Roepke Lecture in Economic Geography Venture Capital in the “Periphery”: The New Argonauts, Global Search, and Local Institution Building

abstract

This article examines the growing importance of global, or external, search networks that firms and other actors rely on to locate collaborators who can solve part of a problem they face or require part of a solution they may be able provide. We focus on the creation in emerging economies of venture capital—an institution that is organized to search systematically for, and foster the development of, firms and industries that can, in turn, collaborate in codesign. The article examines the case of Taiwan, where first-generation immigrant professionals from U.S. technology industries have collaborated with their home-country counterparts to develop the context for entrepreneurial development. It refers to the members of these networks as the new Argonauts, an allusion to the ancient Greek Jason and the Argonauts, who searched for the Golden Fleece. We also argue that the most significant contributions of these skilled professionals to their home countries are not direct transfers of technology or knowledge, but participation in external search and domestic institutional reform. The new Argonauts are ideally positioned to search beyond prevailing routines to identify opportunities for complementary “peripheral” participation in the global economy and to work with public officials to adapt and redesign relevant institutions and firms in their native countries. They are, therefore, exemplary protagonists of “self-discovery”—the process by which an enterprise or entrepreneur determines which markets it can serve—and of a microlevel institutional reform that can, diffusing and cascading, ultimately produce wider structural transformations.

Key Words:

• venture capital
• institutions
• regional economic development
• diaspora
• high technology

Acknowledgments

The Roepke Lecture in Economic Geography was established to honor the late Professor Howard G. Roepke, who served on the faculty of the University of Illinois at Urbana-Champaign from 1952–1985. The original lecture series ran at the annual meetings of the Association of American Geographers (AAG) from 1986–1994. Economic Geography, the University of Illinois, and the AAG Economic Geography Specialty Group decided to resurrect and cosponsor the lecture series in 2007.

The origins of this article lie in the Roepke Lecture in Economic Geography that the first author delivered at the 2008 AAG. It has evolved significantly since the original presentation, thanks to the contributions of many colleagues and friends. Thanks especially to the organizers and supporters of the Roepke Lecture, as well as to Yuko Aoyama and the other editors at Economic Geography, for their insightful contributions. The article now has a coauthor, and both authors owe special thanks to Yevgeny Kuznetsov, who contributed many of the ideas developed in the newer versions. The usual disclaimers, of course, apply.

Notes

1 See Sabel (2005), which argues that search routines offer an alternative to the hierarchical decomposition of tasks as a solution to the problem of bounded rationality in organizations.

2 If this were not the case, it would be impossible for high-technology clusters to emerge in developing economies by specializing in complex components or special-purpose software and to grow by collaborating more and more closely with their customers in the elaboration of successive, more sophisticated, generations and generalizations of the original specialties.

3 Research for this article involved dozens of open-ended, qualitative interviews with key actors in the private and public sectors in Taiwan and Silicon Valley, as well as in China, India, and Israel in the past decade.

4 Ironically, there is now concern in policy circles in Taiwan that they have lost the “bridge” to Silicon Valley as a result—recognizing, at least implicitly, the importance of the diaspora as a search network.

5 The literature on national institutions and development overlooks the evidence from India, China, and many other cases that suggests that parts of economies grow rapidly and reliably even if the wholes to which they are connected do not have the institutions that are thought to be necessary for growth. The evidence indicates that the institutions of governance that are sufficiently “good” to permit and encourage sustained growth can be built piecemeal, in particular sectors of the economy and in the regions in which they are located, in advance of comprehensive, national reform. No one looking only, say, at national legislation (or its absence) regarding property rights in China would have been able to predict the country’s growth.

6 Taiwan’s per capita gross national product in 1962 was $170, on par with that of Zaire and the Congo.

7 Avnimelech and Teubal (2004, 88) wrote explicitly of “business experiments” and “policy experimentation” in this period.

8 On “pragmatist” mechanisms, such as benchmarking, simultaneous engineering, and the detection and correction of “root cause” errors, see Helper, MacDuffie, and Sabel (2000). All of these mechanisms generate information for collaborative improvement or design innovation by triggering “routine questioning of routines.”

9 This organizational innovation, which transformed the global semiconductor industry, is at direct odds with claims that Taiwan is not innovative.

10 The new Argonauts have contributed actively to policy reform in India and China in the areas of telecommunications regulation, science and technology policy, and reform of educational institutions as well as capital markets (Saxenian 2006).