Tuesday, February 24, 2015


[In Stanford, I came across AnnaLee Saxenian and read her work on Indians and Chinese in the Californian information technology industry; this column in Business Standard of 22 October 1999 was my first dip into it.]

Silicon Valley

As AnnaLee Saxenian puts it, Silicon Valley is the home of IC – of Indian and Chinese engineers, not the integrated circuit. She has a fascinating story of Asian immigrants into Silicon Valley to tell. Silicon Valley really refers to only two counties – San Mateo and Santa Clara counties, and here too, to the cities along a 50-mile stretch of Highway 101 going south from San Francisco. In 1990 it had a total work force of 1.8 million. Of these, 15 per cent worked in high-technology industries, and a fifth of those were engineers. A quarter of the total work force was foreign; the proportion was 30 per cent in high-technology industries, and a third amongst engineers. The proportion of Asians was 11 per cent in the total work force, 18 per cent in high-technology industries, and 21 per cent amongst engineers. This is a booming region with a buoyant labour market; foreigners fill in those occupations which the local people find unattractive, such as construction labour or taxi driving, as well as specialized occupations that suffer from labour shortages. Mexicans and others from neighbouring countries more typically move into the first type of occupations; Indians and Chinese have been increasingly filling the gaps in the supply of trained engineers.
Within the high-technology industries, Indians and Chinese have a niche. The proportion in 1990 of highly educated people amongst them, those holding a doctoral or MSc degree, was extraordinarily high – 55 per cent amongst the Indians and 40 per cent amongst the Chinese. But they were least likely to be running the companies; only 7 per cent of the administrative staff were Indian or Chinese, and only 9 per cent of the managerial staff. They were more heavily represented amongst the semi-skilled workers (15 per cent), technical workers (14 per cent) and professionals (18 per cent).
Within the respective grades, their earnings were comparable to those of native whites, but somewhat lower. Amongst managers, for instance, a white earned $52500 a year, an Indian $52100, a Chinese $49100, and a non-Asian foreigner $45300 on the average. Amongst professionals the average salaries were $47000 for whites, $45500 for Chinese, $45300 for Indians and $43500 for others. Thus the earnings differentials were not overwhelming, but there were still significant.
These differentials may have partly been due to the fact that the Indians and the Chinese more often have technical or professional rather than managerial or business education. It is also true that they had been in their jobs less long. For 60 per cent of the Chinese and 41 per cent of the Indians in the high-technology industries in 1990 had arrived in the 1980s; 27 per cent of the Chinese and 30  per cent of the Indians had arrived in the 1970s. The proportion of the arrivals in the 1980s and the 1970s amongst the whites was only 4 per cent and 3 per cent. But according to Saxenian, who interviewed many immigrants, they feel that there is a glass ceiling – that they are less likely to be given managerial responsibilities. Older people were more likely to feel this way than younger ones – no doubt since they were more likely to have been passed over.
Those who feel discriminated against, if they have the guts, are likely to launch out on their own. Of the 3392 technology companies in Silicon valley in 1990, 210 were run by Chinese and 50 by Indians. There might have been many more run by them which the Census did not identify because it counted only self-employed persons. More reliable is the count made by Saxenian of high-technology companies started after 1980 and listed by a 1998 Dun and Bradstreet database; of these 2775 companies, 774 had Indian CEOs and 2001 had Chinese. The Indian figure may be a slight underestimate since some Indians have European names. Thus a quarter of the startups were headed by them; they employed 14 per cent of the work force, and accounted for 17 per cent of the sales. The the proportions of Indians and Chinese amongst entrepreneurs is not much higher than amongst professional staff. But they are very important amongst the entrepreneurs of Silicon Valley. The proportion of Chinese CEOs in the startup companies rose from 9 per cent in 1980-84 to 20 per cent in 1995-98; the proportion of Indian CEOs rose from 3 to 9 per cent.
The high rate of Asian startup formation is a comment, not only on the Asian penchant for enterprise, but also on the IT industry and the venture capital industry in this region. The average size of a high-technology company in Silicon Valley in 1998 was 36 persons generating sales of $8.5 million. The average hides enormous variation between a few big firms and thousands of small firms; the typical firm was more likely to employ 5-15 persons. To finance these small firms, there are a large number of venture capitalists. These are typically no financial companies, but individual financiers managing millions of their and other people’s money. They typically attract people with ideas and fund them. They supervise the startups very closely, generally meeting their CEOs once a week. And if they think that the entrepreneur is not delivering, they have no hesitation in replacing him. In other words, startups do often change hands, generally on the intervention of the venture capitalist.
What makes the 1990s so distinctive is the emergence of Chinese and Indian venture capitalists. Social ties have always been strong amongst the two communities; it is common for older immigrants to help out new ones. But now many of the former have formed successful businesses, often sold them out or sold shares and made millions; now there are Chinese and Indians in the Valley who have money and who know the IT industry. They have gone into venture capital funding. Thanks to them, the number of companies being founded by these two communities is likely to take off.