ed o n en t r ep r en e u r s h i p an d ex p e r i men t a t io n . Th e k ey ac t o r s i n th i s p r o -ce s s a r e n e i t h e r p o l i cy ma k e r s n o r m u l t in a t i o n a l co r p o r a t io n s i n i s o l a ti o n , a l th o u g hb o t h c e r t a in l y p lay a r o l e , b u t r a t h e r co m m u n i t i e s o f te ch n i ca l l y s k il led i m m i g r an t sw i t h w o r k ex p e r i en ce an d co n n ec t i o n s to S i l ico n V a l ley an d r e l a ted t e ch n o l o g ycen ter s .U .S . - educa t ed and t r a ined e ng ine er s a re i ncreas ing ly t rans f e r r i ng up- to -da t e t ech -n o l o g y an d mar k e t i n f o r ma t i o n an d h e l p i n g t o j u mp - s t a r t l o ca l en t r ep r en eu r s h i p ,a l l o w i n g t h e i r h o m e eco n o m i es to p a r t i c ip a t e i n t h e i n f o r m a t i o n t ech n o l o g y r ev o lu -t io n . B ecau s e o f t h e i r ex p e r i en ce a n d p r o f e s s i o n a l n e t w o r k s , t h e s e c r o s s - reg i o n a len t r ep r en eu r s can q u i ck l y i d en t i f y p r o m i s i n g n ew m ar k e t o p p o r t u n i ti e s , r a is e cap i -t a l, b u i l d m an ag e m en t t e ams , a n d e s t ab li s h p a r t n e r s h i p s w i t h o t h e r s p ec i a l is t p r o -d u c e r s - - e v e n t h o s e l o c a te d f a r aw ay . T h e e a s e o f c o m m u n i c a t i o n a n d i n f o rm a t i o nexch ange w i th in e thn i c p ro fess iona l ne tworks acce l e ra tes l earn ing abou t new sourceso f sk i l l , t echno logy , and cap i t a l as wel l as abou t po t en t i a l co l l abora to r s . I t a l sofac i l i ta t es t he t imely r espo nses t ha t a re essen t i a l i n a h igh ly com pet i t i ve env i ron-men t . Th i s d ecen t r a l i z ed r e s p o n s i v en es s i s an ad v an t ag e t h a t f ew mu l t i n a t i o n a l scan c l a i m .


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S a x e n i a n 39

T h i s i s n o t a o n e -w a y p ro c e s s . A s r e c e n t l y a s th e 1 97 0s , o n l y l a rg e , e s ta b l i s h e dc o rp o ra t i o n s h a d t h e r e s o u rc e s a n d c a p a b i l i t i e s t o g ro w i n t e rn a t i o n a l l y , a n d t h e yd i d s o p r i m a r i l y b y e s t a b li s h in g m a r k e t i n g o f f i c e s o r m a n u f a c t u r i n g b r a n c h p l a n t so v e r se a s. T o d a y t h e f r a g m e n t a t i o n o f p r o d u c t i o n a n d t h e f a ll in g c o s t s o f t ra n s p o r t a -t io n a n d c o m m u n i c a t i o n a l lo w e v e n s m a l l f i r m s t o b u i ld p a r t n e r s h ip s w i t h f o r e i g np ro d u c e r s t o t a p o v e r s e a s e x p e r t i s e , c o s t s a v in g s , a n d m a rk e t s . S t a r t - u p s i n S i l ic o nV a l l e y t o d a y a r e o f t e n g l o b a l a c t o r s f ro m t h e i r f i r st d a y o f o p e ra t i o n s ; m a n y r a i sec a p i ta l , s u b c o n t r a c t m a n u fa c t u r i n g o r s o f t w a re d e v e l o p m e n t , a n d m a rk e t t h e i r p ro d -u c t s o r s e rv i c e s o u t s i d e t h e U n i t e d S t a te s .T h e s c a r c e r e s o u rc e i n t h is e n v i ro n m e n t is t h e a b i li t y to l o c a t e fo r e i g n p a r t n e r sq u i c k l y a n d t o m a n a g e c o m p l e x b u s i n e ss r e l a ti o n s h ip s a n d t e a m w o r k a c r o s s c u l-t u r a l a n d l i n g u i s ti c b a r r i e r s . T h i s i s p a r t ic u l a r l y c h a l l e n g i n g i n h i g h - t e c h i n d u s t r i e si n w h i c h p r o d u c t s , m a r k e t s, a n d t e c h n o l o g i e s a r e c o n ti n u a l ly r e d e f i n e d - - a n d w h e r ep ro d u c t c y c l e s a re o f t e n n i n e m o n t h s o r l e s s. F i r s t - g e n e ra t i o n i m m i g ra n t s l i k e th eC h i n e s e a n d In d i a n e n g i n e e r s i n S i l i c o n V a l l e y w h o h a v e t h e l a n g u a g e , c u l t u r a l ,a n d t e c h n i c a l s k i l l t o f u n c t i o n w e l l i n t h e U n i t e d S t a t e s a s w e l l a s i n t h e i r h o m em a r k e t s h a v e a c o m m a n d i n g a d v a n t a g e h e r e . T h e y h a v e c r e a t e d i n s t i t u t i o n s a n ds o c i a l s t r u c t u r e s t h a t e n a b l e e v e n t h e s m a l l e s t p ro d u c e r s t o l o c a t e a n d m a i n t a i nm u t u a l l y b e n e f i c i a l c o l l a b o ra t i o n s a c ro s s l o n g d i s t a n c e s a n d t h a t f a c i l i ta t e a c c e s sto d i s tan t sourc es o f cap i ta l , sk il l , and m arke t s .L a t e - d e v e l o p i n g e c o n o m i e s t y p i c al l y f a c e t w o m a j o r d i s a d v a n ta g e s : t h e y a r e r e -m o t e f r o m t h e s o u r c e s o f l e a d i n g - e d g e t e c h n o lo g y , a n d t h e y a r e d i s ta n t f r o m d e v e l-o p e d m a rk e t s a n d t h e i n t e r a c t i o n s w i t h u s e r s t h a t a re c ru c i a l f o r i n n o v a t io n (H o b d a y ,1 99 5). F i rm s i n p e r i p h e ra l l o c a t io n s u s e a v a r ie t y o f m e c h a n i s m s to o v e rc o m e t h e s ed i s a d v a n ta g e s , f r o m j o i n t v e n t u r e s a n d t e c h n o l o g y l i ce n s i n g to f o r e i g n i n v e s t m e n ta n d o v e r s e a s a c q u i s it i o n s . H o w e v e r , a n e t w o rk o f t e c h n o l o g i s t s w i t h s t r o n g t ie s t og l o b a l m a rk e t s a n d t h e l i n g u i s ti c a n d c u l t u r a l s k il ls t o w o rk i n th e i r h o m e c o u n t ry i sa rg u a b l y th e m o s t e f f i c i e n t a n d c o m p e l l i n g w a y t o o v e rc o m e th e s e l i m i t at io n s . C ro s s -r e g i o n a l e n t r e p r e n e u r s a n d t h e i r c o m m u n i t i e s c a n f a c il it a te t h e d i f f u s io n o f t e ch n i -c a l a n d i n s t i tu t i o n a l k n o w -h o w , p ro v i d e a c c e s s t o p o t e n t ia l c u s t o m e r s a n d p a r t n e r s ,a n d h e l p t o o v e rc o m e r e p u t a t i o n a l a s w e l l as i n fo rm a t i o n a l t r a d e b a r r ie r s f o r i s o -l a te d e c o n o m i e s .T h e i n c r e a s in g s o p h i s ti c a ti o n o f i n f o r m a t i o n a n d c o m m u n i c a t i o n t e c h n o l o g i e sa n d t h e l i b e r a li z a t io n o f g l o b a l m a rk e t s h a v e a c c e l e r a t e d th i s p ro c e s s . I t is n o wq u i c k , s i m p l e , a n d i n e x p e n s i v e t o c o m m u n i c a t e i n t e rn a t i o n a l l y a n d t o t r a n s f e r i n -fo rm a t i o n b e t w e e n d i s ta n t l o c a t i o n s . I n fo rm a t i o n s y s t e m s t h a t f a c il i ta t e t h e fo rm a l -i z a ti o n o f k n o w l e d g e a r e d r a m a t i c a l ly e x p a n d i n g t h e v o l u m e a s w e l l as t h e v a r i e tyo f p o s si b le f o r m s o f i n f o r m a t i o n e x c h a n g e . H o w e v e r , i n f o rm a t i o n t e c h n o l o g y a lo n ec a n n o t e n s u re s u c c e s s fu l c o o rd i n a t i o n o r e f f i c i e n t t r a n s f e r s o f t e c h n i c a l a n d i n s t it u -t i o n al k n o w l e d g e . L o n g -d i s t a n c e c o l l a b o ra t i o n s s ti ll d e p e n d h e a v i l y u p o n a s h a re ds o c i al c o n t e x t a n d l a n g u a g e t h a t e n s u re s m u t u a l i n t e l l i g i b il i ty b e t w e e n p a r t n e r s ,p a r t i c u l a r l y as s p e e d a n d r e s p o n s i v e n e s s a r e e s s e n t ia l i n to d a y ' s t e c h n o l o g y c o m p e -t i t ion.M a r k e t l i b e ra l iz a ti o n h a s b e e n e q u a l ly i m p o r t a n t t o t he e c o n o m i c t r an s f o r m a -t i o n o f b o t h C h i n a a n d In d i a . H o w e v e r , t h e r e d u c t i o n o f t r a d e b a r r i e r s a n d b u re a u -c r a t i c i n t e rv e n t i o n a l o n e d o e s n o t c r e a t e t h e i n s t i t u t i o n a l a n d s o c i a l c o n t e x t , l e ta l o n e t h e d o m a i n k n o w l e d g e , r e q u i r e d to s u s t a in e n t r e p re n e u r i a l s u c c e s s in g l o b a l


