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Chapter 6 Supply network design 151
Short case
Developing nations challenge
Silicon Valley 9
Similar companies with similar needs often cluster
together in the same location. For example, knitted
garment manufacturers dominate parts of Northern Italy.
Perhaps the most famous location cluster is in the area
south of San Francisco known as Silicon Valley,
acknowledged as the most important intellectual and
commercial hub of high-tech business. Yet Silicon Valley
is being challenged by up-and-coming locations, especially
in developing countries. Here are two examples.
Source: Getty Images/AFP
Bangalore in India has for many years been attractive
in the computer industry. Back in the 1980s the area
attracted software code-writing business from Western
multinationals attracted by the ready availability of
well-educated, low-cost English-speaking software
technicians. Now the area has attracted even more, and
even more sophisticated, business. Companies such as
Intel, Sun Microsystems, Texas Instruments and Cisco
have a presence in the area and are using their Bangalore
development centres to tackle cutting-edge projects. The
biggest draw is still India’s pool of high-quality, low-cost
software engineers. Each year Bangalore alone graduates
25,000 computer science engineers, almost the number
who graduate in the entire USA. More significantly, the
average wage of a top-class graduate software engineer
is around one fifth of that in the USA. Nor is there any
lack of multinational experience. For years Western
(especially US) high-tech companies have employed
senior Indian-born engineers. Equipped with Silicon
Valley experience, some of these engineers are happy
to return home to manage development teams.
The high-tech research and development activities
around Shanghai in China do not have the pedigree
of those in India, but are increasingly seen as
significant in the global technology industry. ‘Over
the next ten years, China will become a ferociously
formidable competitor for companies that run the entire
length of the technology food chain’, according to
Michael J. Moritz, a Californian venture-capital firm
specializing in high-tech businesses. And although
most industry commentators admit that China has far
to go, the combination of the availability of a highly
skilled and well-educated workforce, often at even
lower cost than in India, together with the Chinese
government encouragement of joint ventures with
multinationals is seen as a big impetus to high-tech
growth. Multinationals such as Alkatel, the French
telecom giant, and Matsushita, Japan’s largest
consumer electronics company, as well as chip
manufacturer Intel are all investing in research and
development facilities.
Demand-side influences
Labour skills. The abilities of a local labour force can have an effect on customer reaction
to the products or services which the operation produces. For example, ‘science parks’ are
usually located close to universities because they hope to attract companies that are interested
in using the skills available at the university.
The suitability of the site itself. Different sites are likely to have different intrinsic characteristics
which can affect an operation’s ability to serve customers and generate revenue. For
example, the location of a luxury resort hotel which offers up-market holiday accommodation
is very largely dependent on the intrinsic characteristics of the site. Located next to the
beach, surrounded by waving palm trees and overlooking a picturesque bay, the hotel is very
attractive to its customers. Move it a few kilometres away into the centre of an industrial
estate and it rapidly loses its attraction.
Image of the location. Some locations are firmly associated in customers’ minds with a
particular image. Suits from Savile Row (the centre of the up-market bespoke tailoring district
in London) may be no better than high-quality suits made elsewhere but, by locating its
operation there, a tailor has probably enhanced its reputation and therefore its revenue. The