Silicon valley confronts Japan

Abstract

T echnological information-exchange is a primary characteristic of semiconductor firms in both the Silicon Valley of northern California and in Japan. Interviews with company officials and other observers of this industry, as well as secondary sources, indicate that our California respondents recognize that technological information-exchange is a dominant, distinguishing characteristic of the Silicon Valley "game" the competition for continuous technological innovation. Because innovation-behavior entails coping with relatively high degrees of uncertainty, such innovation is, most centrally, an information process. And while semiconductor firms have company secrecy policies, individuals and firms utilize various information strategies to circumvent these. We will contrast the "game" of technological innovation in California semiconductor firms with their counterparts in Japan, who have achieved technological parity with the U.S. firms in very recent years. The majority of U.S. semiconductor firms are concentrated in northern California's Silicon Valley, bounded by San Jose to the south and Palo Alto to the north, and centered in the small cities of Sunnyvale and Santa Clara. Of the approximately seventy-five U.S. semiconductor manufacturers, all but a few-which include the giants IBM, Motorola, and Texas Instruments-are located here. The term "Silicon Valley" was originally coined in 1971 by the publisher of a weekly newsletter for the microprocessor industry. Originally, it referred only to semiconductor firms in the area that produced silicon chips; it has since been broadened through usage to include a variety of types of high-technology firms located in this area, whether they produce silicon chips or some other microelectronic product. The history of Silicon Valley traces to the period prior to World War II when Frederick E. Terman, then a professor of electrical engineering at Stanford University, felt that his engineering students were being discriminated against in the hiring practices of East Coast firms. He began to encourage certain of his most talented students to start their own businesses. The new firm was typically organized around a technological innovation developed by one of his students; an example was the formation of Hewlett-Packard to produce oscillators and electrical measurement equipment (Terman lent $538 of his personal funds to William Hewlett and David Packard to help them start their new company in a Palo Alto garage). Another firm that Terman assisted was Varian Associates (organized around the basic innovation of the kylstron tube, developed by Russell Varian while a Stanford graduate student). At its founding in 1885, Senator Leland Stanford had gifted his 8,800-acre Palo Alto stock farm to Stanford University, and much of this land was not needed for the university's operations. When Terman became Provost and Vice President in 1948, he created the Stanford Industrial Park on part of the unversity's land holdings. Hewlett-Packard and Varian were among the first firms to build their plants in this park, soon to be followed by many other new, high-technology firms. As a critical mass of such firms began to form, several wellestablished companies moved their RD others were constructed in nearby industrial parks. Reasons for location in Silicon Valley included the attractive climate, synergistic relationships with previously existing firms and/or with Stanford University, and the fact that many of the new high-technology companies were founded by Stanford students or faculty or by employees who spun-off from an existing firm. By the 1970s Silicon Valley had surpassed the Route 128 complex around Boston, and was hailed as the largest concentration of high-technology firms in the world. The area became very affluent, and a distinctive lifestyle developed. While the U.S. semiconductor industry traces its ori-