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40 S t u d i e s in C o m p a r a t i v e I n t e r n a ti o n a l D e v e l o p m e n t / S u m m e r 2005

indus t ri es . Tech no logy en t rep reneursh ip rema ins h igh ly loca l ized even in the m os tad v an ced eco n o m i es an d i t c an n o t b e c r ea t ed b y f ia t , a s ev i d en ced b y d ecad es o ffa i l ed a t t empts to "g row the nex t S i l i con Valley ." Effo r t s to jum p-s ta r t en t rep re-neursh ip by mobi l i z ing researchers , cap i ta l , and a modem in f ras t ruc tu re canno tr ep l ica t e t h e s h a red l an g u ag e an d t ru st o f a t e ch n i ca l co m m u n i t y th a t p e rm i t s o p enin fo rm at ion exchan ge , co l labora t ion , and learn ing (o f ten by fa ilu re) a longs ide in -tense c om pet i t ion in p laces l ike S i l i con Valley .The n ew tec hno lo gy cen ters d i f fe r s ign i f ican t ly f rom one ano ther , and f rom Si li -con Val ley , in the i r t echno log ica l soph is t i ca t ion as w el l as the spec ia l iza t ions o floca l p roducers . Cross - reg iona l en t rep reneurs ra re ly compe te head-on w i th es tab -l i shed U.S . p roducers ; ins tead they bu i ld on the sk i ll s and the t echn ica l and eco-nom ic resource s o f the i r hom e coun t r ies . I s rae l i en t rep reneurs , fo r example , havesuccess fu l ly app l ied the f ind ings o f the na t ion ' s advanc ed mi l i t a ry research to inno-va t ions in the In te rne t secur i ty and te lecommunica t ions a renas . Ind ian en t rep re-n e u r s , b y c o n t r a st , r e c o g n i z e d t h e o p p o r t u n i t y t o m o b i l i z e th e t h o u s a n d s o fu n d e rem p l o y ed En g l i s h - s p eak in g In d i an en g i n ee r s t o p ro v i d e s o f twa re d ev e l o p -m ent se rv ices fo r Am er ican corpora t ions . Retu rn ing en t rep reneurs a re idea l ly pos i -t ioned to iden t i fy appropr ia te ma rke t n iches , mobi l i ze domes t ic sk il l and kno wledg e ,con nec t to in te rna t iona l marke t s , and w ork wi th dom es t ic po l icym akers to iden t i fyand d ev ise s t ra teg ies to overcom e obs tac les to fu r ther g rowth .Th es e r eg i o n s a r e each d ev e l o p i n g th e i r o wn eco s y s t em s fo r en t r ep ren eu r s h ip ,as wel l as c lose conn ec t ions to t ech no log y and marke t s in the Uni ted S ta tes. T hein f ras t ruc tu re fo r en t rep reneursh ip i s bes t -deve lope d in I s rae l and Taiwan , wheretechno log is t s have re tu rned by the thousands s ince the 1980s and success fu l ly t rans-fe r red bo th U.S . -s ty le ven tu re cap i ta l an d the S i l i con Val ley m odel o f bus iness fo -cus an d par tner ing . B o th reg ions have a l so com ple ted severa l en t rep reneur ia l cyc lesin wh ich success fu l e n t rep reneurs have re inves ted the i r cap i ta l and con t r ibu ted ac-cu m u l a t ed k n o w -h o w an d co n t ac t s t o a s u b s eq u en t g en e ra t i o n o f te ch n o l o g y v en -tu res , wh i le a l so serv ing as ro le m odels . Th is cy c le i s cen tra l to e s tab l ish ing there la t ionsh ips an d de cen t ra l i zed in fo rmat ion f low tha t suppor t co l lec t ive exper imen-ta t ion and learn ing in a reg iona l economy. It does no t guaran tee the success o f anyind iv idua l f i rm, bu t i t p rov ides loca l p roducers wi th the capac i ty to co l lec t ive lyadap t a nd up grade loca l capab il i ti es .Th e en t rep reneur ia l ecosys tem i s s ti ll in it s fo rmat ive s tages in the t ech no logyreg ions o f Ind ia and C hina . These reg ions have seen impo r tan t ear ly en t rep reneur-ia l successes , and bo th have la rge t echn ica l ly sk i l l ed work forces wi l l ing to w orkvery hard fo r re la tive ly low wages . H owever , few U .S . -educa ted emigran ts re tu rnedto e i ther Ind ia o r Ch ina d ur ing the 1980s and 1990s. The techn o logy recess iont r iggered an upsurg e in c ross - reg iona l en t rep reneursh ip tha t , a long wi th the em er-genc e o f a second g enera t ion o f success fu l s ta rt -ups, shou ld s ign i f ican t ly st reng thenthe en t rep ren eur ia l ecosys tem o f each . W hi le i t m ay be too ear ly to def in e the tra -jec to r ie s o f the reg ions in these l a rge , com plex po l i t ica l econo mies , the c ross - re -g iona l en t rep rene urs and the i r com m uni t i es have pursued ver y d i f fe ren t st ra teg ies.Re tu rn ing C hinese en t rep reneurs have focused p r imar i ly on deve lop ing p roducts toserve the dom es t ic marke t , wh i le the i r Ind ian coun terpar t s a re o r ien ted towa rd p ro -v id ing so f tware and o the r se rv ices fo r export .


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Saxen i an 41

Th e d y n am i s m o f t h e s e t e ch n o l o g y r eg i o n s i s n o t r ed u c i b l e t o co s t ad v an t ag es .I n v es t o r s i n I n d i a an d C h i n a ma y h av e i n it ia l ly b een m o t i v a t ed b y t h e av a i l ab i li ty o fl o w - co s t s k i ll , b u t t h e co n cen t r a t io n o f t e ch n o l o g y p r o d u c t i o n h as a l r ead y g en e r -a t ed r ap i d l y ri s in g w ag es a n d i n t en s i f y i n g co n g es t i o n in t h e s e r eg i o n a l e co n o m i es .En g i n ee r i n g s a la r ie s i n b o t h B an g a l o r e an d S h an g h a i , fo r ex amp l e , a r e n o w am o n gt h e h i g h e s t in t h e i r n a t io n s , y e t n ew an d e s t ab l is h ed p r o d u ce r s co n t i n u e t o c l u s t e rt h e r e r a t h e r t h an s eek i n g l o w er - co s t l o ca t i o n s . Th e ex p e r i en ce o f S i l i co n V a l l eyd em o n s t r a t e s t h a t d ecen t r a li z ed eco n o m i es can f l o u r is h l o n g a f t e r th e i r l ab o r co s tad v an t ag es d i s ap p ea r a s l o n g a s l o ca l i n v est o r s an d e n t r ep r en eu r s a r e o r g an i zed t oco l l ec ti v e ly l e a rn , i n n o v a t e , an d u p g r ad e l o ca l c ap ab i l i t i e s - - t o c r ea t e an d r ec r ea t ethe i r r eg iona l advan tage .Th e co n t r i b u t i o n s o f an i n t e r n a t i o n a l t e ch n i ca l co mmu n i t y i n t r an s f e r r i n g t h ei n s ti t u ti o n s o f t e ch n o l o g y en t r ep r en eu r s h i p s h o u l d n o t b e co n f u s ed w i t h t h e b r o ad e rr o l e o f a d i a s p o r a in l h e h o m e co u n t r y . Th e ag g r eg a t e r em i t tan ces , i n v es t men t s , o rd em o n s t r a t i o n e f fec t s o f a d i a s p o r a can a f f ec t an eco n o m y in a v a r i e t y o f d i f fe r en tbu t l a rge ly l imi t ed ways . Transna t iona l ne tworks , however , a re c rea t ed by a smal ls u b s e t o f h i g h l y ed u c a t ed p r o f e s s i o n a l s w h o s e p o t en t i a l co n t r ib u t i o n s t o eco n o m i cd ev e l o p m en t a r e d i s p r o p o r t i o n a t e l y s i g n i fi can t . Th es e t r an s n a t io n a l en t r ep r en eu r sa r e n o t t y p i ca ll y d r aw n f r o m t h e t r ad it io n a l e co n o m i c o r p o l i ti c a l e l it e s o f t h e i rh o me co u n t r i e s . R a t h e r t h ey a r e o f t en t h e t o p en g i n ee r i n g s t u d en t s f r o m mi d d l e -c l a s s h o u s e h o l d s w h o s e acces s t o ed u ca t i o n i n th e U n i t ed S t a te s h a s l an d ed t h em i na v e r y d i f f e ren t te ch n o l o g i ca l an d i n s ti tu t io n a l en v i r o n m en t - - o n e t h a t t h ey i n i ti a ll yma s t e r an d l a te r tr an s f e r t o t h e ir h o m e co u n t r i e s .R e t u r n i n g mi g r an t co m m u n i t i e s a re n o t r ep l ica t i n g S i l ico n V a ll ey a r o u n d t h ew o r l d . W i d e v a r i a ti o n s i n n a t io n a l e co n o m i c an d p o l i t ic a l i n s t it u t io n s , t h ems e l v est h e p r o d u c t s o f en o r mo u s l y v a r i ed h i s t o r i e s an d cu l t u r e s , en s u r e d i s t i n c t i v e an dd i v e r g en t e co n o m i c t ra j ec to r ie s . It is m o r e ap p r o p r i a te t o s ee t h e em er g i n g r eg i o n sas h y b r i d s, co m b i n i n g e l em en t s o f t h e S i l ico n V a lley i n d u s tr i a l s y s t em w i t h i n h e r -i t ed l oca l i n s t i t u t i ons and r esources . Retu rn ing en t r ep reneurs t yp i ca l l y seek (wi thv a r y i n g s u cces s ) t o t r an s f e r v en t u re cap i ta l f i n an ce , m er i t - b a s ed ad v a n cem en t , an dco r p o r a t e t r an s p a r en cy t o ec o n o m i es w i t h t rad i ti o n s o f e l it e p r iv i leg e , g o v e r n m en tco n t r o l, an d co r r u p t io n . Th ey s eek to r ep r o d u ce t h e t e am - b as ed f i r m w i t h mi n i ma lh i e r a r ch y an d h o r izo n t a l i n f o r m a t i o n fl o w s in an en v i r o n m en t d o m i n a t ed b y f am-i ly - r u n b u s i n es s e s o r s t a t e - o w n ed en t e r p ri s e s . Th e n a t i o n a l i n s t it u t io n s t h a t s u p p o r tt h e S i l i co n V a l ley s y s t e m - - e f f i c i e n t an d w e l l - d ev e l o p ed cap i ta l m a r k e t s , p r o p e r t yr ig h t s , an i n d ep e n d en t j u d i c i a ry , r eg u l a t o r y o v e r s i g h t , an d s o p h i s t ic a t ed ed u ca t i o ns y s t ems , r e s ea r ch i n s t i t u t i o n s , an d p h y s i ca l i n f r a s t r u c t u r e - - a r e r a r e l y p r e s en t i nt h e s e p e r i p h e ra l e c o n o m i e s .Tech n o l o g y en t r ep r en e u r s h i p is n o n e t h e l e s s a g r o w i n g p r e s en ce i n each o f t h e s eeco n o m i es . R e t u r n i n g en t r ep r en eu r s h av e d ev e l o p ed a v a ri e ty o f ad ap t a ti o n s t o th ech a l l en g es c r ea t ed b y co n d i t i o n s i n t h e i r h o me co u n t r i e s . I n I n d i a en t r ep r en eu r sr e ly o n p r i v a te t e l eco m m u n i ca t i o n s f ac il it ie s an d p o w er s u p p l i e s r a th e r t h an o n t h en a t i o n 's co s t l y an d u n r e l i ab l e i n f r a s tr u c t u r e , w h i l e i n C h i n a r e t u r n i n g en t r ep r en eu r sh av e l ea r n ed h o w t o n eg o t i a te t h e co m p l ex r u l e s t h a t reg u l a t e p ri v a te co m p an i e s .R e t u r n i n g en t r ep r en eu r s a l s o h av e t h e ad v an t ag es o f a cces s t o U .S . i n s t it u ti o n s : n o to n l y d o t h ey p u r s u e g r ad u a t e ed u ca t i o n i n t h e U n i t ed S ta t es , b u t man y i n co r p o r a t e


