San Francisco -- Offshoring is just one of many global forces impacting job creation and destruction in the Bay Area and cannot be viewed in isolation from the key trends enabling it, such as globalization, technology-driven improvements in productivity and business disintermediation. Efforts to prevent offshoring will not be successful and are likely to come at considerable economic cost, according to a new study released today.

Sponsored by Joint Venture: Silicon Valley Network, the Bay Area Economic Forum and the Stanford Project on Regions of Innovation and Entrepreneurship (SPRIE), with research and project support from global management consulting firm A.T. Kearney, the study analyzed global trends, regional capabilities and the Bay Area job market.

Findings from the study, the first regionally focused on the Bay Area, were based on 120 interviews, analysis of 9,000 job listings and other primary and secondary research.

The Bay Area already has more experience with globalization and offshoring than other parts of the U.S., the study reports. Bay Area manufacturers earn almost 60 percent of their revenues in overseas markets. Analysis done as part of the study revealed 94 percent of companies in the semiconductor and semiconductor equipment manufacturing and software clusters - two driving sectors in the Bay Area in terms of employment and payroll contribution - are already using offshore resources.

This does not mean all jobs are going offshore. The study also found one-in-four job postings for large companies in those sectors during April 2004 was for positions in the Bay Area.

"The research makes clear that global trends will force continued creation and destruction of jobs in the Bay Area. These trends can't be reversed. Policies and investment should be directed toward helping the region strengthen its core capabilities to compete effectively on a national and global basis" said Sean Randolph, President & CEO of the Bay Area Economic Forum.

The study calls for policymakers to maintain strong support for basic research, invest in education to ensure a competitive local workforce and to address vulnerabilities in the regional business environment including housing, transportation and business regulations that hinder local job creation. Business leaders need to support transition programs and consider investment in local employee development to meet their future job needs.

The study found the Bay Area is losing ground to other regions in the U.S. and overseas in three competitive capabilities: mass production, back-office (transactional) operations and product and process enhancement. The competitive erosion in the latter is new. It appears that the Bay Area is rapidly losing out to other regions in occupations associated with engineering focused on cost reduction, fine-tuning processes and expanding product features. These engineering jobs, along with manufacturing and administration-related occupations, are expected to decline as the skills required for those functions are sourced more cost effectively in other regions of the United States and abroad.

The study also identified five competitive capabilities that investors and business leaders believe are key strengths of the Bay Area. In addition to three capabilities traditionally linked to the region (entrepreneurship/new business creation, research in advanced technologies and bringing new concepts to market), the analysis pointed to two other competitive capabilities not always in the spotlight:

• Cross-disciplinary research - coordinating and integrating advanced learning across industries and scientific disciplines.
• Global integrated management - managing and coordinating globally distributed business functions and networks.

Jobs aligned with these five regional strengths, such as high-level research, strategic marketing and global business and headquarter management activities, are expected to experience solid growth.

"The findings confirm that the region should continue to attract talent and foster innovation, start-up activity and job creation, as technology companies are launched and commercialized," said Russell Hancock, President and CEO of Joint Venture: Silicon Valley Network.

The Bay Area's strengths make the region a leader in job creation in early stages of the business lifecycle, but its weaknesses lead to job growth outside the region in the later stages. As a result, the study says, the Bay Area will continue to incubate and develop new businesses, a process that has historically been the core growth engine for the local job market.

"Companies founded in the Bay Area will typically maintain the majority of their workforce in the region until their first products or services gain market traction and key business processes stabilize," said John Ciacchella, Vice President with A.T. Kearney. "However, as these companies expand and mature, many of the new jobs that stay local will focus on management of expanding business operations that are outsourced, offshored and distributed to other regions."

The Bay Area also is well positioned in the industries likely to spawn new technology

start-ups, according to the study's job market analysis and interviews. Beyond its leading role in information technology, the Bay Area has the highest concentration of biotechnology firms in the country and more nanotechnology firms than all countries except Germany.

"How jobs in a region are affected by global trends depends on the competitiveness of the region's capabilities," said Marguerite Gong Hancock, Associate Director of SPRIE. "Despite a rise in the capabilities of other entrepreneurial regions globally, the Bay Area continues to lead in many of the capabilities considered most necessary for innovation and new business creation"

The study findings will be presented at a public event on Thursday, July 15, at Stanford University, where a panel of business and community leaders will discuss the report's findings and implications and take questions from the audience. The panel will be moderated by Paul Laudicina, managing director of A.T. Kearney's Global Business Policy Council, and includes:

• Edward Barnholt (Chairman, President & CEO, Agilent Technologies)
• William T. Coleman (Founder, Chairman & CEO, Cassatt Corporation, and Vice Chairman, Silicon Valley Manufacturing Group)
• Anula K. Jayasuriya (Venture Partner, ATP Capital LP)
• William F. Miller (Professor Emeritus, Stanford Graduate School of Business)
• The Honorable Joe Nation, California State Assembly

BAY AREA ECONOMIC FORUM
Bay Area Economic Forum (www.bayeconfor.org) is a public-private partnership of senior business, government, university, labor and community leaders, develops and implements projects that: support the vitality and competitiveness of the regional economy, and enhance the quality of life of the regions residents. Sponsored by the Bay Area Council a business organization of more than 250 CEOs and major employers, and the Association of Bay Area Governments, representing the region's 101 cities and nine counties, the Bay Area Economic Forum provides a shared platform for leaders to act on key issues affecting the regional economy.

