China and Russia join global IT race

New global IT hubs in Beijing and Moscow are hoping to emulate the success of Silicon Valley in California to become global leaders in innovation and IT excellence.

Experts say that in the global tech race, you are competing with the entire world for the same people and same ideas. David Paul Morris/Bloomberg
Powered by automated translation

Russia and China, old Cold War rivals of the US, are fighting a new battle for superpower status in information technology (IT), with emerging economies like India also joining the fray.

California's Silicon Valley, the world-renowned digital technology centre, is soon to face serious competition from new global IT hubs such as Zhongguancun, in Beijing, China, and Skolkovo, in Moscow, Russia.

There is a growing awareness on the part of Russia and China that control of the world's economies will not be decided by missile technology or old-style heavy industries, but by supremacy in digital technology. As a result, both countries are pumping vast resources into their technology hubs.

Dmitry Medvedev, the Russian president, sees Skolkovo as a gateway through which to drag his country's commodity-dependent economy into the 21st century. Nicknamed Silikonnovaya Dolina (Russia's Silicon Valley), the Skolkovo project has been designed to enable the former communist state to match the US in cutting-edge digital technologies.

It is currently being developed on 388 hectares of farmland close to Moscow. Russia has declared that, by 2015, Skolkovo will be a thriving city with a population of 35,000.

The construction project, already costing more than US$4 billion (Dh14.6bn), is to result in the creation of what President Medvedev hopes will be a unique technology facility.

But President Medvedev is hedging Russia's bet on the future of technology. Alongside IT, Skolkovo will host other technology "clusters". These will not only comprise energy efficiency and biomedical sciences, but also the potentially more warlike technologies of nuclear energy and space travel. It's clear that Russia is still pinning at least some of its hopes on space technology and is determined to make Skolkovo its digital launch pad.

The decision to build Skolkovo in a place that, until recently, was derelict farmland, is ambitious. But as late as the 1980s, much of the area in California now known as Silicon Valley was still open land and primarily host to small local farming communities and groups of writers and musicians taking breaks from nearby San Francisco.

But, despite superficial similarities, Russia is not the US and there are still big question marks over issues such as corruption and the country's lack of financial transparency. The fact that Moscow's freezing winter climate is not sunny California may also make it harder to attract the kind of venture capital and IT talent that has built Silicon Valley's global reputation as a centre for IT excellence and innovation.

The man charged with realising President Medvedev's dream is Steven Geiger, the chief operating officer of the Skolkovo Foundation. Mr Geiger is the former director of industries for Masdar, the Abu Dhabi Government's $15bn clean-energy technology hub.

Mr Geiger says he intends to translate the wisdom he gained in helping to raise finance to support clean-energy technology at Masdar into turning Skolkovo into a global hub for many different kinds of technological innovation.

"Abu Dhabi and Russia are similar in that both are resource dependent and both have the vision and will to diversify through innovation and human skills development," Mr Geiger says.

"The lessons I learned building Masdar are relevant to creating innovation environments anywhere in the world. All successful innovation environments can be distilled down to people, place, policy, financing, networks and technology."

But he says the main task he faces in Russia is to create a connected community where these elements simultaneously interact and produce innovation that can be commercialised in the form of real products, services and licensing.

Although Mr Geiger acknowledges Russia's immense scientific heritage, he believes that is only the foundation on which he must build.

"Russia has deep scientific traditions, expertise and institutions," he says. "This greater human and scientific capital allows Skolkovo to develop five entire economic sectors.

"Our immediate goals are to bridge the current gap between research and commercialisation and to drive entrepreneurship. Many countries are weak in commercialising their intellectual property [IP] and Russia's weakness is a legacy of its former planned economy. Russia possesses an enormous technology base; what's missing is simply an effective transmission into real goods and services."

The Skolkovo Foundation is also creating new laws and institutions to protect and advance IP rights, which Mr Geiger believes are critical for attracting investment and talent. But he doesn't believe that it's possible for Skolkovo to become a Russian clone of Silicon Valley for purely cultural reasons.