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42 S t u d i e s in C o m p a r a t iv e I n t e r n a t i o n a l D e v e l o p m e n t / S u m m e r 2005

their businesse s there, es tabl ish hea dqu arters o r researc h labs in Si l icon Valley, seekven tu re cap i ta l and p ro fess iona l se rv ices as wel l as manag er ia l and techn ica l ta len tf rom the Un i ted S ta tes , and even ra i se mo ne y on U.S . cap i ta l marke t s .At the same t ime, in a l l these coun t r ies , t ransna t iona l en t rep reneurs and the i rcom m uni t i es have devo ted subs tan tia l t ime to e f fo r t s to t rans fo rm dom es t ic ins ti tu -t ions by adv is ing na t iona l gov ernm ents on lega l , regu la to ry , o r cap i ta l marke t re -fo rms , by work ing wi th reg iona l governments on improv ing loca l in f ras t ruc tu re ,un ivers i ti es , research , and t ra in ing ins ti tu tions , and by c rea t ing fo rum s fo r in fo rma-t io n e x ch an g e an d o t h e r fo rm s o f co o rd i n a t io n am o n g l o ca l p ro d u ce rs . Th e o u t -co m e o f th e s e d i v e r s e s tr a teg i es w i l l d i f fe r f ro m p l ace t o p l a ce - - a n d wh i l e t h e s ereg i o n s m ay ap p ro x im a t e t h e u n d e r l y i n g p r in c i p le s o fen t r ep ren eu r s h i p - l ed g ro wt h ,they do no t see k to rep l ica te the ins ti tu tions o r t echno log ica l capab i l i ti es o f S i l i conValley precisely .A reg iona l eco nom ic t ra jec to ry is shape d no t on ly by loca l ins ti tu tions bu t a l soby the rang e o f techno log ica l and m arke t oppor tun i t i es ava i lab le a t the t ime i t en -te rs g loba l marke t s . The m os t success fu l p roduc ers in I s rae l and Taiwan are thosetha t have iden t i f i ed n iches tha t a l low the m to d i f fe ren t ia te and com plem ent , ra therthan com pete d i rec t ly wi th , es tab l ished p roduce rs in S i li con V al ley - - thu s avo id ingt rade wars l ike those be tw een U.S . and Japanese sem icondu cto r f i rms in the 1980s,wh ich re f lec ted the o ld mod el , wi th ver t i ca l ly in teg ra ted "na t iona l cham pions" co m -pet ing hea d-on fo r shares o f a cap i ta l - in tens ive com m odi ty bus iness . And the fas t-g ro wi n g m ark e t fo r w i re le s s co m m u n i ca t i o n i n As i a h a s c r ea t ed o p p o rt u n i ti e s fo rf i rms in Ch ina and Ind ia to con t r ibu te to the d i rec t ion o f the t echn o logy and i tsap p l i ca t i o n s - - ev e n i f t h ey d o n o t d e f i n e t h e l e ad in g ed g e o f t h e t e ch n o l o g y . Ov e rt ime, p roducers in deve lop ing reg ions bu i ld independen t capab i l i t i es and def ineen t i re ly new spec ia l iza t ions and m arke t s .Organ iza t iona l and ins ti tu t iona l innovat ions wi l l a l so l ike ly em erge f rom thesenew cen ters o f t echno logy en t rep reneursh ip , as they d id f rom Japan in an ear l i e re ra . En t repren eursh ip - led g rowth , wi th h igh ly compet i t ive and soph is ti ca ted smal lan d m e d i u m -s i zed t ech n o l o g y p ro d u ce r s i n h i g h -s k i ll r eg i o n s co n n ec t i n g to an dco l labora t ing wi th coun terpar t s e l sewhere , i s on ly one poss ib le fu tu re fo r thesefo rm er ly per iphera l reg ions . The y cou ld fo rgo the oppor tun i ty to upgrad e loca l sk il lsand capab i l it i es , and ins tead rem ain supp l ie rs o f low -cos t l abor to g loba l (o r do-me s t ic ) co rpora t ions . Ch ina and Ind ia have the l abor supp ly to do th i s fo r a re la -t ive ly long t ime. H owever , m any t ransna t iona l en t rep reneurs have m ain ta ined c loset ies to the t ech no log y and marke t s o f S i l i con Valley , and a re cons t ruc t ing f i rm scom m it ted to an a l t e rna t ive , h igh-va lue-ad ded tra jec to ry .T a i w a n : T r a n s f e r r i n g t h e S i li c o n V a l le y M o d e lThe T aiwanese ec ono m y emerg ed in the 1970s in i t ia l ly as a source o f low-cos t sk il lfo r l abor- in tens ive ca lcu la to r and la te r persona l co m puter p roduct ion , jus t as theo l d m o d e l p red i c ts . Th e c o m m i t m en t t o ed u ca t i o n p ro v id ed t h e d o m es t ic s k il l b a serequ i red fo r indus t r i a l upgrad ing , bu t a t the same t ime ne tworks o f fo re ign-edu-ca ted e ng inee rs worke d wi th po l icyma kers to deve lop loca l ins t itu t ions tha t suppor ten t rep ren eur ia l exper imen ta t ion . Even tua l ly ne tworks o f en t rep reneurs and es tab -l i shed f i rms def in ed spec ia l i zed n iches tha t a l low them to focus and sh i ft to h igher-


