Wilfred Pinfold is not an arrogant guy. But who would have blamed him if, after 23 years at Intel, he considered Silicon Valley's primacy a given? Then, in 2015, he and three partners launched Urban Systems, a Portland, Oregon-based integrator of smart-city technologies. They had a choice: Work solely with tech firms and cities in the U.S., or go where the action was.

For Urban Systems, the action was in Europe and Asia. Cities there were older, less car-centric, and more open to alternative transportation. The company partnered with startups in Portugal and the U.K. to develop technology that plots routes for buses, rail, rental bikes, and rideshares. In Hong Kong, the company worked with another startup, in which it holds a minority stake, to investigate deploying autonomous vehicles in a nightlife-starved corporate park. Entrepreneurs overseas "were developing technologies with different priorities for solving problems," says Pinfold. "Understanding those priorities was very helpful."

Silicon Valley remains the polestar of global innovation. But founders everywhere now speak its language, know its secrets, and tussle for its money and talent. U.S. companies can--must--try to beat them. But they can also join them.

If American business and political leaders are getting twitchy about U.S. competitiveness, it is less because we're falling behind than because others are catching up. According to a report from the Center for American Entrepreneurship, 14 of the 20 top contributing cities to global VC growth are outside the U.S. Places like South Korea, Japan, and Germany spend more than we do on R&D as a percentage of GDP.

"Many countries are progressing from imitation to innovation. That's where the big threat to--and opportunities for--the U.S. will be," says Donna Kelley, a professor of entrepreneurship at Babson College. And, according to Babson's Global Entrepreneurship Monitor, even the poorest countries have more opportunity-driven entrepreneurs than those who are driven by necessity.

And these days, U.S. immigration policy greets immigrant founders with obstacle courses rather than red carpets. That, despite the fact that 55 percent of U.S. startups valued at $1 billion or more include immigrant founders, and 76 percent of patents awarded to top universities have involved at least one foreign-born inventor. Meanwhile, a growing number of countries tempt them with special visas or even automatic residency--including our neighbors just north of the border.

"The conversation has largely been about the U.S.," says Skip Newberry, CEO of the Technology Association of Oregon, which helps domestic companies identify opportunities in global startup hubs. But, he adds, "you have got companies springing up in some of these other markets that are possibly better, and more competitive, than some of the startups coming out of the U.S." For example, even Siri--from what is arguably America's most innovative company--sounds positively inhuman compared with the emotionally responsive digital assistants developed by Soul Machines in New Zealand.

The world's top 62 startup hubs account
for nearly 90 percent of total VC activity.
61 percent of them are outside the U.S.Source: Center for American Entrepreneurship

With other countries catching up, the U.S. must do more, particularly in critical industries like A.I. But foreign entrepreneurs needn't be the enemy. They offer U.S. com­panies access to ideas, talent, and diverse perspectives. Startup Genome, which studies and supports entrepreneurship (and partners with Inc. on various editorial projects), found that one key contributing factor to entrepreneurial success is con­nections to peers in global innovation hubs. Domestic ecosystems are enriched when members import ideas and experiences from innovators abroad.

Won't they steal your IP? There is a risk that some may. But others have tasty IP of their own to share, says Doc Parghi, a partner at Philadelphia-based SRI Capital, which provides capital for companies with both U.S. and Indian connections. SRI recently matched a U.S. drone services startup with an early-stage Indian company "that has a bit of IP that works very well with their offering," says Parghi. This brings benefits to both businesses, he adds: "They can jointly attack big government contracts."

It's worth remembering that the U.S. can't claim the mantle of Startup Nation. It belongs to Israel, home to Tel Aviv, the city with the world's highest per-capita concentration of startups. Founders there are often seeking a good collaboration. Trade organizations in several U.S. states are happy to oblige. In 2017, tech entrepreneur Leib Bolel launched the Arizona Israel Technology Alliance. Among other things, it introduces founders working in key sectors like biotech, agtech, and cybersecurity. Israel is tiny, so its startup activity is densely concentrated. Consequently, Bolel says, "being able to find the right innovation fit is easier there than in some areas of the U.S."

Still, we can't be complacent about the rise of the global rest. "My concern, from a U.S. perspective, is the loss of foreign talent, which has played a major role in U.S. startups for decades," says Ian Hathaway, a fellow at the Brookings Institution and research director at the Center for American Entrepreneurship. "On the margins, we might lose our most precious asset as markets overseas develop more."

The U.S. must be vigilant about protecting its lead. But all agree: Innovation is not a zero-sum game. Diversity research tells us that smart people with different backgrounds and frames of reference can make one another better.

Which Wilfred Pinfold understands. Now that smart cities are taking off in the U.S., Urban Systems is applying lessons from its early global partnerships to the local Portland market. Those relationships positioned him to beat competitors--the ones launched right here in the U.S. 

From the March/April 2019 issue of Inc. magazine