Keeping America's Small Innovation Companies Competitive in the Global Market

Testimony of Ralph Folz, Chief Executive Office, Molecular, before the Committee on Small Business, United States House of Representatives, May 10, 2007

Madame Chairwoman, Members of the Committee, thank you for the opportunity to testify today. I am Ralph Folz, Chief Executive Officer of Molecular, an Internet consulting company located in Boston, Massachusetts. Molecular helps large firms such as Reebok, Coke, and Fidelity Investments build Internet sites to reach and service their customers.

I testify today on behalf of Molecular, a Massachusetts-based company that employs 140 employees, and as a member of the Technology Network, or TechNet. We are a network of CEOs and senior executives of companies that are the nation’s leading innovators in the fields of information technology, Internet and e-commerce, biotechnology, venture capital and investment banking. TechNet’s membership is diverse. Some of us are leaders of the world’s largest and best-known technology companies. Others among us are just starting out with small firms with promising innovations that have enormous potential.

We are all entrepreneurs. We believe in the free market and in the power of ideas. We have turned innovation into high-paying jobs – more than one million nationwide. TechNet’s top priority is to shape public policies impacting U.S. innovation and technology leadership.

Recently, TechNet CEOs worked closely with Speaker Nancy Pelosi and others in the development of the Innovation Agenda – a comprehensive set of public policy initiatives designed to spur the continuing growth and expansion of America’s innovation economy.

It is a great pleasure to testify today before Chairwoman Velazquez, who has been a longstanding leader in forging policies that encourage the creation and growth of small businesses, truly the backbone of this nation’s economy. Madame Chairwoman, we appreciate your support of our industry and your appreciation of the contributions that the innovation economy has made to the nation’s economic growth.

I’m passionate about small entrepreneurial ventures. I started Molecular 13 years ago with a co-founder, an idea, and $2,000 each and we have been able to turn this into a $25M company, generating many high paying jobs along the way.

It is a pleasure to testify today on one of the most important issues to America’s global competitiveness, and to the future of American small tech companies: the skilled workforce needs of the innovation economy. I, and my fellow TechNet CEOs, appreciate this Committee’s recognition of the importance of policies that support innovation, economic growth and job creation by encouraging a high-skilled U.S. workforce. Ensuring that we continue to attract and retain the brightest, most talented people from around the world who can contribute to U.S. innovation leadership is fundamental to supporting America’s global competitiveness. Highly-skilled immigration reform is essential to our nation’s continued economic prosperity.

U.S. Competitiveness in the Global Economy Demands High-Skilled Immigration Reform

We greatly appreciate the focus of Congress on policies to strengthen America’s global competitiveness. This strong focus reflects a broad recognition that, perhaps for the first time in more than half a century, the future is truly up for grabs. We are experiencing an exciting era in innovation and technological advances that are creating entire new industries. But unlike the Industrial Revolution, today’s Innovation Economy is global. China, India, Russia and other nations are investing in emerging technologies and industries to seize a competitive advantage in the industries and markets of the future.

Many other nations are rapidly catching up too -- and even surpassing -- the United States in areas of traditional American preeminence. Foreign technology centers are increasingly attracting the world’s leading talent. In short, U.S. technological and economic leadership cannot be taken for granted. We must maintain a policy environment that promotes excellence in education including math and science education; that invests in cutting-edge research and development; and most important, that enables our economy to attract and retain the world’s best and brightest innovators.

Highly-skilled talent is a defining feature of the global innovation economy and a key to its tremendous growth. Companies today increasingly derive their value and their ability to create jobs and economic opportunity from the ideas, intellect and skills of their workforce.

Yet American companies, especially small firms, continue to face a serious shortage in the number of skilled professionals necessary to support the technology industry’s continued growth and to drive its leadership. The number of engineering degrees awarded in the United States is down 20 percent from the peak year of 1985. Only 17 percent of U.S. college students receive undergraduate degrees in science and engineering, compared to 52 percent in China and 41 percent in Korea. As a result, a majority of advanced degrees awarded by U.S. universities in areas of study like engineering, mathematics and computer sciences are granted to foreign nationals. And more than 50 percent of all engineering doctoral degrees awarded by U.S. engineering colleges are to foreign nationals.

At the same time, demand for skilled employees in the technology industries continues to grow exponentially. In key technical fields, including science, technology, engineering and mathematics (STEM) fields, the number of graduates with advanced degrees has not kept pace with demand. And the demand for skilled professionals in these fields is projected to increase in the coming years. Unless we adopt reforms that address this shortage of high-skilled talent, America’s technological and economic leadership will be jeopardized.

I can tell you that my company has missed business opportunities because we could not hire professionals with the specific skill sets to do the work. Now, as part of an international network, I have seen sister companies based overseas win contracts over American firms because they had the staff to complete the work.

I can also tell you that over our 13 years in business, some of our best people joined us via the H-1B program. They are incredibly bright people, and the vast majority of them are interested in building a permanent life here in America.