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S a x e n i a n 43

v a l u e - a d d e d a c t iv i ti e s w i t h o u t c o m p e t i n g h e a d - o n w i t h i n d u s t r y l e a de r s . T a iw a nb e c a m e t h e w o r l d 's m o s t e f f i c i e n t c e n t e r o f I T m a n u f a c t u r i n g . W h i l e t h i s p r o c e s s i sa t an ea r l i e r s t age in China and Ind ia , and these a re s ign i f i can t ly l a rge r and morecom plex po l i t i ca l eco no m ies , it appea rs tha t bo th a re fo l lowing s imi la r tr a j ec tor i e so f u p g r a d i n g .F a c e d w i t h t h e s l o w g r o w t h o f t h e S c i e n c e P a r k i n H s i n c h u , g o v e r n m e n t o f f ic i a lssou ght a l t e rna tive dev e lop m ent s t ra t eg ies . K .T . L i , Ta iwan ' s f inan ce m in i s t e r (whohad v i s i t ed S i l i con Va ll ey regula r ly in the 1970s to m ee t w i th C hine se enginee rs )was e spec ia l ly imp res sed by the U .S . ven tu re cap i ta l i ndu s t ry and saw i t a s a po ten-t i a l mis s ing l ink in Ta iwan . In the ea r ly 1980s - - long be fore i t was fa sh ionablee l s e w h e r e - - h e c o n v i n c e d t h e M i n is tr y o f F in a n c e o f t h e n e e d t o p r o v id e f u n d i n gf o r r e s e ar c h - i n te n s i v e p r o d u c t i o n a n d p r o m o t e t h e d e v e l o p m e n t o f a p u b l i c c a p it alm a r k e t . O n c e a g a i n T a i w a n 's p o l i c y m a k e r s s t u d i e d t h e U .S . e x p e r i e n c e : t h e y c o n -su l t ed inves tm ent p rofes s iona l s , o rgan ized co l l abora t ions wi th l a rge U .S . banks tot rans fe r f inanc ia l and ma nager i a l exp er t i s e , and sen t t eam s to S i l i con Va l l ey to bet ra ined in managing a ven ture cap i t a l f i rm. Cla rk Su , cha i r o f the Ta ipe i VentureCapi t a l Assoc ia t ion , desc r ibes ven ture cap i ta l i n Ta iwan as a "p ure t rans fe r" f romSilic on Valley.L i spea rhea ded the l eg i s l a t ion to c rea te and regula t e the ven ture cap i t a l i ndus t ryand es t ab l i shed a f rame wo rk for en te rpr i s es to e s t ab l i sh ven ture cap i ta l funds . Thi swas c ha l l eng ing as the co ncep t o f ven ture cap i t a l was fore ign to t rad it iona l Ta iwan-e s e p r a ct i ce , i n w h i c h f a m i l y m e m b e r s c l o s e l y c o n t r o l le d al l o f a b u s i n e s s 's f i n a n -c ia l a f fai r s. U nde r L i 's gu idan ce , t he Mini s t ry o f F inan ce c rea ted s ign i f i can t t axincen t ives : 20 pe rcen t o f the cap i t a l i nves ted in s t ra t eg ic ( t echnology- in tens ive )ven ture s by ind iv idua l o r corpora te inves tors was t ax-ded uc t ib l e fo r up to f ive yea rs .Recogniz ing the cha l l enge of ra i s ing cap i t a l f rom Ta iwan ' s r i sk-ave rse f inanc ia la n d i n d u s t r i a l c o m m u n i t i e s , t h e g o v e r n m e n t a l s o p r o v i d e d s u b s t a n t i a l m a t c h i n gf u n d s . T h e M i n i s t r y o f F i n a n c e o r g a n i z e d t h e i n i t i a l " S e e d F u n d " w i t h N T $ 8 0 0m i l l io n f r o m t h e E x e c u t i v e Y u a n D e v e l o p m e n t F u n d . T h i s w a s s o q u i c k l y a l lo c a t e dt h at t h e g o v e r n m e n t c o m m i t t e d a s e c o n d f u n d o f N T $ 1 . 6 b i l li o n.Ac er fou nd ed Ta iwan ' s f i rs t ven ture cap i ta l f i rm, M ul t iven ture Inves tm ent , i n1 9 8 4 a s a j o i n t v e n t u r e w i t h Co n t i n e n t a l E n g i n e e r i n g G r o u p . E q u a l ly i m p o r t a n t , L ii n v i te d s e n i o r Ch i n e s e - A m e r i c a n f i n a n c i e r s t o e s ta b l is h v e n t u r e c a p i t a l c o m p a n i e si n T a iw a n . T a - li n H s u , w h o h a d b e e n a k e y s e n i o r p o l ic y a d v i s e r a n d S T A G m e m b e rs ince the 1970s , se t up H am brech t & Q uis t As ia Pac i f i c in 1986 . Hsu repo r t s tha t itwas n o t easy to ra is e the in i t ia l $50 m i l l ion fund . In pa r t i cu la r L i " tw i s t ed lo t s o fa rm s" to ra is e $21 m i l l ion (51 p e rcen t ) f rom lead ing Ta iwan ese indus t r i a l g rou pssuch as Fa r Eas t Texti le , P res iden t E nte rpr i s es , and M i tac. The ba lance (49 pe rcen t )c a m e f r o m t h e g o v e r n m e n t ?T h e f i rs t g e n e r al m a n a g e r i n H & Q A s i a P a c i f i c 's T a ip e i o f fi c e , D i n g - H u a H u ,ea rne d a doc tora te in eng inee r ing a t P r ince ton U nive rs i ty in the 1970s and p layed al e a d r o l e i n b u i l d i n g T a i w a n 's s e m i c o n d u c t o r i n d u s t r y a s t h e f i rs t g e n e r a l d i r e c to ro f t h e E l e c t r o n i c s Re s e a r c h a n d S e r v i c e O r g a n i z a t io n ( a n d p r e v i o u s l y a n a s s o c ia t ed i r e c t o r o f t h e I n d u s t r ia l T e c h n o l o g y Re s e a r c h I n s ti tu t e a n d a p r o f e s s o r a t Ch i a oT u n g U n i v er si ty ) . H is c a r e e ~ a n d c o n n e c t i o n s u n d e r s c o re t h e e x te n t t o w h i c hthe soc ia l and profes s ion a l ne two rks cu t ac ros s un ive rs ity , gov ernm ent , and pr iva tesec tor (bo th f inanc ia l and indu s t r ia l ) wor lds in Ta iwan and the Un i t ed S ta te s . H& Q


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44 Stud ies in Co mpa ra t iv e In terna t io na l Dev e lo pmen t / Sum mer 2 0 05

Asia Pac i f i c ' s ear ly inves tmen ts inc luded Acer , Un i ted M icroe lec t ron ics Corpo ra-t ion (U M C), M icro tek , and Tai Yan . The ear ly successes o f these inves tmen ts madesuccess ive roun ds o f fundra i s ing easier .Two o ther U.S . -educa ted Overseas C h inese eng ineers , Pe te r Liu and Lip -Bu Tan ,respon ded to Li ' s inv i ta t ion as w el l , es tab li sh ing Taiwan ' s second U .S . -s ty le ven tu refund , the W alden In te rna t iona l Inves tmen t Group (W IIG) as a b ranch o f the SanFran c i s co -b as ed W al d en Gro u p i n 1 9 87 . B o t h H& Q A s i a Pac i f ic an d W IIG - -a l o n gwi th Pe te r Liu ' s sp in -o f f f i rm, WI Harper , remain lead ing inves to rs in Ta iwan ' stechn o logy indus t r ies , and increas ing ly in Ma in land Ch ina as wel l .On ce the ear ly inves tmen ts bega n to pay o ff , domes t ic IT f i rm s c rea ted the i r ownven tu re cap i ta l funds , inc lud ing Acer , D-L ink , Mac ron ix , Mose l , Ta iwan Sem icon-d u c t o r M a n u f a c t u r i n g C o m p a n y ( T S M C ) , S i l i c o n W a r e , U M A X D a t a S y s t e m s ,UM C, and W inbond . Af te r tha t, even the o ld - l ine f i rms in t rad it iona l indus t ri es tha thad been re luc tan t a l so began inves t ing in IT-re la ted bus inesses .

The ava i lab i li ty o f ven tu re cap i ta l trans fo rm ed the S c ience Park f rom i ts o r ig i -na l ly env is ioned ro le as an expor t p roce ss ing zone in to an open env i ronm ent fo r thegrow th o f ind igenous t echno logy f i rms . Th is was d i s t inc t ive in As ia a t a t im e w hencapi tal was available o nly to large corp orat ions w ith t ies to governm ents or to weal thyfami l ies . W hi le th roughou t the 1980s Taiwan rem ained a low -va lue-adde d p rodu cero f e l ec t ro n i c s co m p o n en t s , i n t h e ea r ly 1 9 9 0 s - -wi t h t h e g ro wt h o f en t rep ren eu r -s h ip an d ac cu m u l a t ed p ro d u c t i o n ex p e r i en ce - - l o ca l f i rm s b eg an t o d i f f er en ti a tep roducts on the bas i s o f innovat ion and qua l i ty ra ther than s imply low cos t .Building China's Venture Capital Indu stryIn the 1980s the Ch inese govern me nt in i t i a ted c rea t ion o f a domes t ic ven tu re cap i -ta l indus t ry as a mechan ism fo r suppor t ing new techno logy ven tu res . Bu t in con-t rast w i th Ta iwan , where the ven tu re cap i ta l indus t ry took o f f in the 1990s, Ch ina ' sven tu re cap i ta l indus t ry i s cons t ra ined by the f inanc ia l sy s tem and cap i ta l marke t si n h e r i ted f ro m t h e p l an n ed eco n o m y . Th e C h i n a N ew Tech n o l o g y Ven t u re In v es t-m en t Co rpora t ion , w hich was es tab l i shed as a l imi ted co rpora t ion in 1985 by theS t a te Sc i en ce an d Tech n o l o g y C o u n c i l an d t h e M i n i s t ry o f F i n an ce a s t h e co u n t ry ' sf i r s t exper imen t wi th ven tu re cap i ta l , was dec la red bankrup t and c losed by thePeop le ' s Bank o f Ch ina in 1997 . Th is an d severa l o ther ear ly fa i lu res we re an ind i -ca t ion o f s t ruc tu ra l p rob lems , bu t d id no t s top loca l governm ents , un ivers i t ies ands ta te -owned compan ies , and o ther o rgan iza t ions f rom se t t ing up ven tu re cap i ta lfunds .By 2000 there were approx im ate ly 160 dome s t ic ven tu re cap i ta l f i rms in opera-t ion in Ch ina , p r imar i ly loca ted in Bei j ing , Shanghai , and Shenzhen . The u nder ly -i n g p ro b l em i n m an y o f t h e s e fu n d s i s t ha t t h e g o v e rn m en t rem a i n s t h e p r i m arysource o f cap i ta l , e i ther d i rec t ly o r ind i rec t ly th rough un ivers i ty o r s ta te -ownedf i rms . (There i s ample p r iva te cap i ta l in Ch ina today bu t i t i s no t be ing inves ted inven tu re cap i ta l funds . ) Th is p rob lem com prom ises the incen t ive fo r fund m anage rsto m ake high-risk investments , part icularly in private enterprises (W hite et a l. , 2002).

