Entrepreneurship and Workforce Entrepreneurship and Workforce Issues*Issues*Martin KenneyMartin Kenney

Dept. of Human and Community DevelopmentDept. of Human and Community DevelopmentUC DavisUC Davis

&&BRIEBRIEwithwith

Rafiq DossaniRafiq DossaniStanford UniversityStanford University

&&Martin HaemmigMartin Haemmig

University of MunichUniversity of Munich

* Presentation prepared for the President’s Council of Advisors on Science and Technology,* Presentation prepared for the President’s Council of Advisors on Science and Technology,Subcommittee on Networking and Information TechnologySubcommittee on Networking and Information Technology

Shenzhen 1985, 1995, 2004

Kun Chen 2005

OutlineOutline• ChinaChina• IndiaIndia• EntrepreneurshipEntrepreneurship• ConclusionConclusion

ChinaChina

Chinese ChallengeChinese Challenge• IT equipment manufacturingIT equipment manufacturing• Western VC flowing in massivelyWestern VC flowing in massively

– Some excellent exitsSome excellent exits• Enormous and growing domestic market for Enormous and growing domestic market for

IT productsIT products• Chinese attempts to create global standardsChinese attempts to create global standards• Massive increases in R&D investment by Massive increases in R&D investment by

govt. and Chinese industrygovt. and Chinese industry• Large # competent engineersLarge # competent engineers

Chinese Tech Firms (Generalizations)Chinese Tech Firms (Generalizations)• With the exception With the exception of Huawei and Lenovo -- of Huawei and Lenovo --

technology is not yet global standardtechnology is not yet global standard• VC funded firms show little global-class techVC funded firms show little global-class tech

– U.S. business model clones (good returns U.S. business model clones (good returns because MNCs need to purchase access)because MNCs need to purchase access)

– Firms providing solutions for the underserved Firms providing solutions for the underserved domestic market (not IT)domestic market (not IT)

• Generally not competitive with India for IT Generally not competitive with India for IT offshoring (though govt. is interested)offshoring (though govt. is interested)

Rank Firm Rank 2005 Nationality Firm Rank 2004 Nationality1 IDG Technology Ventures U.S. SAIF Partners (Softbank) Japan2 SAIF Partners (Softbank) Japan IDG Technology Ventures U.S.3 Venture TDF China Doll Capital Management U.S.4 CDH Investments Singapore/U.S. CDH Investments Singapore/U.S.5 DFJ ePlanet U.S. NewMargin Ventures China6 Softbank China VC Japan Carlyle Group Asia U.S.7 Granite Global Ventures U.S. Warburg Pincus Asia LLC U.S.8 Intel Capital China U.S. (corporate) Legend Capital Limited China (corporate)9 3i U.K. Acer Technology Ventures Taiwan (corporate)10 NewMargin Ventures China Shandong High Technology China (government)

Top Venture Capital Firms in Chinain 2004 and 2005

Source: Zero2IPO various years

IndiaIndia

2005 -- India IT-Related Employment 2005 -- India IT-Related Employment GrowthGrowth

242

360416

490

588

697

348

254180

1067042

FY00 FY01 FY02 FY03 FY04 FY05

IT Software and Services

ITES-BPO

CAGR 29.8%

Employee numbers ‘000sSource: NASSCOM 2005

37.0%

18.5%

Remember US Work Force is 130 millionRemember US Work Force is 130 million

The Indian IT Services LandscapeThe Indian IT Services Landscape

Future growth Focus

Current Strength

IS Outsourcing (110 Bn)

System Integration

Network Consulting and Implementation

H/w support andInstallation (120Bn)

Training & Education ($50Bn)

Application development,

maintenance and outsourcing (60Bn)

Packaged S/W support & Integration

IS consulting

R&D Services Management

ProcessingServices (80Bn)

Leveraging current strengths to grow and move up the Leveraging current strengths to grow and move up the value chainvalue chain

High Value High Volume

Technology & Domain IP

Direction of Evolution

Network Infrastructure

Source: Indian IT Firm

Nationality Employment in Global % in India LocationsIndia (date) Employment*

Oracle U.S. 6,900 (2005) 41,658 16 Bangalore, HyderabadMicrosoft U.S. 2,500 (2005) 57,000 4 Bangalore, HyderabadSAP Germany 3,500 (2006) 38,802 9 BangaloreIBM U.S. 53,000 (2006) 369,277 14 Bangalore, Delhi, ChennaiVeritas U.S. 900 (2004) 17,250 5 PuneAdobe U.S. 500 (2005) 3,142 16 DelhiEDS U.S. 5,000 (2005) 117,000 4 Chennai, Delhi, MumbaiCap Gemini France 2,000 (2004) 59,324 4 Mumbai, BangaloreComp Assoc US 1,000 (2006) 16,000 6 Hyderabad

Employment in India by Selected LargeEmployment in India by Selected LargeNon-Indian Software FirmsNon-Indian Software Firms

Author’s compilation

05000

100001500020000250003000035000400004500050000

2001 2002 2003 2004 2005

Infosys (+1yr)TCS (+1yr)IBM GS Sales

Infosys, TCS and IBM GS Revenues, 2001-2005

Source: Various Annual Reports

31.6% CAGR23.4% CAGR

6.3% CAGR

0

1000

2000

3000

4000

5000

6000

7000

8000

2003 2004 2005

Infosys profit(+1yr)TCS profit (+1yr)

