Social Networks - I SRAEL W ADI S ILICON

IV. ANALYSIS

4.1. I SRAEL W ADI S ILICON

4.1.5. Social Networks

Israel has very strong diasporas around the world: US, Europe, Latin America, etc. Many specialists have previous experience working in US and Europe. Many of them became

Entrepreneurs and started their own Start Up companies in Israel and US. Israel VC companies invest money in US as well as Israel. Their pool is second in the world.

Total Score is 9 x 8

= 72

Figure 10: Israel Wadi Silicon model

4.2. Taiwan SBIP Hsinchu

4.2.1. Technology and Market Space, Social Networks

The country has strong pool of qualified specialists in various fields of technology and science. Due to the nature of preliminary base model being “followers”( OEM and ODM models were prevailing ), the technologies in most cases are not best. However, several companies started to show up as world leaders in the field during last several years such as TSMC, ACER, ASUS, etc. The overall trend for Taiwan industry is to become a “pioneer” and not a “follower”.

The solutions for this challenge are not obvious yet.

There is strong connection between universities and industry, but not effective enough. The solutions for this challenge are not obvious and quite popular topic recently. As a part of

solutions, many MBA programs have been opened for recent years. Taiwan is also famous for abundant pool of skillful professionals. The pool of skilled professionals has been dramatically increasing as highly educated people from US have returned back thanks to successful policy taken by government in 80s and 90s.

They have strong connection with US industry because of high level of cooperation and openness between two countries. The access to best technologies is relatively free thanks to good cooperation with most developed countries.

Since Taiwan is a small market, the industry targets for foreign countries including US and West Europe and nowadays China. Most Taiwan High-Tech companies keep Marketing & Sales and production in China and other developing Asia countries. The economic relationship with China has strengthened dramatically recently.

4.2.2. Market Capitalization

The country has its own stock exchange for high-tech companies. Until the last decade, it has been the one of fastest growing markets in the world. The growth is very volatile and

investments are highly risky. Some high-tech companies are traded outside of the country such as NASDAQ and NYSE. However, this is only for several companies. In general, FDI inflows are much less than FDI outflows.

There is strong cooperation with local VC companies. Many pension and mutual funds play an important role in market capitalization. The government role here is not high and mostly related to providing R&D support for small businesses (e.g. ITRI). Some companies are publicly traded on local stock exchanges. Most small businesses are privately owned. The law provides flexible environment for entrepreneurship. The recent trend is high capitalization outside of Taiwan including China, Vietnam, Thailand, etc.

4.2.3. Management Teams & Speed of Attack

Most Taiwan high-tech companies keep marketing, sales and production offices locally both in Taiwan and China, R&D kept mostly in Taiwan, production in Asia region. As a common practice, Taiwan start-up companies have been planned as local businesses so that they allocate and use scarce resources locally with strong focus on external markets. However it is now under a big change because of globalization of markets and strong competition from other Asia

countries. Most companies are seeking optimal allocation of resources to be able to respond quickly to the market situation and increase operational efficiency.

4.2.4. Underwriters & VC companies, Board and Advisors

Despite its small economy Taiwanese VC companies are ranked as second/third in the world. Their structures and principles are similar to the ones of US VC companies. Their

activities are mostly focused on Taiwanese companies; however, the recent trend is to be part as global investment system.

Since Taiwanese high tech companies function as local businesses, they sometimes suffer from not being able to choose best board of directors and advisors except big companies

including TSMC, Acer, and ASUS. The same situation holds for choosing best underwriters who are in charge of proceeding initial public offering (IPO) procedures, mostly on domestic stock exchange.

4.2.5. Supply and Value Chains

We believe that this field should become new Unique Advantage for Taiwan. The country developed unique Supply Chains that include transfer of OEM and ODM to China while overall

management is located in Taiwan. Strong links between branches in Taiwan and China together with R&D and Marketing offices in US provide full Value Chains for products in different fields like consumer electronics, laptops, etc.

Figure 11: Hsinchu SBIP Model (90s)

Current Model explains how developed circle based on Unique Model of OEMs and ODMs gave great results for building High Tech Industry in Hsinchu. However, new development of China industry provides better location for OEM and ODM companies due similar culture and more cheap human resources. According to our model the total score will be decreased.

Same time overall Supply Chains and links to China has been decreased as well as overall ability of Taiwanese companies in R&D and management skills. We want to propose new Model of development of Hsunchu SBP based on new Unique Advantage: Value and Supply Chains. By replacing previous one that has been decreased it will allow to improve total score.

It means that Hsinchu Park will become attractive again. Many companies such as TSMC, ASUS, etc. are doing it well.