A n inves tm en t in a gov ernm ent -ow ned compan y , by con t ras t, ca r r ies very l i tt l er i sk . Ju l ie Yu Li , a par tner in a ven tu re cap i ta l f i rm s ta r ted by a gov ernm ent -ow nedt r ad in g co m p an y i n Sh en zh en , s u m m ar i ze s t h e ch a l len g e : "I am s u p p o s ed t o i n ves t


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S a x e n i a n 45

i n h i g h - t e c h n o l o g y b u s i n e s s e s , b u t m y d i r e c t o r o n c e a s k e d m e i f I c o u l d ' r e d u c e t h er i sk t o z e r o ' ! " A n d s h e p o i n t s o u t o t h e r l i m i ts o f t h e c u r r e n t s y s t e m : " I n e v e r e x -p e c t e d m y j o b w o u l d b e t h i s d if f ic u l t. W e h a v e n o w a y t o i d e n t i fy e n t r e p r e n e u r s o rt o e v a l u a te r i s k s a n d r e t u r n s a n d w e m u s t g e t a p p r o v al f r o m t h e p r e s i d e n t o f th ec o m p a n y to m a k e a n y i n v e s t m e n t s , w h i c h t a k e s f o r e v e r b e c a u s e i t's s o h a r d t o g e ta c c e s s t o s e n i o r m a n a g e m e n t . M A S i l ic o n V a l l e y - b a s e d e n t r e p r e n e u r w h o h a s a d -v i s e d t h e C h i n e s e g o v e r n m e n t o n r e f o r m i n g t h e i n d u s t r y n o t es : " V e n t u r e c a p it a lf u n d m a n a g e r s i n C h i n a h a v e l it tl e a t s t a k e i n t h e s u c c e s s o f t h e i r v e n t u r e s . I f t h e ya re h o n e s t t h e y w i l l t a k e n o r i s k a t a ll ; i f n o t t h e y t a k e a d v a n t a g e o f t h e o p p o r t u n i t yt o m a k e u n d e r - t h e - t a b l e d e a l s w i t h e n t r e p r e n e u r s ."

T h e l e g al f r a m e w o r k f o r v e n t u r e c a p i t al i s a ls o n o t i n p la c e . F o r e x a m p l e , C o m -p a n y L a w i n C h i n a r e q u i re s a m i n i m a l n u m b e r o f s h a r e h o l d e r s a n d l e v e l o f in v e s t-m e n t s ( R M B 1 0 0 ,0 0 0 y u a n p e r h o l d e r ) th a t e x c e e d th e p r a c t ic e i n th e t y p ic a l v e n t u r ec a p i ta l f i r m ; l ik e w i s e , i t s t ip u l a te s t h a t t h e a c c u m u l a t e d a m o u n t i n v e s t e d s h o u l d n o te x c e e d 5 0 p e r c e n t o f t h e c o m p a n y ' s a s se t s, w h i c h a g a i n a r b i tr a ri ly l i m i ts t h e r o le o fv e n t u r e c a p i ta l i st s . A p p a r e n t l y t h e s e r u l e s a r e b e i n g o v e r l o o k e d i n p r a c t i c e ( X i a o ,2 0 0 2 ) .S o m e f o r m a l a d j u s t m e n t s a re b e i n g m a d e . I n 2 00 1 t h e g o v e r n m e n t is s u e d a n o -t ic e a n n o u n c i n g t h a t f o r e i g n c o m p a n i e s w o u l d b e a l lo w e d t o s e t u p w h o l l y o w n e do r S i n o - f o r e i g n c o o p e r a t i v e v e n t u r e c a p i ta l f i r m s i n C h i n a . F o r e i g n v e n t u r e c a p it a lf i r m s a r e n o t , h o w e v e r , a l l o w e d t o i n v e s t i n s e c u r i t i e s , f u t u r e s , o r o t h e r f i n a n c i a lm a r k e t s , o r i n r e a l e s t a t e a n d o t h e r i n d u s t r i e s t h a t a r e n o t o p e n t o f o r e i g n i n v e s t -m e n t . T h e y a r e a l s o n o t a l lo w e d t o m a k e l o a n s o r u n d e r w r i t e o r i n v e s t w i t h b o r -r o w e d m o n e y ( C I E C , 2 0 0 1 ) . O t h e r r e g u l a t o r y c h a n g e s w e r e t a r g e te d a t t h e v e n t u r ec a p i ta l i n v e s t m e n t s i n t e c h n o l o g y f i r m s , i n c l u d i n g r e d u c t i o n o f m i n i m u m l e ve ls o fc a p i t a l i n v e s te d , e s t a b l i s h m e n t o f a p r e f e r e n t i a l t a x r e g i m e ( 1 0 p e r c e n t ) f o r v e n t u r ec a p i t a l i n v e s t o rs , a n d r e c o g n i t i o n o f t h e l i m i t e d - l i a b i li t y p a r t n e r s h i p s t r u c t u r e t h a tis c o m m o n t o m a n y v e n t u r e c a p it a l f u n d s in t h e W e s t. C h i n e s e C o m p a n y L a w a l s ol i m i t s t h e a m o u n t o f a n e n t e r p r i s e ' s r e g i s t e r e d c a p i t a l th a t c a n b e g r a n t e d f o r th ec o n t r i b u t i o n o f in t a n g i b le t e c h n o l o g y t o a m a x i m u m o f 2 0 p e r c e n t . T h i s l i m i t h asb e e n a b a n d o n e d i n p r a c t i c e b u t n o t y e t i n r e g u l a t io n s . H o w e v e r , t h e f a i lu r e t o s p e c i f yr e s t r i c ti o n s o n t h e q u a l i f i c a t i o n s f o r t h e g e n e r a l p a r t n e r s i n a li m i t e d - l i a b i l i t y p a r t -n e r s h i p m a k e s i t l i k e l y t h a t m a n y m o r e v e n t u r e c a p i t a l f i r m s i n C h i n a w i l l f a i l t oe a r n r e t u r n s .

T h e p r o b l e m i s c o m p o u n d e d b y i n e x p e r i e n c e . F u n d m a n a g e r s t y p i c a l ly h a v e li tt let e c h n i c a l o r b u s i n e s s u n d e r s t a n d i n g o f th e i n d u s t r i e s t h e y a r e i n v e s t i n g i n ; t h e y a l s ol a c k p r o c e d u r e s f o r o b j e c t i v e l y e v a l u a t i n g p o t e n t i a l p r o j e c t s a n d i d e a s , a n d t h e yh a v e l i m i t e d u n d e r s t a n d i n g o f c o r p o r a t e g o v e r n a n c e . P o t e n ti a l e n t r e p r e n e u r s i n C h i n ar a re l y k n o w h o w t o d e v e l o p a v ia b l e b u s i n e s s p l a n ; th e y l a c k u n d e r s t a n d i n g o f m a r -k e t s o r m a n a g e m e n t e x p e r i e n c e , a n d s o t h e y f re q u e n t l y a d o p t th e m o d e l o f t h et r ad i ti o n a l C h i n e s e f a m i l y f i r m w i t h h u s b a n d a n d w i f e r u n n i n g t h e b u s i n e s s r a t h e rt h a n t h e p r o f e s si o n a l l y m a n a g e d e n t e r p r is e ( w h i c h l e a d s t o s t ru g g l e s o v e r o w n e r -s h ip a n d c o n t r o l o f th e b u s i n e s s ). T h e m a n a g i n g d i r e c to r o f th e B e i j in g V e n t u r eC a p i t a l C o m p a n y d e s c r i b e s o t h e r c h a l l e n g e s , i n c l u d i n g t h e i n f o r m a t i o n a s y m m e -t ri e s b e t w e e n i n v e s t o r s a n d f u n d m a n a g e r s a n d b e t w e e n v e n t u r e c a p i ta l f i r m s a n dt h e c o m p a n i e s t h e y f i n a n c e . I n b o t h c a s e s th e l a c k o f tr a n s p a re n c y , o b j e c t i v e p er -f o r m a n c e m e a s u r e s , a n d e x t e rn a l o v e r s ig h t c r e a te s i n c e n t i v e s f o r c o n c e a l i n g o r f al -


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46 Stud ies in Co mpa ra t iv e In terna t io na l Dev e lo pment / Summer 2005

s i fy ing in fo rmat ion (X iao , 2002). As a resu l t, wh i le the C h inese ven tu re cap i ta l hasf i n an ced t h o u s an d s o fh i g h - t ech en t e rp r i se s , t h e s e fu n d s h av e g en e ra t ed o n ly m i n i-ma l re tu rns? A cy n ica l in te rv iew ee c la ims tha t mo s t ven tu re cap i ta l in Ch ina i ss i m p l y a n ew fo rm o f j o b c rea t io n fo r l o ca l g o v e rn m en t s .The on ly rea l h igh-r i sk inves to rs in Ch ina a re the approx imate ly f i f ty fo re ignv en t u re cap it a l f irm s t h a t h av e a p re s en ce i n t h e co u n t ry - - i n c l u d i n g m a n y f ro mTa i wan an d S i l i co n Va lley. Ho wev e r , th e s e f i rm s - - i n c l u d i n g J ap an 's So f tb an k ,W arb u rg P i n cus , In t el VC , W I Harp e r , W I IG , H& Q As i a Pac i f ic , A ce r Tech n o l o g yVentu res , V2 V, IDG , and Ver tex (S in gap ore ) - -h ave inves ted qu ite cau t ious ly inChina . The overr id ing p rob lem fo r these in te rna t iona l inves to rs i s the l ack o f v iab leex i t op t ions , s ince access to the Ch inese s tock m arke t has been imposs ib le . Pr ivateen terp r i ses in Ch ina have v i r tua l ly no acc ess to pub l ic cap i ta l marke t s because thetwo m ain t rad ing boards, in Shangh ai and She nzhen , a re domin a ted by fo rmer s ta te -owned en terp r i ses . Equal ly impor tan t fo r fo re ign inves to rs , the RMB is no t con-