IBM profit

Infosys, TCS, and IBM Net Profits, 2003-2005

27.5% CAGR15.3% CAGR

6.6% CAGRSource: Various Annual Reports

02468

10121416

IBM

Mic

roso

ft

Acc

entu

re

TC

S

Info

sys

R&D as Percentof Revenue

R&D as Percent of Revenue for IBM, MS, Accenture, and TCS, 2005

Compiled by author from annual reports

The Educational Levels of Web Posted Job Descriptions The Educational Levels of Web Posted Job Descriptions for Intel, HP and Oracle, February 2005for Intel, HP and Oracle, February 2005

INTEL None Technical Bachelors Masters PhD TotalShanghai 10 9 61 55 9 144Beijing 1 0 7 6 1 15Bangalore 11 7 39 112 10 179

HP None Technical Bachelors Masters PhD TotalShanghai 6 2 7 29 1 45Beijing 5 0 25 28 0 58Bangalore 15 3 62 42 34 156

ORACLE None Technical Bachelors Masters PhD TotalBeijing 0 0 0 2 0 2Bangalore 9 1 63 16 0 89

Source: Author’s compilation

A Job at Intel IndiaA Job at Intel India• CAD Engineer: Hardware Engineering is all about finding solutions. As a CAD (Computer

Aided Design) Engineer with the Intel Hardware Engineering team, you'll work on teams designing, developing and implementing solutions. As part of Hardware Engineering at Intel, you'll have the opportunity to be involved from start to finish on the development of world-class innovations.

ResponsibilitiesAs a CAD Engineer, you will be involved in developing new very large scale integration (VLSI) CAD tools and methodology solutions for design for testability (DFT) and test generation for high volume manufacturing of next generation microprocessor products. You will be responsible for development, deployment and maintenance of in-house fault simulation and test generation tools. This position will be based in Bangalore, India.

QualificationsYou must possess a Ph.D. or Master of Science degree in Electrical Engineering or Computer Engineering with five to ten years of related work experience. Additional qualifications include: Extensive knowledge of Digital Design and Design-for-test principles, digital circuit/fault simulation and automatic test pattern generation. Good working knowledge in developing CAD tools using C++ in a UNIX*/Linux* environment.

Excellent experience in a related people management role would be an added advantage.

http://appzone.intel.com/jobs/uRequisition.asp?Posting=34339Accessed April 9, 2004

EntrepreneurshipEntrepreneurship

EntrepreneurshipEntrepreneurship

• Venture capital is now globalized Venture capital is now globalized (Kenney et al 2006)(Kenney et al 2006)– Foreign VCs invest in U.S.Foreign VCs invest in U.S.– U.S. VCs invest abroadU.S. VCs invest abroad

• Offshore presence very early in the life-Offshore presence very early in the life-cycle of U.S. startupscycle of U.S. startups

Global VC Direct Investment Flow 2003Global VC Direct Investment Flow 2003

88%81%

71%

19% 12% 29%

86%

13%

$24.2b$6.2b

$0.42b

$2.0b

($5.6B) ($0.1B)($0.8B) ($0.8B)

($1.4B) ($0.6B)($3.2B) ($1.8B)

Source: Martin Haemmig at www.MartinHaemmig.comCompiled from data provided by NVCA/Venture Economics, EVCA, AVCJ, IVC)

USA Europe Israel Asia

ConclusionsConclusions

U.S. StrengthsU.S. Strengths• Great research universitiesGreat research universities

– Attracting top-notch grad studentsAttracting top-notch grad students– Cutting-edge research leading to new Cutting-edge research leading to new

productsproducts• Best entrepreneurial regions in worldBest entrepreneurial regions in world

– Seasoned VCs, lawyers, executives etc. Seasoned VCs, lawyers, executives etc. • Many cutting-edge IT and networking Many cutting-edge IT and networking

usersusers• Free flow of ideas and knowledgeFree flow of ideas and knowledge• Strong global connectionsStrong global connections

RealityReality• Globalization here to stayGlobalization here to stay

– VC/entrepreneurship abroad (Skype, Baidu, etc.)VC/entrepreneurship abroad (Skype, Baidu, etc.)• Offshoring to continue (and pressure on Offshoring to continue (and pressure on

white-collar worker wages)white-collar worker wages)– IT innovation is globalizingIT innovation is globalizing

• India’s importance in SW will continue to growIndia’s importance in SW will continue to grow

• Open source/innovation systems are Open source/innovation systems are becoming realitybecoming reality– Ergo, value will be created wherever the bright, Ergo, value will be created wherever the bright,

capable, driven people are -- capital will be there capable, driven people are -- capital will be there for themfor them

Policy ResponsesPolicy Responses• Redress the imbalance between life science Redress the imbalance between life science

and engineering/physical sci federal R&D and engineering/physical sci federal R&D fundingfunding

• Improve education at all levelsImprove education at all levels– K-12 creates the feedstock for the futureK-12 creates the feedstock for the future

• In an open source/innovation knowledge In an open source/innovation knowledge economy secrecy is a heavy burdeneconomy secrecy is a heavy burden

• Ease visa red tape for bona fide students, Ease visa red tape for bona fide students, scholarly exchange, and high value scholarly exchange, and high value contributorscontributors

Thank You

http://hcd.ucdavis.edu/faculty/kenney/