2007 Silicon Valley Projections - Silicon Valley Leadership Group

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Tough Challenges – Hopeful Signs. Let us start with a rather bold statement: Silicon Valley is still the preeminent technology region in the world. What we must realize is that our valley is not the only top-tech region in the world. We must sustain our strengths while not white-washing our weaknesses. Projections 2007 is a first of its kind look at Silicon Valley compared to not only twelve top innovation regions in the United States, but also several key technology clusters around the globe. Let’s start with our strengths. We have a world class university system, an overwhelming advantage in venture capital funding, promising signs for clean technology clusters, a diverse mix of technology and life science industries, and the best workers in the world. Yet we must also direct attention to our disadvantages – high housing costs, an inadequate transportation system, uneven performance in our k-12 education system, the rising costs of healthcare, and steep energy prices. Add to this mix regulatory and tax policies that are not competitive with other states let alone other nations. The entrepreneurial spirit that drives Silicon Valley must also drive our public policies to keep and grow jobs, our economy, and quality of life. Silicon Valley is still the capital of innovation that is the envy of the earth’s economy, but our success is not a birthright, we must rise up and compete for it everyday. We hope “Projections 2007: Tough Challenges – Hopeful Signs” will further initiate the dialogue and innovation necessary to move Silicon Valley forward. Contents Silicon Valley Market Dyanmics 3 Transportation 13 Education and Workforce Preparation 17 Environment 23 Healthcare 31 Energy 37 Housing 43 Tax Policy 47 Acknowledgements 53 Carl Guardino President and CEO Silicon Valley Leadership Group William T. Coleman III Chairman of the Board Silicon Valley Leadership Group Chairman and CEO Cassatt Corporation 1
Introduction Silicon Valley continues to assert itself as a global center of innovation. And the pioneering tradition of the Valley is alive and well, with both private and public sector initiatives underway to begin to tackle the persistent chaland to address the quality of life concerns that — if allowed to continue unchecked — threaten to weaken the Valley’s lenges for the region’s business climate. Nonetheless, the future competitiveness of the Valley hinges on the ability to make the tough decisions and explore the creative options needed to reduce the excessive costs of doing business position as a global and US innovation leader. Over the years the Valley has been buffeted by the severe crosswinds of change: • The Valley has become one of the costliest places in the United States — and the world — to do business • Investment in infrastructure, housing stock, and education have lagged the growth and needs of the population and businesses • The United States — and the Valley — have not produced the volume of engineering, scientific, math, and other core talent necessary to fuel the high technology engine • Outsourcing — and offshoring — have blown through the Valley in successive waves of manufacturing, customer service, information technology, and shared services • Looking at manufacturing, beyond certain capital intensive and logistics-sensitive processes, manufacturing activity has fled the Valley in waves to lower cost jurisdictions So significant and fundamental are these forces that the pace of the recovery and the very future of the Valley are at stake. It is in this context that we present a framework for viewing the private sector engine that propels Silicon Valley. This framework examines the requirements of individual companies to prosper at different stages of a company’s evolution. It provides a useful way to view the needs of companies at different levels of maturity and, at the macro level, offers insights into the overarching trends for industries clustered in Silicon Valley: • Value Chain — Operationally, in functional units and by the needs of each unit • Lifecycle — Over time, as the company and these units develop and mature, the evolving drivers of company success From a public policy perspective — the Value Chain and Lifecycle vantages provide unique insights into the needs of the private sector and the economy, to prioritize, and gain perspective on how different levels of government can best respond. In the next section of this report, the industries that serve as the engine for Silicon Valley are reviewed, with a distinction between primary and secondary industries. Next, the Value Chains and Lifecycles for core industries are presented. Finally, a discussion of Silicon Valley’s competitiveness relative to other U.S. and global innovation centers. 2
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