"Silicon Valley is a culture, not a place. For example, can your society allow frequent job-hopping every six or 12 months? Will your visa, residency and labour laws efficiently accommodate this? Because that's what allows Silicon Valley to rapidly re-allocate its human capital to where it is most productive," Mr Geiger says. He adds that any society wishing to mimic Silicon Valley's success would also have to adopt a widespread culture of accepting business failure as an important step on the road to innovation

"Successive trial and error and a high tolerance for failure is essential for innovation."

Another advantage Silicon Valley has over Russia is its reputation for relatively straight business dealing as a result of stringent financial and regulatory controls. In this respect, Skolkovo still has a long way to go.

The president of the Skolkovo Foundation, Victor Vekelsberg, a Forbes-ranked billionaire worth a reputed $13bn and one of the financiers behind the IT hub, has, however, sworn to stamp out corruption. According to some Russian press reports, Mr Vekelsberg has even gone so far as to have pledged to "lynch bribers" if any are found operating in the new innovation hub.

The Skolkovo Foundation is now working hard on persuading foreign investors, small and large, to ignore Russia's past reputation and focus instead on some of the opportunities now emerging.

"Smart investors can look beyond the headlines and are tapping Russian opportunities at full speed," Mr Geiger says.

In 2011, its first full year of operation, Skolkovo attracted $400 million in foreign investment deals, with 14 major global technology companies pledging to set up research and development labs in the hub.

A further $290m has come from venture capitalists co-financing Russian start-ups. Microsoft is also funding Skolkovo start-ups such as Speereo, a Russian voice translation technology firm. And the Skolkovo Foundation is understood to be in talks with General Electric.

But as new technology centres such as Skolkovo start to grow, they will increasingly find themselves in competition for the same resources both on a national and global level.

"The most important lesson I learned from Masdar is never forget your value proposition," Mr Geiger says. "In the global tech race, you are competing with the entire world for the same people and same ideas."

In this new global economy, countries like Russia and China must no longer focus on their own closely protected scientific knowledge.

Instead, they must learn to share information and constantly vie for financing and key personnel.

"It is not like the Cold War or the Space Race because these technology centres do not see themselves as rivals," says Carter Lusher, a US-based research fellow at Ovum, the research company.

"Maybe the politicians do, but the entrepreneurs and venture capitalists certainly do not. They see them as shared resources.

"Governments can help provide funding and infrastructure, but they are not the match that lights the fire. Dubai is an example of a government constructing buildings, forming partnerships with universities and providing the communications infrastructure needed to underpin a new Silicon Valley. But that has left it with the massive hurdle of trying to attract the right talent."

The Zhongguancun technology park in China is at a more advanced stage than Skolkovo, but still faces a range of challenges, not least overcoming its country's reputation for counterfeiting western technology.

Located in Beijing's Haidian District, Zhongguancun is popularly known as China's Silicon Valley. Twenty years ago, the area was farmland outside Beijing. Today, it is home to 20-storey office towers and hundreds of start-ups.

But like all of Silicon Valley's main pretenders, it also has serious rivals within its own country. The thriving city of Shenzhen, China's first Special Economic Zone, and Shanghai, for instance, are also attracting a variety of IT players in the consumer and business sectors. In India, the fast-growing IT centre of Bangalore faces similar competition from Hyderabad. Solkovo must also contend with its Russian arch rival, St Petersburg.

"Whether you take St Petersburg or Hong Kong, it all comes down to whether a place has the right stuff," Mr Lusher says. "St Petersburg, however, has its own IT culture because of its large number of skilled mathematicians. This promotes data mining and other analytic technologies."

Although Silicon Valley's crown appears safe for the time being, the US will increasingly find itself having to compete with rapidly growing global technology hubs as the likes of Russia and China continue their quest for digital dominance.