Silicon Valley Success Secret: Global Approach to Business
As the largest exporting region in US, high-tech area offers lessons
SANTA CLARA, CALIF. — Stop in at any cafe where the engineers and entrepreneurs of Silicon Valley gather and you are likely to hear more languages being spoken than in a New York subway car.
That international diversity is one of the less-understood secrets to the success of this high-tech powerhouse of the US economy. The presence of so many foreigners reflects the globalization of the companies that do business here. Their aggressive drive into the world market has fueled a boom and made this the largest exporting region in the entire United States.
"Silicon Valley is an exporting engine," says Jim Kennedy, who heads the Commerce Department's office here. "Most of the companies think internationally. A lot of their competition comes from outside the US, and as soon as they are producing their products, they start thinking about getting it overseas."
Led by the computer industry, from chips to software, Silicon Valley has created an export-based economy. In 1994 the area generated $27 billion in merchandise export sales - probably an understated figure because it omits some software exports that are classified as services. Even though the valley has just 10 percent of California's population, it rings up a third of the state's exports.
Perhaps no single company epitomizes this side of Silicon Valley's success more than Applied Materials. The Santa Clara firm is the world's largest producer of the sophisticated machines used to make semiconductor chips.
A decade ago, American policymakers were alarmed at the prospect of this strategic industry being overrun and dominated by Japanese manufacturers. But Applied Materials beat the Japanese at their own game, building a global company that sells more than two-thirds of its machines overseas, with Japan itself as its largest single market.
"Applied is a major success story in showing the US could achieve industry leadership in a sector where it had been written off," says Stephen Levy, director of the Center for Continuing Study of the California Economy.
Applied's growth in recent years has been nothing short of spectacular. Company revenues quadrupled from $751 million in 1992 to $3.1 billion in 1995. This year, its growth has slipped somewhat because of a slowdown in the memory-chip market. A lower-than-expected earnings report helped kick off the recent high-tech sell-off on Wall Street. But the company is still on target for revenues of about $4 billion.
More than half of Applied's business comes from Asia, where its machines spin out chips from plants in Japan, Korea, Taiwan, China, and Southeast Asia. In addition to its headquarters here, the company has research-and-development (R&D) labs and manufacturing facilities in the US, Europe, Japan, and Israel.
"We look at the business on a global basis," says chairman and chief executive officer James Morgan, who has led the company since 1976 and is widely respected as an expert on doing business overseas.
Mr. Morgan gained his reputation the hard way. He opened a Japanese subsidiary in 1979 and persevered to win a major share of the market not only by offering superior technology but by emulating Japanese skills of developing close relationships with customers. These lessons, which he discusses in the book "Cracking the Japanese Market," have been applied in Korea and elsewhere.
Common to much of the Valley, Applied's eyes are fixed on Asia rather than Europe. "Don't forget that half the world's population is in Asia," says Morgan, who is a tireless crusader against what he sees as the neglect of Asia in American policymaking.
High-tech industry, particularly makers of chips, personal computers, and software, need a global marketplace just to recover their huge R&D investment. "The domestic market is just not large enough to satisfy their market need," says Doug Henton, an economist at Collaborative Economics near San Francisco.
But Morgan distinguishes between being an "export-oriented" company and being a "global company." Most Silicon Valley companies fall into the first category - "somebody who primarily develops a product for the American market and then sells it overseas as an added business."
Applied's products are designed from the beginning for the global market by teams of people in offices around the world and in consultation with customers like NEC in Japan or Samsung in Korea. The company is organized on two levels -- by region and by product divisions. Five regional organizations, such as Applied Materials Japan, are run by local nationals. The five product divisions cut across the national groups, run by a multinational management team out of Santa Clara.
"You may need a Korean, a Japanese, and an American on a phone at one time," says Applied president Dan Maydan, an Israeli-born physicist and engineer. The key to dealing with this cross-cultural mix is communication, one reason why top managers spend half their time traveling, mostly for internal company business.
Most senior managers are non-Americans. "We are very proud of the fact that we have more than 40 or 50 languages in Applied Materials," Dr. Maydan says. "In high-tech industry, you need to change extremely fast. If you are willing to accept influence from the outside, that means you are open to new ideas."
Maydan admits to challenges handling communication across the cultural divide. "The Japanese are different," he recounts. "You think you reach an agreement and you find out they really didn't agree.... You need to have the patience in order to listen."