Silicon Valley’s grip on innovation is loosening - KPMG

Silicon Valley is up there with Wall Street as a driver of US economic dominance, but this leadership position is increasingly coming under threat, including from those pesky Europeans.

As it stands, California still maintains that position as Utopia for technology enthusiasts and innovators. There are numerous reasons for this, ranging from culture to cash and climate, but this lofty position is no-longer looking as attractive as alternative cities woo the next generation of economic disruptors.

KPMG is one company which is predicting the downfall of Silicon Valley. After conducting a survey, the consultancy claims 58% of respondents believe the global centre of innovation will have moved out of Silicon Valley over the next four years. Other US cities are of course lodging a challenge, New York, Austin and Boston for example, though Europe and Asia are also having a poke.

Looking at the top ten alternatives which could lead a challenge, New York ranks first, while Beijing, Tokyo, London and Shanghai feature in the top five. Taipei, Singapore, Seoul, Boston and Austin complete the top ten, but there are several other European competitors floating around.

There are numerous factors which KPMG has taken into account, and some of these will start to play heavy on the Silicon Valley case. With 5G being hyped so considerably over the last few years, most of these cities will be on-par when it comes to infrastructure, but you also have to consider the local talent pool, immigration laws, cost of living, availability of private and public investment, mass transit systems and the attractiveness of a city to millennials.

A separate Medium post from investment manager Byrne Hobart is another which is predicting the downfall of Silicon Valley as the global centre of innovation. Hobart questions whether the culture of innovation is dying out in the region, with the money men seeking more stable and predictable investments, but another interesting point is the ‘cost of existing’ as he puts it.

“As long as higher rents raise the cost of starting a pre-revenue company, fewer people will join them, so more people will join established companies, where they’ll earn market salaries and continue to push up rents,” said Hobart.

Not only does the high cost of living prevent talent from joining start-ups, the preference for established companies and the lucrative salaries further pushes up rent, compounding the problem further. This also prevents lower-income earners in other segments living in the region (arts, fashion or media for example), restricting diversification and making it a less attractive region for liberally minded individuals, the type of person the success of Silicon Valley was built on.

When researching the availability of technology jobs across the US, there are of course numerous regions which are growing faster year-on-year than Silicon Valley, though this would be expected considering the overwhelming focus of tech in the Valley. However, cities like Seattle, Austin, Denver and Huntsville are increasingly home to more technology companies, and when you factor in the more proportionate cost of living, it might be an appealing alternative.

Another very interesting development over the last couple of weeks takes place in France. The French government has recently announced an overhaul of visas for employees working for a tech company, making it easier for talent to be recruited internationally. Considering the anti-globalisation and isolationist trends we are seeing in the US, this is development worth taking note of.

There are now 10,000 start-ups that meet the requirements to access the French Tech Visa and hire foreign employees more easily. These visas cost €368 in administrative fees, is valid for four years (and is renewable) and allows employees to switch jobs during this period. The visa also extends to family members. Just as the US is making it more difficult to hire talent, the French government is attempting to empower start-ups to go an seek the best innovators around and attract them to the country.

As far as a challenge to the Silicon Valley dominance, Europe is putting itself in a very strong position. Not only are many of the cities affordable, they are attractive to millennials (culture, arts, history) a key demographic for technology success moving forward. The European Union also creates a wider society and economy, helping organizations grow in multiple markets and source talent from a wider pool.

Another factor to consider is the focus of these regions. Another KPMG research note suggests US companies are looking towards AI as a market disruptor, while IOT is attracting the interest of European companies. Perhaps this suggests a split in the innovation pool, with AI hubs being focused in North America, while IOT dominance could be wrestled across the pond to Europe. R&D is driven by customer needs and demands, therefore this is not an impossible conclusion. Interestingly enough, Japanese companies are leading the demand for robotics, another potential fragmentation of the innovation pool.

Silicon Valley is not going to disappear, but its dominant position is not only being eroded domestically, but internationally. The technology ecosystem is of course going to evolve over the next few years, but who knows where the global hub of innovation will be; there are a lot of candidates putting their hands up.