The American dream has inspired millions of people of different races in past decades. But why the large tech-based internet companies like Google, Microsoft, Apple, Facebook (now Meta) are factually based out of America? Is Uncle SAM a lucky charm for these organizations? Is the human race not talented enough on other continents of the Earth? We will have a deeper look at the reasons why these companies originate and operate from one country:
Roots lie in the foundation: The Education system
There are two kinds of students in modern education. One who studies well and the other who knows well. There is a thin line of difference between these kinds of students. Similar is the difference between invention and innovation. Inventors have been produced by many countries. But Innovators are a rare breed. The United States is a country that promotes innovators through a concept-oriented education system.
As Larry Page (Founder of Google) rightly puts:
The main features of the American Education system which promote innovation are:
- Adaptability and Agility
- Effective oral and written communication skills
- Entrepreneurialism and Initiative
- Root cause Analysis
- Equal opportunities for Leadership and collaboration
- Analytical mindset and reasoning
As per Harvard Innovation Educator Tony Wagner, many of the above skills are required to be mastered by students before they complete high school. In contrast, many of the countries across the globe, discourage these skills amongst students by asking them to answer strictly “by the book”
It is this innovative mindset that has produced the founders of the global giants in the Information Technology sector. As Steve Jobs has rightly said:
“Innovation distinguishes between a leader and a follower”
This is the skillset that develops in the United States and encourages young minds to “stay hungry and stay foolish” to convert innovative ideas into a business
USA is the largest Consumer market
Some Key Facts and figures:
- The Prime index for Consumer spending HFCE (Household Final Consumer Expenditure) is ~$17 Trillion in the USA. Next on the list is the whole of the European Union at less than half of the value i.e., $8.4 Trillion! This gives all businesses a chance to grow in the United States.
- As per IMF, on GDP, the US leads the world with $22.9 Trillion GDP. China, second in the list, follows far behind at $16.8 Trillion.
- US has Free Trade Agreements with at least 20 other countries, which encourages businesses to freely import or export goods or services (even IT) with the lowest tariffs and no prohibitions.
- With the third-highest Consumer population of ~331 million people, the country has a comfortable population density of 36 persons/sq.km and a still lot of scope to grow in consumer base.
Besides what is stated by the numbers above, a large part of the population is tech-savvy. They have been wired from the beginning to adopt innovative technologies. This makes them create, promote, and consume tech-related products easily.
Promoting zeal for innovation amongst new entrepreneurs
The fact that the United States is ranked No.3 in Global Innovation and Index 2021 highlights the importance the country gives to Innovation.
Besides promoting innovation at basic education levels, the USA has positioned itself correctly to bear the fruits of innovative research and convert such ideas into business. Following factors support the tech-related businesses to nurture in the US:
- High on Research and development: Being a global leader in R&D, the United States accounts for well over a quarter of the world’s spending on R&D across multiple industries.
- The innovations developed on US university campuses are supported by government agencies and transformed by the business community.
- About 15 of the Top 20 universities across the globe are based out of the United States. This attracts more international students than any other country. It is amongst this large pool of talent that sustains the think-tanks of large tech giants in the system.
- Research Incubators look for promising research ideas and provide them with centralized resources, business counsel, and even support funding in some cases.
- Startup accelerator programs are frequently organized with investors taking a keen interest in the best business ideas and making them a reality.
The US gives an open message to its’ innovators to do their best, while the country supports them to grow the business irrespective of ethnicity or gender.
Ease of Doing Business
As per World Bank 2020 Ease of Doing Business rankings, the United States is 6th on the list of 190 countries. This rating means that the United States is doing good on the following parameters:
- Starting procedures in Business. Minimum capital, optimum time, and fewer efforts
- Infrastructure set up: Construction permits, Electricity, and property registration
- Strong Financial support: Getting credit, protection of legal rights, Investor rights, and fair taxation.
- Ease of Export and Import of goods and services, Free Trade agreements
- Enforcement of the Contracts and quicker resolution of Insolvency
Besides the above factors, the United States has the advantage of a stable socio-political environment. Uncle Sam may be an active participant in war and peace-keeping missions across the globe, but, in general, the environment remains peaceful back home. Politics and terrorism impact every country on earth. But generally, in the US except for catastrophic events like 9/11, the business environment remains unaffected by small or medium political disturbances.
Since 1983, when President Ronal Reagan unveiled the “Statement on International Investment Policy”, all his successors have committed keen interest towards Foreign Direct Investment and generally, all foreign investors receive non-discriminatory treatment and compete on a level playing field along with local service providers.
Compared to this, there is always a sense of insecurity amongst the investors for other lesser accommodative economies. Other countries may invite investors with huge promises and even offer tax holidays, but there is always a chance that the government may stop supporting them as soon as regime changes or some socio-political event may alter the scenario completely. Businesses must be insulated from these risks to a certain extent.