Figure 12: Hsinchu SBIP Model (2010s)

4.3. Russia “Skolkovo” project.

As part of the Skolkovo Innograd project a Foundation for Development of the Center of Research and Commercializing of New Technologies was officially registered in Moscow. It is a nonprofit organization purposed to provide socially useful results in the development of

innovations.

The Foundation was established by Russian Academy of Sciences, state corporation “Bank for Development and Foreign Economic Affairs” (Vneshekonombank), “Russian Corporation of Nanotechnologies” (Rusnano), Bauman Moscow State Technical University, the Russian Venture Company and a Fund for Assistance to Small Innovative Enterprises in the scientific and

technical area.

4.3.1. Technology and Market Space, Social Networks

The country has mixed range of qualified specialists in different fields of technology and science. It varies from top level scientists and specialists in different fields of technology and out-of-date skilled specialists with previous experience. However, low presence of modern technology enterprises doesn’t allow any job opportunity for most of them. The level is stayed in

high degradation from 80s. However, some exception comes from local state-owned enterprises working in military and nuclear industries. Also, the level of specialists in communication service industry and software is relatively updated.

The connection between Universities and industry is not effective. The solutions for this challenge are not obvious and highly discussed last time .The MBA programs are not developed enough to provide high top-level managers.

The connection with worldwide industry is low due poor level of cooperation .The willingness of multi-national enterprises to have presence in Russia is stopped due high entry barriers (bureaucracy, low Government support and high suspicious for FDI , language barriers , strict and ineffective laws , etc.)

As a big Economy, Russia has its own market. However mostly it is represented by Consumer Products as result of direct trade from foreign countries.

Most Russian High-Tech companies keep all operations locally and focused on own market.

The presence on foreign markets is low.

4.3.2. Market Capitalization

The country has its own Stock Exchanges. These Stock Exchanges are developed relatively well according to worldwide standards. The growth is very volatile and investments have high risk level. The transparency of financial reports is low. The presence of High-Tech companies here is low. As source for additional capital and bridge to potential investors it is still not effective.

Few big companies are traded outsight: NASDAQ and NYSE. However, no real High-Tech companies are represented here. This means that outsight markets are not used as source of additional capital.

Few local VC companies are staying in seed stage. Main capital flow comes from Government funds. Last time Government is trying to find way to combine worldwide VC practice with State Control policy. It is still far from implementation. Some companies are public and traded on local Stock Exchanges – for both local and foreign investors. Mostly, these

companies act as service telecommunication enterprises. Most small businesses are privately owned and don’t have access to Capital from Stock Exchanges. The law doesn’t provide flexible environment for entrepreneurship.

The Bank system is developed. However, it doesn’t have any experience in Long-Term High Risk investment in High-Tech enterprises. As source for capital its role is low.

4.3.3. Management Teams & Speed of Attack

Most Russian High-Tech companies keep Marketing, Sales, R&D and production offices locally in Russia. The presence of foreign High-Tech enterprises is low. Some of them have only

Sales Offices in few big cities. In most cases top management of Russian companies is formed from local specialists that have no any experience working with foreign companies. Together with the fact that both production and worldwide markets are too far all these factors make presence of Russian companies that work in technology field very problematic.

As mention before, overall worldwide trend is to locate production in China. Low presence here makes position of Russian companies in big disadvantage.

4.3.4. Underwriters & VC companies, Board and Advisors

Russia can be characterizes as Big Economy according to Macro-Economy definitions.

Despite of relatively high development of local Stock Exchanges, underwriters there haven’t too much experience with IPO process related to young High-Tech companies have been created from former Start-Ups. As role of underwriter in IPO process is extremely high, most High-Tech companies should have big problems in future when going to IPO.

Due to functioning as local Businesses Russian High-Tech companies should suffer from not being able to choose top Board and Advisors.

As mention before, VC companies are still staying in Seed Mode and can’t be considered as serious player in technology industry.

4.3.5. Supply and Value Chains

All connections and links to external Supply Chains are not developed. Local Supply Chains mostly work with local firms or oriented on trade. The presence of Russian technology companies in Global Market is weak. The access to Global Market is difficult because high local corruption and undeveloped business links.

Figure 13: Skolkovo Model

The Index of Entrepreneurship Activities according to the Model is very low. This

corresponds to the actual state of technology market of Russia and the almost complete absence of Entrepreneurship initiatives in field of new technologies.

V. Conclusion 5.1. Research Summary

Technology Clusters have been a center of attention both in academia and business for a while. In Europe and the United States, several governments and NDO supported projects have been designed to gather information about the pace of development and problems faced by the emerging Technology Clusters in the world. Different groups of researchers offer a variety of models describing the processes and trends of Technological Clusters. However, none of the existing models do not offer empirical support for connected resources in the Cluster, the

direction of its development, linkage with neighboring clusters with an index of entrepreneurship activity in such clusters. It is difficult to find any empirical measures how much any specific

location is attractive for establishing new venture as well as doing any other business activity there .

