Fast Company

Offshoring Creativity

Never mind the call centers. Look at the high-tech firms and markets in China and India, and worry about the emigration of innovation.

If we're really in the new global economy of the 21st century, how come everyone talks about outsourcing as though we were stuck in 19th-century imperialism? The debate casts India and China as colonial outposts of cheap, low-level labor serving the almighty American consumer. We look overseas and see only a vast pool of white-collar workers who can answer our customer-service calls or write technical manuals that no one reads anyway. This is shaking up our economy, true, but it's not threatening our ironclad egotism: We still believe that America will remain the world's leader in innovation while developing countries can aspire only to unglamorous jobs that require less brainpower or entrepreneurial prowess.

But the talk among Silicon Valley insiders is different. Their buzz is that India and China are launching high-tech companies that will innovate brilliantly -- and will bring their creations first to consumers in their own lands, often bypassing our shores entirely. India and China are the world's most promising end markets for technology, while the United States is nearly saturated. So the real issue for the coming decade isn't whether Asia's workers will steal our high-tech jobs; it's whether their high-tech consumers will still buy our products.

The new new thing in Silicon Valley isn't even in Silicon Valley: In September, the Silicon Valley Bank, which lends to tech startups, opened a branch in Bangalore, India. The bank has led two delegations, each of two-dozen top venture capitalists, on weeklong tours of India and China. Legends such as Don Valentine from Sequoia Capital, which invested early on in Apple, Yahoo, and Google; and John Doerr from Kleiner Perkins Caufield & Byers, the moneyman behind Amazon.com, joined the June trek to Beijing and Shanghai.

They found a nascent entrepreneurial culture inspired by their own, peopled by Chinese nationals -- educated in the United States and once employed by big American companies -- who have returned home to launch tech startups. "They were as world-class as anything you'd see on Sand Hill Road," the epicenter of Silicon Valley's capitalists, says Terry Garnett, former head of marketing at Oracle and now a venture capitalist at Garnett & Helfrich in Menlo Park.

Half of Garnett's traveling companions had already invested in early-stage Chinese tech startups. One investor, Dixon Doll of Doll Capital Management, is backing 51job, the Monster.com of China -- a recruitment Web site with 6.9 million registered users. DCM has also bankrolled Apexone Microelectronics, which designs multimedia chips for the mainland's market. Apexone's management team combines Chinese natives who returned after getting a Western education with homegrown talents who never left.

"As Silicon Valley developed over time," says one venture capitalist, "it attracted more skilled people and then more good things happened. The same will happen for India."

None of the big-name Silicon Valley VCs have set up shop in India yet, but Silicon Valley Bank's Bangalore branch provides an array of open offices for them to use on scouting trips. Although there's no Asian equivalent of Sand Hill Road, it's not hard to imagine a similarly freewheeling system of venture funding eventually emerging. (Intel, one of the biggest venture investors in Silicon Valley, has already invested some $200 million in 50 Chinese startups.)

As new funding fuels innovation, Silicon Valley insiders see India and China ultimately eclipsing America as technology markets -- with local companies dominating. Already, Ningbo Bird Co. and other Chinese outfits have grabbed more than half of China's huge cell-phone handset market. India's Wipro is enjoying revenue growth of 40% in its outsourcing businesses, but its sales of hardware and services in Asian markets more than doubled in the most recent fiscal quarter.

No wonder American companies are starting to take Asia more seriously. On the China trip, the Silicon Valley Bank contingent met with executives from Motorola, which sells $4 billion worth of gear a year in China.

Garnett asked whether they made key decisions at Motorola's headquarters in the Chicago suburbs or in China. The Motorola honchos said decision making is still split across continents, but it's starting to move over to China.

Mike Moritz of Sequoia Capital, the hottest venture capitalist of the moment, visited Bangalore this year and told India's Economic Times, "The raw energy among Indian companies is just unmistakable." Although Sequoia has yet to invest in a startup based in India, it backs at least 35 companies with operations or footholds there. "Cost is clearly part of it," he said, "but what is more important is the extraordinary, educated, talent-driven workforce that constantly gushes from the Indian institutes. It's like Silicon Valley. As Silicon Valley developed over time, it attracted more skilled people and then more good things happened. And the same thing will happen for India."

Read Moritz's words again -- "It's like Silicon Valley." We should find that a lot more threatening than Indian coders on H1B visas. The issue for America shouldn't be just the pros and cons of outsourcing grunt work. It should be investing in and cultivating our own "extraordinary, educated, talent-driven workforce" so the work of creativity and innovation isn't offshored as well.

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