ver t ib le , so there i s no lega l way to g e t earn ings ou t o f the coun t ry . In te rna t iona linves to rs have cons i s ten t ly pushe d fo r re fo rm s to improve the en v i ronm ent fo r eq -u i ty inves tmen ts in Ch ina .In te rna t iona l ven tu re cap i ta l has no t on ly pushed hard fo r ins t i tu t iona l re fo rmb u t a l s o f i n an c ed s o m e o f C h i n a 's m o s t p ro m i s i n g n ew t ech n o l o g y en te rp r is e s . Th es u cces sfu l f i rm s t y p i ca ll y h av e ex p e r i en ced s en i o r m an a g em en t t eam s wh o a re r e -tu rn ing f rom the U ni ted S ta tes wi th soph is t ica ted bus iness p lans , typ ica l ly wi th thegoal o f se rv ing the fas t -g rowing C hina marke t . These "cross -Pac i f ic s ta r t -ups" a retyp ica l ly headq uar te red in S i l icon Valley , incorpora ted in the Ca ym an Is lands o rthe Bah am as , and s t ruc tu red as U.S . Delaw are-s ty le co rpora t ions . Mos t have a per -m ane n t research a nd dev e lopm ent capab i l ity in S i l i con Val ley as wel l as h igher-level des ign or logis t ics capa bi l i ty in Taiwan.The se en t rep reneurs and the i r investo rs a re p r imar i ly Ma in land-b orn o r Ta iwan-ese , wi th the f i r s thand k now ledge o f the l ang uage as w el l as cu l tu re and ins t i tu t ionstha t a re essen t ia l to do ing bus iness in C h ina . The se re tu rnees a re o f ten adv an tagedby ne tw orks o f fo rm er c lassmates , f r iends , and fam i ly they can tap as they under-t ak e t h e ch a l l en g es o f g ro wi n g a f i rm i n an en v i ro n m en t t h a t r equ i r e s p e rs o n a lconn ec t ions to ge t th ings done . The i r inves to rs typ ica l ly b r ing kn ow ledge no t on lyo f t e ch n o l o g y an d m an ag em en t b u t a ls o u n d e r s t an d i n g o f an d ex p e r i en ce in d o i n gbus iness in the Ch ine se marke t .

The Chine se s tock marke t was o rgan ized in the 1980s to p rov ide cap i ta l fo r theexpans ion o f s ta te -con t ro l led compa n ies , and tha t b ias con t inu ed dur ing the 1990sas the exch anges w ere used to p rop up fa i l ing s ta te -owned en terp r i ses . Even today ,in sp i te o f e f fo r t s a t re fo rm, the marke t remains poor ly regu la ted and sub jec t top r i ce m an i p u l a t io n . Th e o l d g o v e rn m e n t a l q u o ta s y s tem , w h i ch g av e each p ro v i n cean ann ual in i t ia l pub l ic o f fe r ing (IPO) quo ta and e nsured tha t s ta te com pan ies do m i-na ted the ma rke t l i s tings regard less o f the i r p ro f i t ab il i ty , i s be ing pha sed ou t . How -ever, the top regulators and exch ange off icials for the C hina Securi t ies and R egulatoryC o m m i s s i o n a re g o v e rn m en t ap p o in t ee s, an d p ro m o t i o n is b a s ed m o re o n i n te rn a lp o l it ic s t h an o n p e r fo rm an ce i n m an ag i n g t h e ex ch an g e .Th e m a i n t r ad in g b o a rd s h av e o n e ro u s l is t in g r eq u i r em en t s an d co m p l ex r eg u l a -to ry p rocedures fo r approv ing pub l ic share o f fe rs tha t t end to favor s ta te -backedf i rms . I t took fo ur years o f in tense lobby ing fo r UFSo f t to be l i s ted on S hanghai ' s


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S a x e n i a n 47

m a i n b o a r d , i n s p i te o f it s m a r k e t l e a d e r sh i p i n a c c o u n t i n g s o f tw a r e , b e c a u s e o fCh i n e s e r e g u l a t o r s ' r e l u c t a n c e to a p p r o v e p r iv a t e ly o w n e d f i r m s . I n 2 0 0 0 o n l y ah a n d f u l o f t h e t h o u s a n d - p l u s c o m p a n i e s li st e d o n t h e S h a n g h a i a n d S h e n z h e n e x -c h a n g e s w e r e s t a r te d a s p r i v a te c o m p a n i e s .S o m e Ch i n e s e p o l i c y m a k e r s a re a c t iv e l y se e k i n g t o i m p r o v e t h e e n v i r o n m e n t fo rv e n t u r e c a p i ta l , a n d t h e p a s t f e w y e a r s h a v e s e e n a l m o s t c o n t i n u o u s re f o r m . T h eCh i n a S e c u r i ti e s a n d R e g u l a t o r y Co m m i s s i o n in th e l a te 1 9 9 0s p l a n n e d a s e c o n db o a r d i n S h e n z h e n m o d e l e d a f t e r N A S D A Q f o r h i g h - r is k , h i g h - r e t u r n c o m p a n i e s .H o w e v e r , th e a n t i c i p a te d o p e n i n g w a s d e l a y e d i n d e f i n i t e l y fo l l o w i n g t h e U . S . t e c h -nology s tock co l l apse in ea r ly 2001 . An in i t i a l s t ep toward se t t ing up the s econdt r a d i n g b o a r d w a s t a k e n i n 2 0 0 4 w h e n s m a l l a n d m e d i u m - s i z e d f i r m s w e r e a ll o w e dt o l i st o n t h e S h e n z h e n e x c h a n g e f o r t h e f i rs t ti m e , a n d t h e e x p e c t a t i o n w a s t h at as e c o n d s t ep w o u l d b e t a k e n i n 2 0 0 5 w i t h a l o w e r i n g o f t h e l i st in g r e q u i r e m e n t s f o rt h e s e s m a l l e r c a p i ta l i z ed c o m p a n i e s . O n t h e o t h e r h a n d , w h e n a l o c a l g o v e r n m e n t

i s sues a li s t o f the indu s t r i e s tha t ven ture cap i t a l w i l l focus on in the com ing yea rs ,i t s h o w s t h a t Ch i n a i s o f te n s ti ll t ry i n g t o " g r o w t h e n e w e c o n o m y u s i n g th e t o o l s o ft h e p l a n n e d e c o n o m y " (X i a o , 2 0 0 2 ).Sustainable Start- UpsA c e r T e c h n o l o g y V e n t u re s , t h e i n v e s t m e n t a r m o f A c e r Co m p u t e r s , h a s p l a y e d ac e n t r al r o l e i n p r o m o t i n g c r o s s - P a c if i c s t a rt - u p s t h r o u g h i n v e s t m e n t s in c o m p a n i e sbased in the Uni t ed S ta t e s and As ia . I t s " IP Fund One" i s a l imi t ed pa r tne rsh ipinco rpo ra ted in the C aym an I s l ands , devo t ing it s $260 m i l l ion to ea r ly -s t age s ta r t -u p s i n t h e I n t e r n e t p r o t o c o l ( e n a b l i n g t e c h n o l o g y a n d s o l u t io n s b a s e d o n I n t e r n e tp la t form) and in t e l l ec tua l p roper ty ( sof tware , IC des ign , e t c . ) f i e lds . The l imi t edp a r t n e rs i n c l u d e A c e r a f f il ia t e c o m p a n i e s ( 3 2 p e r c e n t ) , A c e r t o p m a n a g e m e n t ( 6pe rcen t ) , an d ins t i tu t iona l inves tors . W i th of f i ces in S i l i con Val ley , Ta ipe i , Shan g-h a i, a n d S i n g a p o r e , th e f i r m m a r k e t s i t s e lf a s b r i n g i n g " u n i q u e i n t an g i b l e v a lu e t opor t fo l io com pan ies wi th c ros s - reg iona l bus ines s concep t s . " In pa r t i cu la r , t he f i rmp r o v i d e s " Cu l t u r a l u n d e r s t a n d i n g to a s si st e n t r e p r e n e u r s i n b r e a k i n g n e w g r o u n d sc r o s s -r e g i o n a ll y in N o r t h A m e r i c a a n d t h e A s i a P a c i f i c r e g i o n " ( w w w . a c e r v c .c o m ) .T h i s a s s i s ta n c e i n c l u d e s b o t h c o m m u n i c a t i o n s a n d c o n n e c t i o n s i n t h e s e d i s ta n t l o c a-t ions .

