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Technically Speaking, Still a Tech Hub

The Silicon Valley remains a land of headquarters, but much of the work has shifted to cheaper labor markets overseas.

March 15, 2004|Joseph Menn | Times Staff Writer

SAN JOSE — Outside the gray ranch house in a quiet and well-tended neighborhood, a ceramic frog guards a flower bed.

The house is pretty much the same as the others on Woodford Drive, except for the plastic sign on the wall that says "Easic Corp." Inside, in the dining room and family room, there's a daybed for the dog, brass plaques memorializing the chip-design firm's patents and five employees setting strategy, reviewing software and sending e-mail to programming colleagues in Romania.

It looks a lot like the future of Silicon Valley. Zvi Or-Bach, Easic's founder, president and chief executive, hired the Romanians for the same reason he keeps Easic's headquarters in his three-bedroom house, where a secondhand mobile home in the backyard accommodates overflow employees.

"Obviously, it saves money," said Ze'ev Wurman, vice president of software development, noting that the Romanians' salaries are one-tenth of programmers' wages in San Jose.

As Silicon Valley emerges from three years in the economic wilderness, it is taking on a new look. These days, many technology powerhouses no longer have thousands of locals employed to perform tasks ranging from designing software to cleaning the cafeteria.

The new Silicon Valley is a land of headquarters, a place where deals are made but not necessarily carried out.

The transformation echoes the evolution of Hollywood, which from its base in Southern California manages film shoots in Canada, animation in South Korea and special effects in New Zealand. In fact, the Silicon Valley tech sector is the latest addition to a long list: Generations ago, the textile industry sent factory and management jobs south from its New England base, for example, and later back-office jobs in financial services migrated from lower Manhattan to New Jersey.

With the shift, "the character of the valley is changing pretty dramatically," said AnnaLee Saxenian, dean of UC Berkeley's School of Information Management and Systems.

Although some companies are doing things the old-fashioned way, an increasing number of jobs that once were the guts of valley life -- technical support, programming, even some computer system design -- are now handled in places as remote as Bombay, India, and Bucharest, Romania.

More than half the companies backed by top venture capital firm Kleiner, Perkins, Caufield & Byers have operations offshore, firm partner John Doerr said.

Big companies like Armonk, N.Y.-based IBM Corp. and Oracle Corp. of Redwood City, Calif., have drawn headlines and political fire for transferring jobs overseas, but the phenomenon has extended to even the smallest companies, which collectively employ the majority of technology workers in the valley.

"For some high-level engineering and marketing people, this is probably still the place to be," said Doug Carlisle, a managing director of Menlo Ventures in Menlo Park, Calif. "But they aren't going to build a whole company here like Cisco [Systems Inc.] and Oracle, companies that were growing like crazy 15 years ago. Almost no company is putting 100% of their operations here for the long term."

Lower-cost labor is just one factor. Another is the increasingly far-flung demand for sophisticated technology.

In years past, young companies almost always tried to establish themselves in the U.S. before going after customers elsewhere. Not anymore.

"It's more expected today that companies start to engage in global markets earlier," said Ken Xie, CEO of computer security firm Fortinet Inc., who founded the Sunnyvale, Calif., company in 2000.

Like many of his peers in the valley, Xie finds it easy to do business in some faraway places because they are familiar to him. Xie grew up in China and earned a master's degree at Tsinghua University in Beijing before moving to the U.S.

Xie worked on security technology at several companies, including dot-com start-up Healtheon Corp., now WebMD Inc. Healtheon's successful initial public offering gave him the means to start again with Fortinet.

Fortinet sold its first products for protecting computer networks from viruses and hackers to businesses in Asia, so it made sense to build a significant presence in Tokyo and Beijing, Xie said. Almost 250 of its 350 employees are now located outside the U.S. Fortinet is aiming for $100 million in revenue this year, two-thirds of which probably will come from abroad.

Spreading employees across multiple time zones is also a big plus in a field like computer security, in which companies have to swing into action in minutes. At Fortinet, there is always an employee somewhere who is awake to respond to a new virus or electronic vulnerability.

In part, the globalization of Silicon Valley's workforce is an indirect result of the high-tech boom of the late 1990s. Back then, when Fortinet and thousands of other firms were eager to hire, engineers at home cost twice as much as they did a short flight away in Vancouver, Canada. So Fortinet built a staff of 120 there.

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