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Silicon Valley hiring again, but new talent often overseas

By Joseph Menn
Los Angeles Times

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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 company'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 back yard 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.

Long list

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 the School of Information Management and Systems at the University of California, Berkeley.

While 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 of the companies backed by top venture-capital firm Kleiner, Perkins, Caufield & Byers have operations offshore, firm partner John Doerr said.

Big companies such as IBM and Oracle 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 and Oracle, companies that were growing like crazy 15 years ago. Almost no company is putting 100 percent of their operations here for the long term."

Going global faster

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 United States 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 Fortinet, a Sunnyvale, Calif., computer-security company he founded 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 United States.

Businesses in Asia were the first to buy Fortinet's products for protecting computer networks from viruses and hackers, so it made sense to build a significant presence in Tokyo and Beijing, Xie said. Almost 250 of the company's 350 employees are now outside the United States. 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 such as 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.

Echo of the boom

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

Even though job seekers in the valley are now much less demanding, companies with far-flung operations see no reason to move those offices here.

Fortinet does plan some local hiring: Its cavernous, two-story headquarters building can fit 400 staff members, and it's only 25 percent full. But Xie said he also would hire in Vancouver, where the workers are cheaper and less likely to jump to a nearby company dangling a better offer.

Not only is the talent in Canada — and in India, China and Romania — getting better, it's getting easier to find. Small brokers and major consulting firms now help tech companies find low-cost workers overseas.

Equally important, executives say, is the state of communications. High-speed Internet connections are more pervasive, videoconferencing is routine and phone calls placed over the Internet are cheap.

And more people throughout the world are using the same tools — such as Excel spreadsheets made by Microsoft and database software from Oracle — making collaboration across great distances much easier.

Vulnerable jobs

After reviewing recent offshore hiring to identify the professions most at risk, UC Berkeley economist Cynthia Kroll and her colleagues reported last month that 15.7 percent of the Silicon Valley's employees were in vulnerable lines of work, compared with 11 percent of the national work force.

"Silicon Valley has already lost 18 percent of its jobs," Kroll said. "Outsourcing is definitely making it harder to replace even a fraction of those."

Fortunately for the valley's future, most companies plan to keep a central group of executives in the area.

Even Easic, the company with the backyard mobile home, intends to hire locally in the near future as its new chip-design system gets off the ground.

"We certainly have much more contact with customers here," said Wurman, the vice president. "You need the contacts, the networking."

If all goes well, Easic will get a real office. That will mean fewer stares from potential investors, some of whom have been taken aback by the company's reliance on dining-room workstations and cheap labor in Romania.

Then again, Wurman said, "others appreciate it because they see we don't burn money. Especially if it's their money."

Los Angeles Times staff writer Alex Pham contributed to this report.

Copyright © 2004 The Seattle Times Company