T h e s u s ta i n a b le c r o s s - P a c i f ic s ta r t- u p , a c c o r d i n g t o A c e r ' s Ro n a l d C h w a n g , i s at e c h n o l o g y - i n t e n s i v e b u s i n e s s t h a t c o m b i n e s S i l ic o n V a ll e y' s n e w p r o d u c t a n d b u s i-n e s s v i s io n , t e c h n o l o g y a r c h i te c t u re , p r o d u c t m a r k e t i n g , a n d r e s e a r c h a n d d e v e l o p -m e n t c o o r d i n a t io n w i t h C h i n a' s r e s e ar c h a n d d e v e l o p m e n t im p l e m e n t a t io n ,m a n u f a c t u r i n g a n d p r o d u c t i o n l o g i st ic s , a n d f i e l d e n g i n e e r i n g a n d l o c a l s al e s s u p -p o r t . T h i s l e v e r a g e s t h e m a n a g e m e n t e x p e r i e n c e o f S i l i co n V a l le y 's o v e r s ea s C h i -n e s e , Ch i n a ' s l o w - c o s t e n g i n e e r i n g r e s o u r c e s, s t a n d a r d a n d c o m m e r c i a l l y a v a il ab l ed e v e l o p m e n t t o o ls , a n d t h e s u p p l y - c h a i n m a n u f a c t u r i n g i n f r as t r u c tu r e o f G r e a te rCh i n a ( T a iw a n a n d M a i n l a n d ) . I n t h i s v i si o n , p r o d u c t s l i ke m o b i l e a p p l i a n c e s o rn e w s e m i c o n d u c t o r d e s i g n s c a n r e l y o n t h e U .S . m a r k e t a s a n e a r l y d r iv e a n d t h e nb e c o m m e r c i a l i z e d i n b o t h Ch i n a a n d U . S. m a r k e t s.There remain subs tan t i a l cha l l enges to these c ros s - reg iona l s t a r t -ups . Ventureinves tment in China i s s t i l l i n i t s ea r ly s t ages : t he re has no t ye t been a comple te


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48 Stud ies in Co mpa ra t iv e In terna t io na l Dev e lo pment / Summer 2005

c y c l e o f i n v e s t m e n t s a n d r e i n v e s t m e n t s in a s e c o n d g e n e r a t i o n o f e n t r e p re n e u r s .Cross - reg iona l f i rms a l so face s ign i f i can t d i f f i cu l t i e s coord ina t ing d i s t an t ac t iv i -t i e s , pa r t i cu la r ly in deve lop ing organ iza t iona l synergy and pe rs i s t en t , cons i s t en tc o m m u n i c a t i o n . F in ally , t h e y f a c e t h e c h a l l e n g e t h a t a ll t e c h n o l o g y f i r m s i n C h i n af a c e, o f c o n t r o l l i n g a n d p r o t e c t i n g t h e i r i n t e ll e c tu a l p r o p e r t y ( Ch w a n g , 2 0 0 3 ) .T h e A c o r n C a m p u s w a s e s t a b l i s h e d in S h a n g h a i b y a te a m o f a h a l f - d o z e n e x p e-r i e n c e d o v e r s e a s Ch i n e s e e n g i n e e r s - - T a i w a n e s e a s w e l l a s M a i n l a n d - b o r n . G e n -e ra l p a r t n e r W u - F u Ch e n , f o r e x a m p l e , i s o n e o f S i l ic o n V a ll ey ' s m o s t s u c c e s s f u lr e p e a t e n t r e p r e n e u r s a n d a l e a d e r i n t h e f i e l d o f t e l e c o m m u n i c a t i o n s a n d o p t ic s .T h e c a m p u s i s a n i n c u b a t o r in w h i c h t h e y s e r v e a s " a n g e l i n v e s t o rs " a n d p r o v i d em e n t o r i n g a n d c o n n e c t i o n s , a s w e l l as s p a c e , f o r p r o m i s i n g n e w v e n t u r e s w i th C h i -n e s e f o u n d e r s . O n e o f t h e ir r e c e n t in v e s te e s , N e w t o n e C o m m u n i c a t i o n s , a t e l e c o ms o f tw a r e f i r m , r e a li z e d th a t i ts s e e d m o n e y o f $ 5 0 0 , 0 0 0 w o u l d g o m u c h f u r t h e r i nCh i n a t h a n i n t h e Ba y A r e a. A f t e r m o v i n g to S h a n g h a i , th e s e r e t u r n e e s d o u b l e dt h e i r e m p l o y m e n t w i t h o u t i n c r e a si n g t h e ir b u d g e t .T h i s e x p e r i e n c e s p u r r e d th e c r e a t io n o f a n e w A c o r n C a m p u s i n S h a n g h a i . I nr a i s in g m o n e y f o r th e A c o r n Ca m p u s A s i a F u n d , t h e f o u n d e r s ' m i s s i o n i s to " l e v e r-age the h igh es t l eve l o f S i l i con Va l l ey en t repreneur i a l exper i en ces to c rea te , i nves t,a n d i n c u b a t e h i g h t e c h n o l o g y s t a r t u p s i n Ch i n a . . . a n d p r o m o t e g l o b a l l e a d e r s h i pt h r o u g h S i l ic o n V a ll e y -A s i a v a l u e c h a i n p a r t n e r s h ip s " ( w w w . a c o r n c a m p u s . c o m ) .L i k e W I I G , t h e y a d d r e s s r e t u r n i n g S i l ic o n V al le y Ch i n e s e e n t r e p r e n e u r s w i th s u b -s t an ti a l exper i ence , and the i r focus i s on sem icon du c tor des ign , w i re l e s s in f ras truc -t u re , a n d s y s t e m a n d s o f tw a r e d e v e l o p m e n t . T h e y t a l k a b o u t a c c e s s i n g t h e b e s tr e s o u r c e s f r o m d i f fe r e n t lo c a t io n s : r e s e a r ch a n d d e v e l o p m e n t , n e w p r o d u c t d e v e l-o p m e n t , a n d m a r k e t i n g in t h e U n i t e d S t at es ; h i g h - e n d l o g is ti c s, d e s ig n , a n d m a n u -f a c t u r in g i n T a i w a n; a n d l o w - c o s t e n g i n e e r i n g a n d m a n u f a c t u r i n g t al e n t i n Ch i n a .T h e p o w e r o f t h e o v e r se a s c o m m u n i t y i s m o s t e v i d e n t in t h e s e m i c o n d u c t o r i n-dus t ry , wh ich or ig ina ted in S i l i con Va l l ey and has bee n t rans fe r red by C hinese en-t repreneu rs f i r s t to Ta iwan and the n f rom T a iwan and S i l i con Va l l ey to Ch ina . In thew o r d s o f W e b E x CE O M i n Z h u , " S i l i c o n V a l le y is t h e te c h n o l o g y l e a d e r an d t h ec e n t e r f o r r e al i n n o v a t io n b e c a u s e i t s u p p o r t s t h e g r o w t h o f s t a rt -u p s . N e w f i r m sc a n n o t g r o w t h i s f a s t in C h i n a o r I n d i a . T h e m o s t p o w e r f u l m o d e l i s a t ru l y i n t e r n a-t iona l company tha t combines the c rea t ive ideas and a rch i t ec tures tha t a re deve l -o p e d i n t h e U n i t e d S t a te s w i t h t h e a b i l it y t o q u i c k l y i m p l e m e n t th e m w h e r e s k il l isl e s s expen s ive : bo th nee d to be sca leab le . '6O f c o u r s e , t h e se a r e n o t o n e - w a y f lo w s . W h i l e t h e T a i w a n e s e I C i n d u s t r y i n i-t ia l ly g r e w o u t o f t al e n t a n d t e c h n o l o g y f r o m t h e U n i t e d S t at es , p r o d u c e r s l ik e T S M Cc o n t r i b u t e d i n d i g e n o u s i n n o v a t i o n s t h a t i n t u r n b e n e f i t e d t h e e n t ir e i n d u s tr y , i t t o o kf o l lo w e r U M C a b o u t a d e c a d e t o r e d u c e a p r o c e s s - t e c h n o l o g y g a p o f t w o o r t h r e eg e n e r a t i o n s to o n e g e n e r a t io n ( b y t h e m i d - 1 9 9 0 s ) ; t o d a y t h e f i r m is v e r y c l o s e tothe g loba l l eade rs . Ch ina rem ains a t a lower t echnolog ica l leve l than e i the r Ta iwanor the U ni t ed S ta t e s bu t now has in p lace the sk il l, cap it a l, know -how, and conn ec-t i o n s to l e a r n b y d o i n g . O v e r t i m e t h e C h i n e s e m a r k e t w i l l p r o v i d e lo c a l I C d e s i g n -e r s a n d m a n u f a c t u r e r s t h e o p p o r t u n i t y to e x p e r i m e n t w i t h , a n d u l t i m a t e l y i n n o v a t ei n , f ie l d s l i k e w i r e le s s c o m m u n i c a t i o n s .I t i s easy to ove rs t a te the s ca le o f the dom es t i c Chine se mark e t in the sh or t t e rm.H o w e v e r , t h e i n t er n a l d e m a n d f o r t e c h n o l o g y p r o d u c t s r e m a i n s r e l at iv e l y l o w ; t h e


