High-tech experts describe what it takes to nurture their industry
Sunnyvale, Calif. — High technology entrepreneurs are ''the wildcatters of this generation. ... Last generation it was oil, this generation it is ideas.'' This observation comes from California Rep. Dan Lungren (R), a member of the congressional Joint Economic Committee, who is holding field hearings this week to help determine what the federal government can do to promote high technology development throughout the country.
He draws his analogy from experience: Within his district in the Los Angeles area is Signal Hill, the oldest continuously producing oil field in the United States. The hearings are being held in California's Silicon Valley and Boston's Route 128 area. The kinship between the wildcatters and today's technological entrepreneurs is their willingness to take risks, Mr. Lungren observed, after listening to two days of testimony from key Silicon Valley figures. Discussions of how federal policies help or hinder the spread of high-tech entrepreneurism represents one of the latest twists in the debate over government's role in setting industrial policy.
Testimony at this week's hearings centered around two basic questions. What were the factors that contributed to the area's entrepreneurial flowering, and can it be duplicated elsewere? What federal policies help and harm the valley's high-tech enterprises?
According to Robert Noyce, vice-president of Intel Corporation - the semiconductor company that has been the training ground for many of the entrepreneurs who set up their own companies in the area - the stage was set 25 years ago for the area's current success. A number of factors were involved. William Shockley, inventor of the transistor, was born in the area and returned to set up a company. ''It was a new area with no confining traditions. There was no one around to tell you what not to do, so we explored,'' Mr. Noyce recalls. The area had the benefits of a good climate and top-notch universities as well.
The fledgling semiconductor industry and the confined geography of the area combined to ''bring together people with similar interests, backgrounds, and technology perspectives into a common melting pot - or in the same 'village,' '' adds Regis McKenna, head of a local public relations company.
Gradually, an entire infrastructure based on technological entrepreneurism grew. Venture capitalists willing to put money on risky, start-up companies gravitated here. The area attracted adventuresome business executives and lawyers specializing in high-tech issues. Real estate developers built a broad range of tract office space, so successful companies could grow into successively larger quarters, while those those less fortunate could fall back to smaller spaces. Suppliers of all the basic electronic components became readily available.
According to Mr. McKenna, until recently two thirds of all the companies started in the valley were successful. These provided role models for employees, encouraging them to give up job security for the dream of forming their own companies, adds James Treybig, president of Tandon Corporation.
There is no reason why something similar cannot happen in other parts of the country, Silicon Valley executives agree. Areas like Research Triangle Park in North Carolina, and the city of Austin, Texas, show every sign of following in Santa Clara's footsteps. But it won't happen overnight, they caution.
The federal government can do a great deal to nurture or nip this sort of entrepreneurism in the bud, those who testified seemed to agree. Basically, their comments fell into four general areas, the ''four M's:'' money, manpower, markets, and motivation.
Money. A lower tax rate on investments as compared to other sources of income is considered key to the health of the industry. Since 1978, Congress has reduced the capital-gains tax from 49 to 20 percent. This has stimulated the growth in the venture capital available to fund small start-up companies. There is considerable concern that current tax credits for research and development will not be renewed in 1985. These credits help high-tech companies reduce a tax burden 50 percent higher than the corporate average. This helps offset Japanese companies' twin advantage of lower labor and capital costs, the executives argue.
Manpower. Strong government support for technical education and basic research at the nation's universities is sorely needed, witnesses agreed. The high-tech business is knowledge-based, and many of its key ideas come from university research. The limited number of American students graduating with engineering degrees already poses a serious problem. Some small companies here are failing because of their inability to attract qualified people, they say.
Foreign-born scientists have played a key role in Silicon Valley. Consequently, there is serious opposition to the provision in the Simpson-Mazzoli immigration reform bill that would force foreigners with student visas to return to their countries after they graduate rather than allowing them to remain if they get a job.
Companies here have also stressed the need for continuing education for their employees. Last year, a provision lapsed that made corporate reimbursements for all types of employee tuition tax-exempt. Now, only reimbursements for job-related training qualify. This has meant that many, particularly in lower-level jobs, must now quit to upgrade their skills.
Markets. Early in their life, high-tech companies enter the international market. But federal export policies put US companies at a severe disadvantage.
Noyce cites a case where his company lost a major sale to Japanese competitors because it took nine months for the US government to process Intel's license application. By the time it was approved, the Japanese had already delivered the parts.
Motivation. Competition for the best people is intense in the valley. In the past, companies used stock options to attract key people and to give employees a stake in the company. But ''now the (tax) rules on stock options are so complex that no one understands them and they are not much of a motivation,'' complains Walter Loewenstern Jr., vice-president of Rolm Corporation.
Also, employees are forced to exercise their options as soon as they become available in order to pay the taxes levied on them. This and similar problems have prompted companies to turn to fringe benefits. But now there is a move by the Internal Revenue Service to tax these as well, the executives complain.