epilogue

The US is already seeing the a reverse brain drain as smart immigrants take their US educations and experience building companies and creating technology back to their home countries. The lack of any sensible H-1B visa policy is keeping the world’s brightest minds from coming to the US in the first place. According to the Council of Graduate School admissions for would-be international students plummeted this year. The decline was 3% on average, thanks to increases from China and the Middle East. However, some countries saw double-digit declines in interest in a U.S. education. Applicants from India and South Korea fell 12% and 9% respectively.

If the recession was a shakeout for small business, it strengthened global companies. The drive and intent for spreading costs to places where it is lowest has never been stronger. Take IBM for instance. Today, it has become a global services company that helps multinational businesses to focus more on international markets and to depend less on any one country, including the United States. IBM no longer conceives of its’ clients as a series of units defined by their geography but as a series of units defined by their purpose (sales, research and development, production) and located anywhere on the planet where those tasks can be done most efficiently. And nobody internalizes this outward message better than IBM itself.

After having sold its ThinkPad division to China’s Lenovo; higher-end servers now constitute only a quarter of its business. The rest is in software and consulting, which are increasingly based outside the US, making IBM less sensitive to the US economy even as it remains – technically – an American company. Also, IBM remains highly profitable. In the first six months of 2009, it earned nearly $6 billion in profits, even as the US economy contracted sharply. This past quarter, about two thirds of its revenue came from outside the US, and that percentage is growing. Thousands of IBM employees have recently been offered a choice between losing their jobs in America or moving abroad to stay employed.

GM is another example. It has a US division that failed miserably and a Chinese division that remains wildly successful. A world with more strong foreign markets means less money spent on labor and operations in the US, and more spent elsewhere. Companies like Intel and Microsoft are investing billions in R&D facilities in China because they believe that is where their future is. IBM is hardly the only example of global business detaching from the US. Other technology and consulting companies such as HP and Accenture are charting similar paths.

One of the reasons for the shift is taxation and higher costs in their home countries. But besides that, if America won’t allow a PhD trained in their top schools to work and contribute to the economy – why will students go there and take on the student loans to begin with? This is a huge blow for the United States, and particularly Silicon Valley. It’s killing diversity in graduate schools at a time future business leaders most need to understand other countries, especially Asian ones. The reality is one out of every four tech companies in the US is started by an immigrant. In the tech industry, immigrants have created more high paying jobs than they’ve stolen.

Some people have blithely dismissed growth in markets like China and India saying Silicon Valley will always be the hub for tech; that everyone will come to the US. Today, the numbers show an opposite trend. Talent is increasingly going elsewhere. The U.S. becomes simply a market among markets, and not even the most interesting one. In 2006 about 43 percent of the profits of the S&P 500 came from outside the U.S. In 2009 that percentage is poised to surpass 50 percent.

More startups and established business are wanting out. Silicon Valley should be rightly worried.

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