Silicon Valley in California and Route 128 in Massachusetts are the preeminent high-tech clusters in the world. Silicon Valley dates back to the early 1930s when Stanford University encourages its electrical engineering graduates to stay in the area and start companies.
In the early 1950s, Stanford created the Stanford Industrial Park, leasing University land to high-tech companies that worked closely with its engineering school. In the mid-1950s, defense contractors such as Lockheed brought dollars to the area. By the late 1960s, a critical mass of such talent had accumulated. For example, in 1968, eight young engineers left their employer over a disagreement; over the next 20 years, they founded 65 new companies, including Intel Corporation, which later created the microprocessor chip, the brain of personal computers.
This pattern repeated: one researcher estimated that in small and medium-sized firms, 35% of the workforce would, on average, turn over in a year. Silicon Valley became a fertile location for start-ups, with dozens sprouting every year -- everything from firms specializing in hardware and software to network firms like eBay, Facebook, and Google. It also became home to investors who specialize in financing new high-tech companies. Silicon Valley's compact geographical location allowed people to form close social and research bonds eve while working for rival firms.
On the other side of the country, a high-tech cluster known as Route 128 lies on a 65-mile highway surrounding Boston and Cambridge. It owes its beginnings to the Massachusetts Institute of Technology (MIT), the top engineering university in the world, as well as funding from the U.S. military, NASA, and the National Science Foundation. In the 1950s Route 128 dominated Silicon Valley, with three times the employment.
But early on Route 128 differed from Silicon Valley in significant ways. Geographically, Route 128 was more spread out than Silicon Valley. Its forms were larger; reflecting the needs of defense contractors during the Cold War. And MIT extended little help to Route 128 firms.
Another major difference between the two clusters lay in how firms were organized. Route 128 firms tended to be "vertically integrated", combining the entire chain of production from research to design to production in the same firm. Silicon Valley firms focused exclusively on research and design, contracting production out to specialized firms that achieved economies of scale. In contrast to the fluidity of employees and ideas across companies in Silicon Valley, Route 128 firms emphasized a commitment to lifetime employment and closely guarded their innovations to remain competitive.
The 1970s and 1980s were harsh for Route 128. Military spending dried up, and it lost its edge in microcomputers when Apollo Computers lost its preeminence to an aggressive Silicon valley from, Sun Microsystems. By 1980, electronics employment in Silicon valley was three times that of Route 128. Over time, Route 128 ceded the advantage to Silicon Valley in electronics and networking. Today its niche is in biotechnology, genetics, materials engineering, and finance.
1. What positive externalities were common to both Silicon Valley and Route 128? What positive externalities were not common to both? Explain.
2. What factors made Silicon Valley such a fertile place for start-ups? How did these factors interact with one another? What inhibited start-ups in Route 128?
3. In hindsight, what could Apollo Computers have done to maintain its advantage in mini-computers? What does this tell you generally about research clusters?