JOINT VENTURE: SILICON VALLEY NETWORK
Joint Venture: Silicon Valley Network (www.jointventure.org) is a nonprofit organization that provides analysis and action on issues affecting the economy and quality of life in Silicon Valley. The organization brings together new and established leaders from business, labor, government, education, non-profits, and the broader community to build a sustainable region that is poised for competition in the global economy.

STANFORD PROJECT ON REGIONS OF INNOVATION AND ENTREPRENEURSHIP
The Stanford Project on Regions of Innovation and Entrepreneurship (http://sprie.stanford.edu), or SPRIE, is dedicated to the understanding and practice of the nexus of innovation and entrepreneurship in the leading regions around the world. Current research focuses on Silicon Valley and high technology regions in 6 countries in Asia: People's Republic of China, Taiwan, Japan, Korea, Singapore and India. SPRIE fulfills its mission through interdisciplinary and international collaborative research, seminars and conferences, publications and briefings for industry and government leaders.

TERNATE, North Maluku, Indonesia: Indonesia's first direct presidential election was held peacefully last Monday. That fact alone spelled success in a troubled country with an authoritarian past. As vote totals mounted at election headquarters in Jakarta, observers could project not only the outcome--they could also look forward with some confidence to a democratic future for the fourth most populous country and largest Muslim society on earth.

Seen from below, however, the world's biggest and most complex democratic experiment amounts to a set of promises still waiting to be fulfilled.

Half an hour by speedboat from Ternate and two more hours by jeep on damaged roads across the remote island of Halmera lie two adjacent villages, Sosol and Tahane. A clash between them on the night of August 18, 1999 had triggered near-anarchy here in the northern Maluku archipelago. Muslims fought Christians, then Muslims fought Muslims. More than a thousand died.

An Indonesian colleague and I went there on election day. We wanted to know whether the balloting would help heal or reopen North Maluku's wounds.

Sosol is a Christian village. In a near-whisper that reflected the sensitivity of the topic, the village secretary blamed the 1999 outbreak squarely on Muslim militants in Tahane. They had attacked Sosol en masse, he said. They had thrown rocks and torched homes while screaming "Allahu Akbar"--"God is great." Christian villages had counterattacked.

Interviewed in his home just down the road, the village chief of all-Muslim Tahane remembered differently: "They acted first," he said. People in Sosol had been drinking alcohol, forbidden to Muslims. From his side of the border he could hear the shouts of drunken Sosolans abusing Tahane; the Sosolans began seizing Tahanean houses, slashing the furniture, he said. He admitted that the first to die was killed by a Tahanean, "but they started it," he insisted. "They had weapons - arrows, bombs. What was I to do? Let them roll over us?"

Ever since the chief and his fellow villagers had arrived in Tahane in the 1970s, evacuees from a feared volcanic eruption on their home island in the south, the Sosolans had hated them and tried to get them to leave. Or so he said.

The roots of this conflict embrace many issues. They include religion, migration, ethnicity, customs, and access to land. But it was an action taken by the central government in far-off Jakarta that lit this volatile mix in 1999--a decree that transferred Sosol and several other largely Christian villages to the jurisdication of a new and mostly Muslim subdistrict, including Tahane. What looked in Jakarta like a purely administrative arrangement appeared to Sosolans to threaten their identity.

It has never been realistic here to expect the national government to understand what goes on in and between particular villages--not in a country this vast, diverse, and underdeveloped.

But democracy raises expectations. What happened on July 5 linked the electorate directly, almost personally, to individual candidates running for president and vice-president of the entire country.

Throughout our election-date tour of polling stations in northern Maluku we came across evidence of disappointment and hope in roughly equal measure.

Every villager we met either was or had been a refugee from the violence of the 1990s, and nearly every one had suffered. Yet when we asked who had supplied them with emergency food and housing materials to survive the crisis and rebuild, our informants rarely mentioned the Indonesian government.

We also found good news. Although Sosol and Tahane voted for opposing slates, old wounds stayed closed. The villagers were not about to let political rivalries between presidential candidates rekindle calamity. There was no violence on voting day, and turnouts were high in all the villages. If democracy requires civility and participation, the people of northern Maluku are ready and willing to do their part.

But will Indonesia's new president, when finally elected in a run-off this September, be willing and able to his or her part? Will campaign promises be kept?

Perhaps the most poignant hint of this country's fragility occurred when I asked the Sosol village secretary, "What is Indonesia?" For the first time in our conversation, he fell silent. Try as he might, he could not answer.

At the risk of wishful thinking, one can hope the election itself was a kind of answer.