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S a x e n i a n 49

d o m e s t i c f a b r ic a t o rs a r e s e r v i n g f o r e i g n c u s t o m e r s p ri m a r il y . F o r e x a m p l e , S e m i -c o n d u c t o r I n te r n a t i o n a l Co r p o r a t i o n ' s e a r ly c u s t o m e r s w e r e o v e r w h e l m i n g l y o u t -s i d e o f Ch i n a : a c c o r d i n g t o th e c o m p a n y ' s 2 0 0 4 1 0 K f i li n g , in 2 0 0 3 , 3 6 . 7 p e r c e n t o fc u s t o m e r s w e r e l o c a t e d i n N o r t h A m e r i c a , 2 6 .7 p e r c e n t i n T ai w a n , 1 2.5 p e r c e n t i nSouth Korea , 11 .2 pe rcen t in J apan , 11 pe rcen t in Europe , and 1 .9 pe rcen t in theres t o f the As ia -Pac i f i c reg ion , inc lud ing China . The re i s subs tan t ia l room for g row tho f t h e d o m e s t i c s e m i c o n d u c t o r m a r k e t , b u t C h i n a w i l l m o s t l i k e ly c o n t i n u e t o c o n -s u m e r e l a ti v e ly l o w - e n d c h i p s ( t h e t y p e u s e d i n w a t c h e s , r a d io s , c e l l p h o n e s , a n do t h e r c o n s u m e r e le c t r o n i c s p r o d u c t s ) f o r t h e n e x t f i v e t o t e n y e a rs . I C m a n u f a c t u r -i n g t e c h n o l o g y i n Ch i n a c o n t i n u e s t o l a g b e h i n d T a i w a n , a n d U . S . re g u l a t io n s o ne x p o r t o f t h e m o s t a d v a n c e d m a n u f a c t u r i n g e q u i p m e n t t o C h i n a w i l l l ik e ly c o n -t i n u e to s l o w t h e a d o p t i o n o f le a d i n g - e d g e p r o c e s s te c h n o l o g i e s .A n d w h i l e r e se a r c h a n d d e v e l o p m e n t e x p e n d i t u r e s h a v e i n c r e a s e d s i g n i fi c a n tl y ,Ch ina ' s com pan ies , un ive rs i t i e s , and re sea rche rs re m ain re l a tive ly iso la t ed f rom themarke t . As F rank He , p res iden t o f a Da l l a s -based sof tware company, pu t s i t , " InChina , re sea rch i s too fa r f rom be ing appl i ed to rea l l i f e . For example , we canb a r e ly f i n d o n e o u t o f f iv e h u n d r e d P h .D . d i s s er t a ti o n s ( e. g. i n C o m p u t e r S c ie n c e )w i t h r e s e a r c h f i n d i n g s u s e f u l f o r c o m m e r c i a l iz a t i o n . W h i l e i n t h e U n i t e d S t a te s ,o n e d i s s e rt a ti o n o u t o f o n e h u n d r e d c a n b e t u r n e d i n t o a r e al p r o d u c t " ( S a x e n ia n ,2 0 0 3 ) . M c K i n s e y & Co . c o n s u l t a n t s in S h a n g h a i p r e d i c t t h a t th e l a r g e s u p p l y o fl o w - c o s t e n g i n e e r i n g t al e n t w i ll a l l o w Ch i n a t o g r o w m o r e q u i c k l y a s a c e n t e r f o rs e m i c o n d u c t o r d e s i g n t h a n f o r a d v a n c e d m a n u f a c t u r i n g , w h i c h r e q u i r e s s o p h i s ti -c a t e d t e c h n o l o g y a n d m a n a g e m e n t s k il ls . S a l a ri e s f o r c h i p d e s i g n e r s i n Ch i n a a r ea b o u t 2 0 p e r c e n t o f t h o s e i n th e U n i t e d S t a te s , a n d t h e d o m e s t i c m a r k e t f o r I Cd e s i g n i n Ch i n a w i l l re a c h a n e s t i m a t e d $ 1 0 b i l l io n i n 2 0 1 0 . A c c o r d i n g t o W o e t ze la n d C h e n ( 2 0 0 2 ) , a s e n i o r IC d e s i g n e n g i n e e r w i t h f iv e y e a r s ' e x p e r i e n c e o r m o r ee a r ns a s a la r y o f U S $ 1 4 , 0 0 0 - $ 3 0 , 0 0 0 i n C h i n a c o m p a r e d t o $ 8 0 , 0 0 0 - $ 1 5 0 , 0 0 0 i nt h e U n i t e d S t a te s ; l ik e w i s e a j u n i o r d e s i g n e n g i n e e r i n Ch i n a e a r n s $ 9 , 0 0 0 - $ 2 0 , 0 0 0c o m p a r e d to $ 5 0 , 0 0 0 - $ 1 0 0 , 0 0 0 i n t h e U n i t e d S ta te s .T h e c i r c u l a ti o n o f w o r ld - c l a ss e n g i n e e r i n g a n d e n t r e p r e n e u r i a l t a le n t b e t w e e nthe Uni t ed S ta t e s , Ta iwan , and China i s a l t e r ing the economic t ra j ec tor i e s o f a l lth ree . The com ing yea rs pose a s e r ious cha l l enge to the adapt ive capac i t ie s o f Ta iwan 'sindus t r i a l sys t em. Exp er t s c l a im tha t Ta iwan has on ly t en yea rs be fore C hina reachest e c h n o l o g i c a l p a r i ty i n m a n u f a c t u r i n g o f e v e n th e m o s t a d v a n c e d I Cs a n d I T p r o d -u c t s ( C l e n d e n i n , 2 0 0 3 ) . D u r i n g t h is t i m e , T a i w a n e s e i n d u s t r y n e e d s t o e s ta b l is hn e w s p e c ia l iz a t io n s , e i t h e r a s p r o d u c e r s o f h i g h e r - v a l u e - a d d e d s o f tw a r e , c o n t e n t ,a n d s e r v ic e s o r a s m a n u f a c t u r e r s o f d i s t in c t iv e s y s t e m s a n d e q u i p m e n t th a t b u i l d o nt h e i r e x i st i n g s t re n g t h s in d e s i g n i n g , m a n u f a c t u r i n g , a n d r e c o m b i n i n g i n t e r m e d i a t ep a r ts a n d c o m p o n e n t s .S e m i c o n d u c t o r e q u i p m e n t m a k e r A p p l i e d M a te r ia ls p r e d i ct s t ha t b y 2 0 1 0 C h i n aw i l l a c c o u n t f o r 7 p e r c e n t o f g l o b a l s e m i c o n d u c t o r p r o d u c t i o n , c o m p a r e d t o 0 .5p e r c e n t i n 2 0 0 0 , a n d i t w i ll b e a g l o b a l c e n t e r f o r l o w - c o s t I C m a n u f a c t u r i n g a n dreg iona l d i s t ribu t ion . Ta iwan w i l l, i n th i s v i ew, p lay a com ple m en ta ry ro le to C hinab y t r a n s f o r m i n g i t s e lf i n to a c e n t e r f o r h i g h - v a l u e - a d d e d I C d e s i g n , p r o d u c t iz a t i o n ,a n d a d v a n c e d I C m a n u f a c t u r i n g . T h e U n i t e d S t a t e s ( a n d S i l ic o n V a ll ey i n p a r t ic u -l a r ) w i l l r emain the cen te r fo r sys t ems and ch ip a rch i t ec ture , cap i t a l i nves tment ,a n d p r o d u c t i o n o f I C m a n u f a c t u r i n g e q u ip m e n t .


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50 S t u d i es i n C o m p a r a t i v e I n t e r n a t io n a l D e v e l o p m e n t / S u m m e r 2 0 0 5

T h e T a i w a n - C h i n a c o n n e c t i o n w i l l m o s t l i k e l y c o n t i n u e t o g r o w a n d d e e p e n .T a i w a n ' s 2 0 0 1 IT i n v e s t m e n t s o f $ 2 .6 b i l l i o n i n C h i n a a r e fo r e c a s t t o g ro w a t c o m -p o u n d a n n u a l r a te o f 3 2 p e r c e n t a n d r e a c h $ 1 0 .6 b i l l io n i n 2 0 0 6 ; a t t h a t p o i n t T a i-w a n e s e IT i n v e s t m e n t s i n C h i n a a r e e x p e c t e d to s u rp a s s t h e i r i n v e s t m e n t i n T a i w a n(C h a n e t a l. , 2 0 0 2 ) , d r i v e n b o t h b y t h e r a p i d g ro w t h o f C h i n a ' s d o m e s t i c m a rk e t f o rIT p ro d u c t s a n d b y t h e f a l l in g t a r if f s a s a re s u l t o f C h i n a ' s c o n t i n u e d i n t e g ra t io ni n to t h e W T O .T h e r e l a t i o n s h i p b e t w e e n C h i n a a n d T a i w a n , l i k e t h a t b e t w e e n t h e U n i t e d S t a t e sa n d T a i w a n , i s i n c r e a s i n g ly c o m p l e m e n t a r y r a t h e r t h a n c o m p e t i ti v e , w i t h T a i w a nm o v i n g u p t h e v a l u e c h a i n t o p r o v i d e l e a d i n g - e d g e m a n u f a c t u r i n g s e r v i c e s a n dh i g h - v a l u e - a d d e d d e s i g n w h i l e C h i n a b e c o m e s a c e n t e r o f l o w - en d , l a b o r- i n te n s iv ed e s i g n a n d a s s e m b l y - a n d - t e s ti n g a s w e l l a s n o n - l e a d i n g - e d g e m a n u f a c t u r i n g .Venture C api ta l and En trepreneurship in IndiaV e t e ra n S i l i c o n V a l l e y v e n t u re c a p i t a l i s t W i l l ia m H . " B i l l " D ra p e r I I I t o o k U . S .-s ty le ea r ly -s tag e ven ture inves t ing to Ind ia in 1995 . So on a f te r e s tab l i sh ing a $55m i l l i o n fu n d , D ra p e r I n t e rn a t i o n a l , w i t h a c o l l e a g u e i n S a n F ra n c i s c o a n d l o c a lp a r t n e r s i n B a n g a l o re a n d B o m b a y , h e r e a l i z e d t h e m a n y o b s t a c l e s i n v o l v e d i n w o rk -i n g w i t h e n t r e p re n e u r s in In d i a . T h e c o n c e p t o f v e n t u r e c a p i t a l w a s n e w i n In d i a ,w h e r e t h e c l o s e ly - h e ld , f a m i l y - c e n t e r e d b u s i n es s m o d e l d o m i n a t e d b o t h s m a l l f i r m sa n d t h e l a rg e g ro u p s l ik e B i r l a a n d T a t a. I t w a s v e ry d i f f i c u l t to c o o rd i n a t e a c t i v i ti e sb e t w e e n I n d i a a n d S i l ic o n V a ll ey , a n d s t a r t - u p s - - w i t h f a r m o r e l i m i t e d r e s o u r c e s - -f a c e d a l l th e s a m e f ru s t r a t io n s e x p e r i e n c e d b y m u l t i n a t i o n a l i n v e st o r s, f r o m t h ef r e q u e n t l y c o r ru p t a n d r e s t ri c t iv e b u re a u c ra c y , t o t h e l a c k o f W e s t e rn - s t y le s t o c ko p t i o n p

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