The Smartest Places on Earth

by Antoine van Agtmael

  In 1946, streetcars run through the ruins left from Dresden’s bombing by Allied forces the year before.

  Credit: Getty Images/William Vandivert

  Dresden and Saxony went into a period of dormancy for several decades, until after the fall of the Berlin Wall in 1989 and the election of Christian Democrat Kurt Biedenkopf as prime minister in 1990. In his three terms in office, a period of twelve years, Biedenkopf played the key role of connector, helping the region return to its science-and-industry origins. Attracted by Biedenkopf’s vision that Dresden could once again play a major role in technology innovation, a host of scientific institutes set up shop there, including the Max Planck Institute for basic research,11 the Fraunhofer Institute for applied research,12 the Helmholtz Association, with its scientific focus on studying twenty-first-century challenges,13 and the Leibniz Institute, which continues to fund the best research coming out of former East German think tanks.14 That made for a significant amount of brainpower.

  Dresden Christmas Market, the oldest and most popular of Germany’s Christmas markets.

  Credit: Getty Images/Matthias Haker Photography

  But, as we’ve seen, brainbelts are not built on brainpower alone. Saxony needed the presence of a large, established company. During the Communist era, Zentrum Mikroelektronik Dresden (ZMD), a major player in semiconductors—employing 3,000 people—played that role. But the company was controlled by the army, had no market focus, and when the Berlin Wall fell, lost its funding and went bankrupt. ZMD was broken into pieces, one of which remained in Dresden and now produces analog-digital chips for the automotive industry. The other merged into X-FAB, a third-party producer of chips.

  As Dresden came to life, it got the anchor company it needed. In 1994, Infineon, a spin-off of Siemens, invested more than €3 billion in Dresden-based facilities and cleanrooms for the production of large silicon wafers and intelligent chips. The company focused on the development of software that made chips and sensors smarter with highly desirable applications for cars, credit cards, and windmills. In the global automotive industry, Infineon is now the leader in the field, with a 25 percent share of the market. Infineon has become a force to be reckoned with in the automotive supply chain, competing with Bosch, also based in Germany, and Japan’s Denso.

  As we learned in Albany, once a player is established and the ecosystem starts to flourish, important players are eventually attracted to the area. Although it took years and plenty of tough negotiations, US-based AMD was finally enticed to settle in the region in 1996. After achieving tremendous growth in Dresden, AMD sold its chip manufacturing unit to the Emirate of Abu Dhabi, which continued the business under the name GlobalFoundries (GF). Today, GlobalFoundries manufactures chips for technology companies such as AMD, Broadcom, Qualcomm, and STMicroelectronics, from its fabs in Dresden and Singapore as well as the Hudson Tech Valley. In Dresden, the company invested $10 billion, making it the largest chip manufacturer in Europe.

  Gerd Teege, head of GF’s design center in Dresden, explained to us the production challenges they face in making silicon wafers larger and, at the same time, the chips themselves smaller. Two components are essential: the silicon material and the photomask that determines where light will shine through from a light source onto the silicon, thus creating the pattern of circuits. To provide these elements, GlobalFoundries and Japan’s Toppan Photomasks (TPI) jointly created the Advanced Mask Technology Center (AMTC),15 staffed by researchers who collaborate in the technological development of new masks and share their research with both parent companies. The facility is located a stone’s throw from GF. The German company Siltronic,16 the world’s third-largest silicon wafer producer, has long had a presence in the town of Freiberg, southwest of Dresden, and also has a branch in Portland, Oregon. In 2004, Siltronic opened a plant in Freiher, Saxony, for the production of large 300-millimeter wafers. Today, AMTC and Siltronic are important players in the innovation ecosystem of the Dresden brainbelt.

  As these key companies flourished, start-ups began popping up. Many of them were founded by former employees of the mostly defunct ZMD. DAS,17 for example, specializes in purifying the air in cleanrooms. Another start-up, HAP,18 specializes in robotizing chip production. The software firm AIS19 writes code that is needed to realize the world of the Internet of Things. The architectural concern DERU20 focuses on the design and construction of cleanrooms.

  Creating a Balance: The Development of Silicon Saxony

  As all this positive activity progressed, something very interesting happened. Although a brainbelt needs an established firm of substantial size, it also needs to maintain a balance between the influence of the big player and the contribution of the smaller and supporting ones. Once Infineon and GlobalFoundries settled into the region and began to grow in size and influence, the smaller companies, all privately owned, felt the need to join forces to create a kind of counterweight to the big chip manufacturers.

  A leader was needed, a connector skilled in sharing brainpower. The entrepreneurs turned to Gitta Haupold, a physicist who had been employed at ZMD. Since leaving the company in the early 1990s, Haupold had been coaching start-up entrepreneurs. She immediately understood the need for an organization to bring together the start-ups and represent their interests. She accepted the role and, in 1998, founded the organization Silicon Saxony, borrowing the name from a journalist at the Financial Times, who had used the term in an article about the Dresden phenomenon.

