Emerging markets have provided an abundant labour supply for
the dot-coms of the West, but some are now starting to develop their own
high-tech hubs. Professor Lisbeth Claus reports
Silicon Valley, the birthplace of the dot-com phenomenon, is
no longer the exclusive domain of the new economy. High-tech firms are to be
found not only in concentrated hubs in the US and Europe, but also in selected
emerging markets, the most flourishing of which are Israel, India, Singapore
Not surprisingly, these emerging market new economy hubs are
found in areas with an abundant supply of high-quality local knowledge workers.
What these areas lack compared to Silicon Valley – a national context
supporting entrepreneurship, work flexibility, management savvy, venture
capital investors and tax incentives – they make up for with the quantity,
quality and cost of their labour force.
However, there needs to be a certain infrastructure for
Internet start-ups to develop into high-tech hubs. First and foremost, the
emerging market must have the necessary brainpower for technological
development. For example, India provides an abundance of programmers who supply
Silicon Valley and other Western hubs with an outsourced labour supply.
In Israel, young people exposed to a military environment
have built strong friendship networks in the army. Israel’s need for
self-reliance in developing its own military technology has also created a
technological research environment. Immigration, especially from Russian
scientists and engineers, has provided Israel with an abundant supply of
brainpower. In addition, the pioneering attitude of an immigrant nation and the
close association between the government and the military in buffering the risk
to market provides ingredients vital to successful entrepreneurship.
Another advantage of emerging markets is the relatively low
wage structure. In Latin America, for example, telephone customer service
representatives are available with minimal training and minimal waiting time
for on-line customers. In India, a pool of programmers is readily available at
local market labour rates.
While emerging markets may have a comparative labour
advantage due to their brainpower and competitive costs, a number of factors
put them at a disadvantage compared to their Western counterparts. Dot-coms
must have access to capital from venture capitalists. For emerging markets this
often means considerable foreign direct investment. There is also a need for
experienced management talent to bring the product to market and manage the
start-up’s business development. Emerging markets often lack senior managers
who are readily available and willing to take the employment risks associated
with start-ups. Finally, Internet start-ups need a communication
infrastructure, a potential market for customers, a stable political climate
and limited government controls.
China is often cited as an example of a huge potential
market for the Internet, but the country still has a restrictive political
climate where government controls over Website content and licensing inhibit
the free development of ideas. Government controls can also take the form of
tax systems that reduce the profit potential of start-ups. The recent exodus of
the corporate headquarters of Israeli high-tech firms to the US is a prime
example of the restrictive role government can play in preventing firms from
prospering in their home country. Singapore, with its stable political climate
and tax incentives, has also attracted a number of new dot-coms.
One of the biggest challenges facing high-tech industries in
developing markets is the risk of failure. As we know from cultural experts
such as Geert Hofstede and Fons Trompenaars, risk taking, uncertainty avoidance
and innovation are very culturally laden terms.
Market failure for a dot-com start-up is not recognised and
viewed in the same way in different cultures and subcultures around the world.
A cultural trait of Silicon Valley is that (start-up) failure in itself is
often viewed as an opportunity – as if it were a badge of honour. The Latin and
Asian cultures, on the other hand, put a huge emphasis on loss of face. Other
cultures, especially Western European, are more security-driven and often lack
such an incubator culture and entrepreneurial risk-taking ability.
Dot-coms, whether they survive or not, have created a new
economy culture that will have a lasting impact on a new generation of
knowledge workers. Some dot-com employees are now moving to more traditional
work environments and will be taking with them a very different set of work styles
and risk expectations. Although less than 3.5% of the world’s population is
currently connected to the Internet, its time and space reach is producing a
worldwide subculture of knowledge workers connected through technology across
borders and cultures. The dot-com work culture is so pervasive it will inevitably
infiltrate the different national and work cultures of companies operating in
both developed and emerging markets.