Page 29 - Introduction to Business

CHAPTER 1 What Is Business? 3

Silicon Valley: The Keys to Business Success

alifornia’s Silicon Valley is known for the start-up of several dynamic
and successful U.S. companies, especially in such fields as electronics,
Csemiconductors, information technology (IT), the Internet, and soft-
ware development. However, behind the valley’s success stories are numerous
companies that failed. It is the willingness on the part of entrepreneurs and
investors alike to take risk that has led to major business innovations with
global implications. The bulk of business activities taking place in Silicon Val-
ley (and in other similar centers within the United States and in faraway tech-
nology centers like Bangalore, Dublin, Singapore, and Tel Aviv) are based more
on human knowledge skills than on manufacturing.
The origins of the Internet revolution can be traced to the invention of the
World Wide Web in 1989 by British technologist Tim Berners-Lee (working for
CERN, a physics research lab on the French-Swiss border). Its commercializa-
tion began in northern California’s Silicon Valley. The 1990s was a period of
unprecedented excitement and growth in the information technology indus-
try, and that euphoria spread like wildfire across the globe impacting all sec-
tors of economies, especially in the United States, in the form of hundreds of
dotcom firms. The demand for IT talent was so fierce that sign-up bonuses
became a norm. To attract these skilled knowledge workers, some companies,
for example Enron and PricewaterhouseCoopers, provided flexible work
hours, lax dress codes, on-site health facilities, free meals or snacks, and so on,
with little regard for cost control.
This new environment was so contagious that some economists and Wall
Street finance gurus saw the beginning of a new era where standard measure-
ments of business performance such as profits, dividends, and consumer
demand no longer seemed to matter. To most entrepreneurs in Silicon Valley,
the future was just rosy and filled with high expectations. Ordinary citizens
with some savings saw the opportunity to make money. They ploughed their
savings and retirement funds into these stocks, and thus helped to perpetuate
the boom. Stock prices of many of these companies took on a momentum of
their own, with share prices of companies like Yahoo.com jumping by $20 or
more in a single day. Only in 2000 to 2002 did it become apparent that some of
the stock analysts, as well as some corporate executives, were unethical and
were misleading investors on the companies’ business prospects. The collapse
of dotcom share prices started in 2000, and many dotcoms saw their shares
trading in 2002 to 2003 at 3 percent of their peak values. Quite a few of the dot-
coms vanished.
The economic implications of the collapse of dotcom shares are serious,
since several of these companies participated in unethical accounting and
financial practices. With the bursting of the technology bubble and the losses
at supporting financial institutions, hundreds of thousands of white-collar
technology workers and bankers lost their jobs, bringing the stock market
down along with them. In his new book, Harvard business professor Quinn
Mills points out that financial bubbles are engineered by professional players
who take advantage of public excitement and ineffective government regula-
1
tions to realize profit opportunities. New York attorney general Eliot Spitzer
took charge in early 2002 to remove Wall Street’s corporate abuses and bring
greater investor confidence in the United States’ premiere financial center. It is
interesting to note the similarities with the 1930s; for example, soon after the
Great Depression, William O. Douglas, one of the first Securities and Exchange

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