  Today, Silicon Saxony is a private entity with more than three hundred members and an annual budget of €800,000. Most of the funding comes from the 80 percent of its members that are small and medium-sized business entities, but hotels and banks also contribute, and annual conferences generate revenue as well. Although the organization is tiny in size in comparison with many industry associations, it represents a first step to brand the sharing of brainpower in the revitalized Saxony region.

  Gitta Haupold believes Silicon Saxony has made it possible for people to share brainpower more easily and effectively. “Now politicians, scientists, and entrepreneurs know how to find each other,” she said. At the same time, she acknowledges it has taken a long time to gain the kind of attention and clout she believes the region deserves. “We are still not being heard in the German capital, Berlin, and the capital of the European Union [EU], Brussels,” she said.21 In 2014, Silicon Saxony made a small but significant step forward in this regard. Infineon was selected as the leader of the three-year, €55-million European research project eRamp,22 a collaboration of twenty-six research partners from six EU countries. Its purpose is to develop ways to increase energy efficiency through chips and sensors. Silicon Valley has shown how local organizations that facilitate sharing of brainpower and create a brand identity can be instrumental in attracting hotly competitive funding at a regional, national, or even supranational level. This form of public-private institutionalization is much less developed in the United States than Europe.

  There is still much work to be done to convince politicians in Brussels to make investments to support the chip-making industry in Dresden and elsewhere. To this end, four leading European brainbelts—Eindhoven (Holland), Leuven (Belgium), Grenoble (France), and Villach (Austria)—joined forces with Saxony to found an organization called Silicon Europe.23

  The connector who made it happen, Frank Bösenberg, of Silicon Saxony, did much of the lobbying to create Silicon Europe. A civil engineer by profession, he joined the Dresden University of Technology in 2005 to set up a department to work on applications for cofunding grants in Brussels. Because Saxony is classified as an underdeveloped region, based on statistical data gathered by the European Union, it was eligible for “structural funds” that could be used for infrastructural projects and research.

  Bösenberg and his colleagues first focused their resources on securing these grants, then gradually shifted to other EU funding sources, such as innovation subsidies that are granted through a program called Horizon 2020, an EU i
nitiative to stimulate innovation throughout the countries of the European Union. The department, the European Project Center (EPC),24 employs more than forty people and has the distinction of being the German university with the most projects, 270 at last count, financed through third parties. Bösenberg eventually left the university and started his own firm, which advises small and medium-sized companies on the funding process. He also works part time with Silicon Saxony and is a strong advocate in Brussels for breaking down the barriers between sectors and countries that are an obstacle in the creation of a well-connected European economy.

  Although Dresden has made tremendous strides as a center of collaborative tech innovation since its gloomy postwar period, struggles remain. When Bettina Vossberg moved to Dresden in 2008, she saw the area as a sleeping beauty, full of potential waiting to be awakened. She had earned an MBA from the University of Applied Sciences in her hometown of Cologne, then traveled the world for a series of German multinationals before considering her next move. When she looked at the state of Saxony, she was impressed by the quality of life, the well-functioning infrastructure, the cultural attractions—including top singers and actors appearing in the local performance venues—and by the world-class education and research.

  Once Vossberg took the job of developing incubation programs with the Dresden University of Technology, she began to see some of the downsides of the region. For one thing, there weren’t enough entrepreneurial role models. Even highly successful entrepreneurs, such as the founder of Novaled—which was sold to Samsung in 2013 for €260 million—had been slow to take an active role as mentor and model. Another disadvantage was that the global companies doing business in Dresden took their orders from headquarters based in other cities. For Siemens and Infineon, the senior leadership is based in Munich, and policy for GlobalFoundries is formulated in California. Vossberg was frustrated by her engagement with people at Siemens, for example. “They react positively, they nod yes, and they are interested in learning about the inventions involved in the development of new products,” she said, but when it comes to investing in Dresden-based start-ups, the money doesn’t flow easily.25

  Such obstacles are not unique to Dresden and may be characteristic of German culture in general, Vossberg suggests. Family-owned companies with annual turnover of between €500 million and €5 billion—the so-called German Mittelstand—have very traditional, closed cultures. “They keep their R&D for themselves,” Vossberg told us. They are not interested in sharing brainpower. “They do not set up joint research programs, where start-ups can participate.” Another obstacle is that Germans tend to be risk-averse. Failure is a stigma. But tolerance of failure is necessary to the brainsharing approach to technology innovation. Indeed, failure is an essential part of the process. Gradually, Vossberg has been chipping away at these obstacles, and her message is being heard by the people and institutes that matter. To make students aware of the possibilities of entrepreneurship, Vossberg started a highly respected training program for developing new business pitches. The state of Saxony picked up on the idea and created a business plan competition called futureSAX,26 to increase the visibility of regionally developed start-ups. Would-be entrepreneurs submit their business plans, and those who are selected present them at a spectacular competition. Those who propose the most promising plans receive support from the state of Saxony to help them start their business.