Access to Capital
There are multiple sources of capital developed decades ago in the United States to facilitate businesses with short-term and long-term financing. Following sources of funding are available to all businesses:
- Commercial banks– These banks are regulated by federal or state governments and offer retail and commercial financial services to all kinds of businesses. They promote the tech companies also with hassle-free procedures and do not intervene in the functioning of the company unlike banks of other countries.
- Special Investment banks- These banks specialize in raising capital for greenfield investments and acquisitions. They utilize their expertise in securities/derivatives trading, stock offerings, and bonds to secure funds for businesses. This is a route generally taken by large conglomerates when they wish to build upon a capital-intensive business idea.
- Venture Capital: This is one of the most popular private equities for small IT startups and medium-scale entrepreneurs. The VC culture itself was born in the United States and today it is viewed as “dream funding” for any budding tech-related business. 2021 has been a record-breaking year for Venture capital in the world with a $600 Bn investment. North America contributed the most to this growth. Interestingly more than 60% of this amount was invested in the technology services sector.
- Angel Investors: With Silicon Valley dominating the Angel Investor’s contribution to small Tech businesses, the top executives of the tech sector have been investing to the tune of $ 25 Billion.
- Crowdfunding: This concept is still in a budding stage where small tech startups create a profile, explain their business idea, and create a fund-raising campaign page. Generally, the business magnates who have themselves tasted success after receiving funding in the US, invest in these firms to encourage the community of startups. Without funding, it is impossible to commence or sustain a business. Compared to other countries, it is easier to access capital in the United States. Although many of the tech startups complain of lesser tax benefits in the United States, however, the access to capital is unparalleled compared to other countries.
Better living standards in the United States attract talent
Human beings have a typical characteristic. There is a certain element of emotion, family well-being, and comfort while making business investment decisions. The same has been the case with large tech-based entrepreneurs, who had been comfortable in the United States all along and never thought of starting their business anywhere else. For many decades throughout the 20th Century, the United States was recognized as having the highest standards of living. Even now as per the Organization of Economic Co-operation and Development (OECD) Better life index, the US ranks 10th amongst a list of 40 developed countries. The factors on which this ranking is based are as follows:
- Housing conditions and House expenses (Price of Property)
- Net take-home income to spend and save
- Job Security, unemployment welfare etc.
- Social support in the community
- Quality of education
- Environmental Health
- Governance (Peoples’ say in matters: Democracy)
- Focus on Health
- Satisfaction in life, Happiness index
- Citizen Safety: Law and order
- Work-life balance.
In all the above factors, the United States is good, if not the best. This inspires an individual to establish their family and business or employment in the United States only. The founders of large tech-based conglomerates like Google, Microsoft, Facebook, etc., studied in the US, got opportunities there only, and then expanded their business globally. They also attracted the worlds’ best talent from the top universities in the United States to act as think tanks and find new innovative solutions. Some of these employees themselves created big names in startups like Expedia, Glassdoor, Pinterest, etc.
If it was not for the positive environment in the United States, would these founders be able to create giant organizations in the field of technology?
During the last pre-pandemic rankings, the United States was placed 2nd in Global Competitiveness Rankings published by World Economic Forum. This itself indicates the strength of the United States over other developed nations in the European Union and the world. A few reasons why the United States does well in this ranking are analyzed below:
- Business Dynamism: The companies in the US and their support system are best positioned to demonstrate flexibility when it comes to change in external or internal environments
- Labour markets: United States can effectively match workers with the most suitable jobs as per their skill set.
- Financial system: The Federal Reserve System in the US is better positioned to facilitate the best allocation of economic resources over time and space without imposing unnecessary costs on businesses.
- Innovation capability: As mentioned earlier in the article, the people in the US are wired and trained to encourage the spirit of innovation and accept it as a way of life.
- Market Size: After China, the United States holds the largest consumer market. As mentioned earlier, the consumers in the United States are more likely to adopt IT-enabled services than any other country as they promote a tech-savvy culture.
Besides this, some other factors which make the United States competitive in the field of Technology are:
- Business openness to disruptive ideas.
- Level of Digital acumen amongst the population
- A flat Hierarchy in organizations promotes new business ideas.
Corruption, Law, and order
Although corruption exists in every corner of the world, however, it is not rampant in the United States. Compared to third-world countries, there is a faster resolution of complaints. Justice is accessible to people and besides so many people suing each other, they still manage to get the court’s attention in time. This is one good advantage for citizens residing or doing business in the United States.
The World Justice Project (WJP) Rule of Law Index ranks the United States at 27 out of 139 countries reviewed. The score allotted to them is 0.69 which is much higher than the global average of 0.56.
Although we may link the success of large technical giants like Microsoft, Google, Apple, or Facebook to a particular country, the fact remains, that it was the vision of the founders who incidentally belonged to the United States, which paved the way for the “new world” as we see it today. Who else can be a better validation of this fact than Bill Gates, who predicted this 40 years ago: