Economic Concentration Evaluation

Economic Concentration Evaluation

Silicon Valley is the world’s preeminent technology hub and an epicenter of innovation. One of the factors that contributed to the region’s prominence is the semiconductor industry that Silicon hosted. Also, the establishment of Stanford University and its consequent focus on electronics and related technology facilitated the region’s growth. Today, Silicon Valley hosts thirty of the world’s Fortune 1000 companies and other multiple start-ups with immense potential (Dingemans, 2001). As evidence that the region is concentrated economically, a third of the nation’s venture capital investment is concentrated in the area. This paper investigates the factors contributing to Silicon Valley’s economic concentration and what lies ahead.

The Influence of Competition and Pricing

Competition is an important factor in any market economy. Competition forces firms to put more effort towards innovation to stay ahead of their peers. It also influences businesses to pay employees competitively to retain the best talent. As businesses vie to pay employees as competitively as possible, the employees’ wages rise, attracting more people to a market economy (Liu et al., 2018). Some businesses that cannot compete in such an environment are replaced by more efficient ones. Therefore, competition influences economic concentration since companies would like to be based in an area characterized by innovation and a more qualified talent pool.

To that end, innovation industries have contributed to Silicon Valley’s overall economic status. It is estimated that one high tech job creates five more jobs in the service sector, explaining how innovation has led to economic concentration. Also, competition for labor has attracted massive foreign-born talent to work in the region. Companies in Silicon Valley also have readily available data about accessing the best workforce. In a nutshell, competition has influenced businesses to innovate and look for the best talent, leading to economic concentration.

Also, pricing influenced economic concentration in Silicon Valley. Notably, companies’ pricing strategy should target increasing customers and boost the brand’s reputation (Liu et al., 2018). When prices are too low, customers perceive products from such companies as being of low quality. High home prices characterize the valley. Since some employees cannot afford the rent, they are forced to stay away from their workplaces.

How Silicon Valley Economic Concentration Influenced the Supply Chain

Big tech companies like Apple, Cisco, Google, Intel, and Microsoft are technological leaders in Silicon Valley. These companies rely on consumer devices like switches, smartphones, laptops, and other household products to stay competitive and gain economic power. For that to happen, these products must be moved with efficiency. As a result, these companies should manufacture such products fast and then distribute them quickly to consumers. The firms operate behind a complex supply chain network, with handling raw materials, parts, and finished products posing a serious challenge.

Following these concerns, the Silicon Valley economic concentration has played a significant part in allaying these logistical concerns. Firstly, Silicon Valley provides a platform through which businesses access a network of trusted logistics companies (Webb, 2016). These companies move the finished products as fast as possible to the final consumers. It would have been hard to achieve a transparent supply chain network were it not for the network created due to economic concentration.

In addition, companies have adopted AI, machine learning, and data analytics to ensure customers get products at the right time. For instance, Apple leverages data to predict consumer needs for its high-value products. Consequently, the company uses air transport to ensure customers get their products at the right time. Similarly, Cisco uses configure-to-order (CTO) production models to ensure products take a shorter time to reach the final consumer. These innovative solutions would not be achievable without Silicon Valley’s innovative capabilities.

Factors of Production Contributing to the Silicon Valley’s Growth

Vast Talent Pool

Silicon Valley is characterized by massive talent availability. The diversity of the talent pool is one factor that has contributed to the massive growth of the ecosystem (Eng Stensson & Wessman, n.d.). Firstly, employees come from different cultural backgrounds, hence offering diverse viewpoints about issues. Also, the employees have diverse skill sets within the technological field, thus enriching the wider ecosystem. Even employees who work in areas unrelated to technology know technological issues. In the end, a snowball effect occurs as these employees attract the most effective leaders. The vast talent pool is the single most important reason for Silicon Valley’s success.

High Capital Availability

Another important factor of production responsible for Silicon Valley’s exponential growth is the presence of capital. To that end, venture capital companies are responsible for the success of Silicon Valley companies. Notably, 90% of the world’s venture capital companies are in Silicon Valley (Eng Stensson & Wessman, n.d.). Also, angel investors play a huge role in financing innovations in the economic hub. With the community mindset in the hub, some investors invest in their companies, make money, and then support other businesses to grow.

Entrepreneurial Mindset

The entrepreneurial mindset that characterizes people in the Silicon Valley region has also contributed to its growth. For that reason, people working in this region are not concerned about hierarchy and positions. The goal is to find innovative solutions to customer needs, and once that is done, everyone is satisfied (Eng Stensson & Wessman, n.d.). An entrepreneurial spirit yields an experimental mindset which is the hallmark of innovation.

Land 

Land has been the least impactful factor in the growth of Silicon Valley. After all, the US has huge tracts of prime land elsewhere that could host a technological hub like Silicon Valley. Nonetheless, the pleasant climate in Silicon Valley tends to retain people.

Predicted Potential Changes

In the near future, there is a likelihood of tightened investment requirements in Silicon Valley. One of the reasons why investors may consider calibrating their investments is due to poor post-IPO performances by companies like Uber and Lyft (Gavet, 2020). Investors will tighten financing requirements and require a clear path to profitability. That is because some companies have been expanding, yet there is little to show in profits. There is also a likelihood of enhanced public scrutiny for companies in Silicon Valley. As tech companies grow exponentially, their moral obligation to society is also attracting attention. One such obligation is the need to pay taxes fairly, just like other economic players (Gavet, 2020). For that reason, taxes for Silicon Valley companies are likely to increase.

References

Dingemans, D. J. (2001). Understanding Silicon Valley: The Anatomy of an Entrepreneurial Region ed. by Martin Kenney. Yearbook of the Association of Pacific Coast Geographers, 63(1), 155–158. https://doi.org/10.1353/pcg.2001.0016

Eng Stensson, J., & Wessman, M. (n.d.). Key Success Factors for Collaborative Innovation in Silicon Valley. Faculty of Engineering, Lund University. Retrieved October 28, 2022, from:https://lup.lub.lu.se/luur/download?fileOId=5463416&func=downloadFile&recordOId=5463398

Gavet, M. (2020, September 30). What’s Next for Silicon Valley? Harvard Business Review. https://hbr.org/2020/09/whats-next-for-silicon-valley

Liu, P., Shambaugh, J., Nunn, R., & Breitwieser, A. (2018). The state of competition and dynamism: Facts about concentration, start-ups, and related policies. Brookings. https://www.brookings.edu/research/the-state-of-competition-and-dynamism-facts-about-concentration-start-ups-and-related-policies/

Webb, J. (2016). Flex Takes A Silicon Valley Approach To Reduce Supply Chain Risk. Forbes. https://www.forbes.com/sites/jwebb/2016/09/27/flex-takes-a-silicon-valley-approach-to-reducing-supply-chain-risk/?sh=579e6c2c225c

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Exam Content

Select 1 of the economic concentrations (clusters) below:

******Silicon Valley technology hub******

Write a 700- to 1,050-word paper evaluating economists’ assessments of the role the 4 factors of production played in determining how the economic concentration you selected has evolved. Complete the following in your paper:

Analyze how the economic concentration in the area you chose was influenced by competition and pricing.
Analyze how the economic concentration in the area you chose influenced the supply chain.
Analyze which of the 4 factors of production were the most and least important in determining the economic concentration of the area you chose.
Predict changes you anticipate for the area of economic concentration you chose. Support your predictions.

Consider the resources provided and other academically appropriate sources. The use of charts and tables to illustrate data is highly encouraged.

Cite at least 4 academically credible sources.