from the April 2014 issue

A Global Competitor

The global financial community is beginning to see the benefits of investing in Israeli industry. In 2006, foreign investment in Israel totaled $26 billion. Real Gross Domestic Product (GDP) growth has averaged a staggering 5 percent over the last three years. According to Morgan Stanley, "high technology goods and services have developed beyond the wildest projections and now account for about one-third of GDP and 75 percent of industrial exports," making Israel "one of the most competitive economies in the world."

Global competitiveness indices support this statement. The World Economic Forum ranks Israel second in the world for the amount of funds raised by technology start-ups, following only the U.S. Israel ranks first in Research and Development (R&D) expenditure as a percentage of GDP, third in skilled labor availability, and fourth in quality of scientific research institutions. This is remarkable for a country that is only 60 years old with 7 million residents, hostile neighbors, and limited natural resources.

Israel is starting to receive the recognition it deserves in world economic forums. Last year, the Organization for Economic Development and Cooperation (OECD) invited Israel to commence the process for accession to the organization. Through its decision to include Israel, the OECD acknowledges that Israel's economic and fiscal policies comply with the highest international standards.

Israel's success, to a certain extent, stems from its history, geography, and visionary government leaders. Waves of immigration, first from Eastern Europe and later from the former Soviet Union, led to the development of an exceptionally educated and skilled workforce. According to Larry Ellison, the CEO of Oracle, "What's really different about Israel compared with other places we do business is the number of partners we have in the technology area. Israel has always had a wealth of intellectual talent." Presently, Israel has more scientists and engineers, proportional to its population, than any other country - 145 for every 10,000 people.

Faced with multiple military threats, Israel's scientists and engineers have developed sophisticated military technologies. Fortunately for Israel, many of these technologies have important commercial applications. The lack of natural resources has also led Israeli scientists to find innovative solutions for irrigation and solar power.

A seemingly limitless supply of high-tech talent at below U.S. market salaries has made Israel an attractive site for multinational R&D labs. "The cost of an Israeli engineer is still about 80 percent of his counterpart in Silicon Valley," notes Moshe Zviran, an Israeli expert who tracks high-tech manpower.

This competitive advantage is diminishing, however, as the shekel gains against the U.S. dollar. Wages have increased annually for the last three years, and Israel now faces mounting competition from India and China, where wages are almost 80 percent lower than in Israel.

Reprinted from the Israel High-Tech & Investment Report April 2014

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