New Silicon Valley

In an effort to boost Russia’s venture capital infrastructure and shift the Russian economy away from the oil and natural gas sector, Russian President Dmitri Medvedev has invested a tremendous amount of political capital in pushing for the creation of a Russian high tech sector based on the successful model of California’s Silicon Valley. President Medvedev echoes the new wave in Russian economic thinking that high tech is the quickest path to economic equality with the United States.

In advance of his trip to the United States, President Medvedev has successfully lobbied many of the country’s billionaire elites to encourage them to become supportive of innovative industries. The stated goal is for Russia to attract billions of dollars in foreign direct investment , new technologies and research and development in order to improve and modernize Russia’s antiquated infrastructure and move the country away from a commodity based system which has permeated the Russian economy since 1991.

While several internationally renowned companies, like Cisco Systems and Nokia, plan to take part in Russia’s “Silicon Valley” and the U.S. private equity fund, Siguler Gruff, has agreed to invest $250 million in this high tech park, many corporations and private equity firms,like Draper Fraser, have openly expressed concerns regarding the age old stereotypes confronting Russia. These include bribery, corruption and the method that companies would be selected to be able to benefit from the incentives claimed to be provided by this high tech zone.

Furthermore, another one of the major challenges that Medvedev will face when selling the concept of Russia’s “Silicon Valley” to the United States, is Russia’s lack of an abundance of research universities to ensure the proper environment for start up companies to grow and develop. The perception that the rule of law may be lacking in Russia and the appearance of no effective and transparent legal framework for businesses and investors are also additional hurdles that Medvedev may have to overcome in the United States. The perception that the Russian Government will steal technology and nationalize a successful start up company is omnipresent in the minds of many American businessmen, corporations and politicians alike.

Faced with this mentality in the United States, President Medvedev may further be burdened by support among American venture capitalists for the Start Up Visa Act of 2010 which is a new type of visa designed to encourage foreign entrepreneurs and businesses to start companies in the United States. If this new legislation passes Congress, a foreign born businessmen would receive a two year visa if a qualified U.S. group of investors (minimum amount of $100,000US in capital per investor) contribute $250,000US into the start up venture of the entrepreneur in the United States. After two years, this same entrepreneur would be allowed permanent residency status upon proving that his business made $1 million US in revenue or created $1 million in foreign direct investment as well as creating five full time jobs. Consequently, five of the ten U.S. venture capital funds that recently travelled to Russia in May to tour the high tech park have signed the “start up” visa support letter. This further hampers Medvedev’s ability to attract foreign direct investment into Russia at a critical time in its history.

Medvedev must clearly make the case in America that Russia’s “Silicon Valley” will not be “overly hands on” and that the role of the Russian government in matters involving the tech park would be limited to infrastructure development and providing generous tax breaks and various incentives , such as tax holidays, waiving of the corporate tax for a fixed period of time and depreciation deductions on equipment. Medvedev must also stress the fact that Russia has a strong history of excellence in the scientific arena. He can point out that many of the high tech CEO’s who have come to the United States and become very successful in Silicon Valley were trained in Russian universities. Moscow State University is known worldwide for its excellence in math and science and has been referred to as the Harvard of Eastern Europe.

In response to criticisms that Russia has not developed a nationwide network of technical universities, Medvedev can point out the successful achievements of the MGU faculty and its student body. He can further point to Russia’s successful efforts to integrate the scientific and technical expertise of MGU graduates into high tech park which would serve to convince many detractors that Russia is serious about its high tech endeavors.

Furthermore, it would be wise for Medvedev to point out the advantage of having a system of central planning in the high tech zone which would make it easier to start up companies in Russia to receive zoning, financing and tax breaks. Having the full support of the Russian government which would closelymonitor the integration of the high tech zone with technological innovation definitely goes along way in ensuring the development and creation of the next Russian entrepreneur.

If Medvedev is unsuccessful in convincing the United States government and American venture capitalists to invest in Russia’s “Silicon Valley”, the People’s Republic of China would probably give serious consideration towards encouraging their start up companies to invest in Russia’s high tech zone. The Chinese have always viewed high tech as the quickest way to achieve economic success and many projects under construction in China have a high tech component.

China’s rapid growth and integration into the global economy represents a major shift in the international global system which used to be dominated by the United States and Western Europe. The opportunity for China and Russia to develop a mutually collaborative business framework, with the assistance of a plethora of research and development parks, heavily influenced by China, would serve to enhance Russia’s reputation as a global economic and political superpower. Recognition of Russia as a superpower is something that President Medvedev expects from the West, but he still has not received any acknowledgment or overt recognition to that effect. Furthermore, while Medvedev fully expects the United States to support Russia’s bid to join the WTO, he has repeatedly stated the phrase,”Russia is fed up with being in the WTO waiting room” This statement reflects years of frustration and anger on the part of many leaders in Russia towards the United States who they sometimes view as an arrogant hegemonist.

Consequently, China’s demands for oil and natural gas could easily be satisfied through a collaborative business framework. Russia could achieve its goal of becoming a player in the high tech world while China gains political, regional and economic influence in Russia and Central Asia as well as access to new markets for commodities.

In conclusion, the advent of a new high tech park in Russia’s “Silicon Valley” presents many opportunities and challenges for President Medvedev. If the United States decides to embrace the concept of a Russian high tech park, it could allow Russia to emerge as a significant ecnomic player in the world community with the advent of the next generation of Russian entrepreneurs. However, suspicion and mistrust by the United States towards Russia might encourage Medvedev to parter with China which seeks to exert its own economic influence over Russia and Central Asia.

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