This study seeks to develop a model to evaluate a Cluster in terms of its resources, fields of business and direction of its development. The aim of the research is to quantify capability of the Cluster in terms of human resources, supply chains, social networks, financial resources and entrepreneurship activity of the Cluster or region. The proposed model is applied to existing successful Cluster in the world including Israel Wadi Silicon, Taiwan Hisnchu SBIP and Russian

“Skolkovo” project. All results show good correlation with statistical data of mention above Clusters.

First example : Skolkovo project received evaluation of Index of Entrepreneurship Activity - 12%. In practice , the Entrepreneurship Activity in this Cluster is practically almost doesn’t exist. If we analyse it in details we can find most “bottle-neck” problems:

Unique Advantage – is not clear at all. For meanwhile it is only private initiative of Russian Government to build similar to Silicon Valley region. No real advantage of doing business in any investigated field.

Supply Chains – don’t exist at all or no linkage to other Clusters

VC , Funds – money has been invested by Government . However, there are no real mechanisms how to manage it. In practice, the investment activity is very low.

Second example: Israel Wadi Silicon received the evaluation of Index of Entrepreneurship Activity - 72%.This number is correlated well with Start Up activities . Today Israel is

probably number one location in terms of creating Start Up companies in the world.

However, if we conduct the Model to the situation of High-Tech Bubble in 2001 we can see that the VC activities in Silicon Valley and Israel have been decreased dramatically. In terms of our methodology it means that the node score of VC & Funds had been decreased in 5 times.

This means this node became “bottle-neck” of the Circle (1.5). The total Index of

Entrepreneurship Activity will became 9 x 1.5 = 14% It is correlated well with numbers of Start Up established this time.

5.2. Limitations in this research & Extensions of further Study

While this study offers tangible way of evaluating technology clusters, they also put this claim in perspective: the evaluation process of nodes in the circle is subjective. Further research will attempt to carry out more statistical way such as expert survey. In addition, this study can be extended to propose to build strategic plan of development.

Major problem for us was finding reliable statistical way of evaluation process of nodes

in the circle. We have to conduct survey of gathering statistical data and method of evaluating such data.Future research should define exact methodology how to build Strategic Plan of Development based on built Model. Such methodology could be similar to SWOT analysis.

VI. References

1. Porter, Michael, “Location, Competition, and Economic Development: Local Clusters in a Global Economy” , Economic Development Quarterly, 2000

2. Porter, M. E. , “Clusters and the new economics of competition”, Harvard Business Review, 1988

3. Porter, M.E. , “The Competitive Advantage of Nations”,. New York: The Free Press.

4. Krugman , P. ,” Geography and Trade”, MIT Press,1991

5. Christian Ketels, Goran Lindqvist, Orian Solvell, “Balancing Evolutionary and Constructive Forces” , Center for Strategic Competitivness” ,2009

6. Christian Ketels, Goran Lindqvist, Orian Solvell, “The Cluster Initiative Greenbook” , Center for Strategic Competitivness ,2003

7. Christian Ketels, Goran Lindqvist, Orian Solvell, “Cluster Initiatives in Developing and Transition Economies”, Center for Strategic Competitivness ,2006

8. Timmons and Spinelli ,”New Venture Creation: Entrepreneurship for the 21st Century

“,McGraw-Hill ,2007

VII. Survey Basics Proposals

7.1. Unique Advantage

1. Choose location for future Cluster Initiative Project.

2. Define 3-6 fundamental characteristics for chosen location.

3. Per characteristic choose score for how unique is it.

Note: - 10 stands for characteristic about location that is completely unique , hard to be copiedor been developed in another place

-8 standsstands for characteristic that is unique but can be found in few other places.

It can be developed or copied with big efforts

-5 stands for charachteristic that has strong presence in chosen location but is not unique -4 till 1 Characteristic is not enough unique and can't be considered as good enough f or analysis.

7.2. Business Fields Analysis

1. Choose 3-6 potential Business Fields considered as highly potential for Cluster Project 2. Per Businesses Field define most important characteristics for : R&D, Marketing, Production,

Sales

3. Analyze current situation of every one of chosen Business Field

Note: You have to give qualitative analysis : location , businesses conditions, specific charachteristics, etc. for all mention above parts: R&D, Marketing, Production, Sales

7.3. Supply and Value Chains Analysis

1. Analyze Value Chains for each one of chosen Business Field in Cluster. Use previous analysis for current situation. The analyzis shoud be focused in R&D and Marketing Fields.

2. Analyze Supply Chains for each one of chosen Business Field in Cluster. Use previous analysis for current situation. The analysis shoud be focused in Production and logistics fields.