In our most recent quarter, 50% of the recruiting candidates coming in for interviews were H-1B visa holders, or in need of sponsorship. Let’s “in-source” talent into America rather than losing the work and intellectual capital produced in American universities to other companies overseas.

Under the current system, this trend will only get worse. The U.S. Citizenship and Immigration Service (USCIS) announced on April 30th that the 20,000 cap on FY 2008 H-1B advanced degree visas for U.S.-educated foreign students has already been reached in record time. Earlier, they announced that the fiscal year 2008 allotment of H-1B visas was met on the very first day applications were accepted (April 2, 2007). This is the ninth time since 1997 that the H-1B visa cap has been reached before the end of the fiscal year and the fourth year in a row that it has been reached on or before the start of the fiscal year.

This year, close to two applications were received for every available visa. Thus, employers who filed on the first day have about a fifty percent chance of securing a visa for the foreign talent they seek. Instead, they had to rely on a “lottery” process to secure their foreign employees. Moreover, if they lose the lottery this year, the earliest they will be able to place their prospective employee on the payroll is October 1, 2008 – a full 18 months from now, and that is only if they receive a visa in next year’s lottery.

These developments are strong evidence of the urgent need for a permanent fix to the visa system this year. To delay these reforms threatens to imperil our nation’s global competitiveness.

Highly-Skilled Immigration Supports Job Creation and Innovation

The contributions of highly-educated and entrepreneurial immigrants to the U.S. economy have been profound. In the science, engineering and technology fields, in particular, the United States has been a magnet for the world’s best talent. Foreign-born scientists, researchers and innovators have been central to the global competitiveness, economic growth and job creation that have stemmed from the U.S. technology industries.

The United States is at risk of losing the global entrepreneurs and innovators vital to fueling the growth of American businesses. Intel Corporation, Google, Sun Microsystems and eBay are among the many companies that were founded by foreign-born innovators who came to the United States to study and work. A recent study by the National Venture Capital Association found that in the last 15 years, foreign nationals have started 25 percent of U.S. venture-backed public companies, accounting for more than $500 billion in market capitalization and adding significant value to the American economy.

Let me be clear: This problem is not just affecting America’s Fortune 50. Small tech firms around the country feel the pain of a broken immigration system. It limits how quickly we can grow. It limits our ability to stay ahead of our foreign competitors. And if we cannot grow, we cannot continue to create new jobs in the United States.

At Molecular, we are doing innovative work for some of America’s largest companies. We want to grow our business, and create jobs here.

The Technology Industry Supports Education and Workforce Training

The technology industry is working hard to close the workforce gap. Every TechNet member is concerned with the workforce needs of the 21st century. Because technology changes overnight, lifelong learning is the key to competitiveness for us. To that end, our members are working at the K-12 level, in partnership with universities and through company in-house programs to train and retrain a skilled technology workforce.

Both large and small TechNet member companies have developed programs to meet the workforce challenges that all technology companies are facing. These range from scholarships which are successfully encouraging minority students to pursue careers in engineering and computer science to in-house training programs that prepare current employees for the challenges of the future. Corporations also support K-12 education through funding, technical resources and volunteers to nonprofit initiatives.

As a CEO, I look forward to the day when I have a larger homegrown talent pool to tap. The legal costs associated with hiring a foreign-born worker add up. But our education investments will take time to produce results. And everyday that my company does not have access to the best and brightest talent available is another day when we are less competitive in a global market. If America’s small businesses are to continue to grow and flourish in a global marketplace we must fix the nation’s broken immigration system.

Highly-Skilled Immigration Reform

TechNet supports Congressional efforts to develop a comprehensive immigration package that permanently fix the shortcomings of both the employment-based green card and H-1B visa programs this year. We support legislation that:

Gives U.S. employers timely access to highly educated foreign nationals. We need to eliminate the artificial quotas, processing delays and backlogs that undermine U.S. competitiveness.

Creates a flexible, market-based H-1B cap would help ensure that U.S. employers are not locked out of hiring critical talent.

Exempts foreign nationals who earn U.S. advanced degrees, as well as those with foreign-earned, advanced degrees from the H-1B and Employment Based quotas so these talented knowledge workers can be retained in the United States.

Streamline the path to permanent resident status for graduates with bachelor’s or higher degrees from U.S. universities who have job offers from U.S. employers.

And increase the number of permanent visas granted for employment-based immigration in order to avoid unnecessary backlogs. For many of us, the H-1B is an interim step to permanent resident status. The shortage of Employment-Based permanent resident visas, known as EB green cards is just as severe as the H-1B visa shortage. The EB green card program is essential if we are to retain highly-skilled professionals who are already here contributing to our economy. However, most EB green card applicants face delays in excess of five years, and these delays are getting worse, not better. These multi-year backlogs in the green card program are causing a massive recruiting and retention crisis for employers.

Conclusion

In an increasingly competitive global economy, the United States cannot afford to lose its edge in attracting and retaining the world’s best talent as a result of complicated and restrictive U.S. immigration policies. We commend the Committee for its focus on these pressing issues and urge you to play a leadership role in ensuring high-skilled immigration reform this year.

Thank you for your time.