Why do Silicon Valley and Boston continue to thrive as high tech industry hubs while other promising areas stagnate? It's a question long debated by researchers, but new findings by Dan Breznitz of the Sam Nunn School of International Affairs and School of Public Policy, identify localized business connections and funding as imperatives. In a case study focusing on Atlanta, Breznitz highlights critical changes needed for that city and provides a roadmap for other regions looking to grow high tech industry.
Breznitz, and co-author Mollie Taylor a PhD student at the Sam Nunn School and a researcher of the Enterprise Innovation Institute at Georgia Tech, set out to settle the debate over what induces sustained regional entrepreneurial growth in the high tech industry "" the availability of resources or business social structure. They focused their research on the Atlanta metropolitan area because it leads the U.S. in the various factors necessary to attract and sustain technological-entrepreneurial clusters: top research universities, a large educated labor pool, a wealth of new technologies and entrepreneurs, a vibrant creative class, and generous venture capital financing. Atlanta has also been perceived as having the social business structure needed to induce growth. The study revealed otherwise.
Breznitz and Taylor found that Atlanta companies haven't meshed within the local economy. The result has been a decade of steady migration of companies to other states leaving the city with an "at best, stagnant" industry profile - both the percentage of high tech employment and wages in the overall economy stayed flat in the last decade. Furthermore, not only has Atlanta lost most of its independent large high tech companies, but forty percent of the city's most promising start-ups leave Georgia for other states either through migration or acquisition within three years of getting their first major institutional investment. California, New York, New Jersey, and Florida are common destinations for Georgia-born IT companies.
"The metro area excels at incubating high tech businesses, but it lacks the cohesive business social structure needed to sustain them so many of the most promising young companies leave the city," says Breznitz. "Instead of building great high tech companies, Atlanta has become a feeder system for great high tech companies in other states."
Analysis of Atlanta's most promising new companies and the city's top 50 technology firms revealed little contact either between IT executives with those of Fortune 500 companies or with other technology companies. CEOs, attorneys, and managers in Atlanta IT companies don't sit on each other's boards and don't communicate. The problem isn't unique to the city's IT industry, but there are far fewer interlocks within the IT community than in other industries that are successful in the region.
"High tech companies here don't interlock with each other or with the large companies that dominate Georgia's economy. Many of our interviewees complain that they feel as if they work in isolation compared with their competitors from other high technology regions," says Breznitz, highlighting a complaint that he and Taylor heard consistently from the area's high tech workforce.
The study provides lessons for Atlanta and other cities aspiring to grow high tech industry. It identifies the need for policies and institutions that stimulate information sharing, collective learning, access to resources, and business community buildings. It also identifies venture capital industry with true local focus as crucial to embedding a company locally. In conclusion, business social variables are critical for long-term entrepreneurial-technological economic growth.
The study is part of an overall initiative to come with new technological entrepreneurship policies for Georgia, and was co-sponsored by Enterprise Innovation 2 (EI2), the Kauffman and the Sloan Foundations. Breznitz, who is also a senior research in EI2 Science Technology Innovation Policy program and Taylor, are working together with Stephen Fleming, Vice Provost of EI2, Robert Lann, the Head Community Policy and Research Service at EI2, and Don Betts of EI2 to translate the study's finding into new policy directions as well to initiate future research to further inform policy development.