  Vossberg’s message is leading to change in other ways. Her investor-and-venture program, Hightech Venture Days, matches high-tech start-ups and growth companies from eastern Germany and other European countries with international investors active in investing in key technologies developed in Dresden. More and more innovations originated in the area are finding use in the development of new products, production technologies, and services, with applications in the fields of life sciences, environmental and energy engineering, the automotive industry, and the Internet of Things.

  A number of university-based initiatives—such as Dresden Exists,27 whose mission is to stimulate the transfer of knowledge into commercial products—are designed to increase interest, on the part of both students and researchers, in creating their own companies and then provide support in concept development and business planning. In addition, successful Dresden entrepreneurs have been recognizing the importance of acting as role models. Roland Scholz, an entrepreneur and co-owner of several start-ups, created an initiative called Sherpa Dresden28 to coach entrepreneurs and support their start-ups. Scholz fits the bill brilliantly: he was born and raised in Dresden, graduated from the local technical university, worked in software, and is on the board of several local companies, including GK Software, which had a successful IPO in 2007.

  Vossberg wants Dresden to be recognized as a world-class brainbelt, and for that, she is tackling the issue of venture capital. She would like to increase the frequency of the investor meetings she organizes from once a year to every month and, eventually, hold them on a weekly basis. (Vossberg was inspired to attempt this by a successful MIT practice: there, entrepreneurs and financiers get together once a week.) However, the resources needed to create such an aggressive program require funds that are currently not available in the region. Vossberg hopes that the programs that her organization, the High Tech Startbahn, has developed in the last five years will eventually attract venture capitalists to Dresden and that they will make a long-term commitment to the region.

  Although Vossberg believes that Dresden can become a hub for technology investment, she knows achieving that goal will be a major challenge, because Berlin is currently the center of venture capital and the focus there is on app creation, which is trendy, needs little capital, and requires less patience. Making advanced chips is a far more complex endeavor and requires larger quantities of investment and has longer payouts. Companies generally need financing at several stages of their development, from seed money to pre-public investment, which can take years.

  Dresden has come a long way in the last twenty-five years, and though it has not yet regained its early glory as Germany’s preeminent industrial center, it is well on its way to achieving a different status—as one of the world’s most advanced chip-making brainbelts.

  Eindhoven: The Most Intelligent Region in the World

  We took the train to Eindhoven in the Netherlands and when we exited the central rail station, it was impossible not to notice the statue of Anton Philips, the founder of the electronics company that bears his name. The Philips family and their company, Philips Electronics, dominated the business, social, and cultural scene of this region, in southern Holland, for nearly a century. Then, faced with global competition in the 1990s, Philips drastically reduced its manufacturing activity and cut its workforce by 35,000 jobs. (Eindhoven had a population of 200,000 at the time, so the impact was enormous.) The other major employer in Eindhoven, DAF Truck, fell on hard times around the same time. Within a few years, Eindhoven had fallen into that state of dormancy typical of once-thriving but hollowed-out industrial centers.

  Eindhoven, however, did not remain dormant for very long, which distinguishes it from other rustbelt areas that struggled for decades before reawakening. Today, Eindhoven is known as a center for open, collaborative research in technology and, perhaps its greatest distinction, home to one of the most extensive value chains we have seen. It is also a preferred location for start-ups and ambitious entrepreneurs and the place where 19,000 researchers, hailing from all over the world, do their work. That is why Eindhoven won the designation as “most intelligent region in the world” from the American world policy research organization Intelligent Community Forum.29

  At first, when Philips and DAF Truck cut back local production, it looked like Eindhoven was headed for permanent rustbelt status. When Philips moved its production to Asia, there was widespread fear that local knowledge would also be lost. But, as is often the case when a once-proud region faces decline, Eindhoven was down but not out. In Eindhoven and the surrounding area, there was
an abundance of talent, people with extensive mechanical knowledge gained from years of industrial activity.

  Then the awakening began. Many people who had spent their careers in the sheltered, even cloistered environments of Philips and DAF, had little choice but to find new opportunities, and many decided to go out on their own. Suddenly, there was a pool of entrepreneurs that had not existed before. The knowledge was not lost.

  For years, Philips had operated a research facility called NatLab, and although the company shut down most of its manufacturing capability, it kept the lab open. NatLab had been a traditional corporate lab: proprietary, siloed, and closed. In 2002, however, Philips renamed it the High Tech Campus Eindhoven and opened its doors to the world, offering its services to outsiders and actively seeking collaborations with companies and knowledge institutions that were in need of innovative research.

  The High Tech Campus Eindhoven30 has enjoyed astonishing success so far. More than one hundred organizations—including global players Intel, IBM, ABB, ASML, and Philips—have now located at least part of their research activities to the campus, and more than 8,000 R&D engineers from sixty countries are employed there. In addition to the big players, 6,000 square meters of workspace have been reserved for start-ups and small and medium-sized companies. And the output is remarkable. In 2014, researchers at the campus submitted over 50 percent of all patent applications in the Netherlands.