Russia's New Silicon Valley by Ralph Winnie, Jr.

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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.