from the June 2008 issue

and what of the future

In all of the hullabaloo surrounding Israel's 60th birthday too much attention was given to the past and far too little as to the future. What is clear is that high-technology innovations and companies will be the leaders of Israel's economy. It has been proven beyond any shadow of doubt that young people can find a safe future. Statistics show that record sums of money, both from Israel and overseas, are being pumped into high-tech companies. An example of the magnet like appeal that Israel holds for outsiders is the starting up of an electric car industry. Only a few short months after the company started up a model car was shown recently. More companies are going public only a few years after their founding. The Government, for its part, is allocating higher budgets in support of young companies. To get a $250,000 grants is relatively easy. The figures speak for themselves, high-tech exports account for 48% of all of this country's exports.

The high-tech sector now employs some150,000 people, about 8% of the civilian workforce but generates an estimated 15% of the country's gross domestic product. Israel tops the world in research and development spending as a percentage of GDP, at 4.4%.

The high-tech industry has been one of the most important engines of Israel's economic growth during the past 10 years.

Global tech giants including Intel (INTC), Microsoft (MSFT), Motorola (MOT), IBM (IBM), and Google (GOOG) have all established large local research and development facilities.

The pipeline from university laboratories to the market place has been shortened. All universities have research and development authorities. It is their task to move individual innovations from the campus to industry. This activity has been so successful that Harvard University has hired Tel-Aviv's expert to head head its R & D Department.

Universities are aware of the critically growing shortage of engineers and technically trained individuals. They are increasing the size of the departments and adding teaching staff.

The above factors point to a healthily growing high-tech industry.

Overlooked by observers are Israel's burgeoning defense industries. A number of years ago the skills in this field were proven when Israel Aircraft Industries. launched the Lavie jet fighter.

The high-tech industry has been one of the most important engines of Israel's economic growth during the past 10 years. Israel has proved itself to be a global leader in the production of unmanned aircraft. At one time they were used only for observation but now have a developed capability for delivering weaponry. Israeli "heads up display" helmets have been adopted by American and other air forces. A recent visit to Raphael Armaments Development Authority revealed a major capability for missiles. The UZI submachine gun has been adopted internationally by law enforcement agencies. A whole slew of missiles have been developed and these include the Gabriel naval anti-ship missile. The Barak naval surface-to-air missile, the Popeye AGM-142 air-to-surface missile, the Arrow anti-ballistic missile and the Jericho medium-range ballistic missile.

Israel is home to a world class pharmaceutical company Teva Pharmaceutical that has developed a Weizmann Institute of Science invention Copaxone, a a multiple sclerosis remission drug that should sell $2b. this year.

Even though it sounds like the Garden of Eden there are problems. Marketing still is problematical. Given Imaging has developed a pill that takes pictures while traversing through the colon, after a number of years of its existence it still has to reach sales of $100m. a year. To overcome this weakness Israeli companies have set up overseas subsidiaries to deal with marketing and public relations.

Biotechnology is also a weakness. Though hundreds of millions of dollars have been poured into research and development there we are still missing a world class company.

On balance the future appears to be positive. There are no obstacles to further growth of Israel's high-tech. The rewards for its participants are great enough to continue to attract newcomers and additional injections of venture capital.

The highly energetic entrepreneurial spirit is a crucial characteristic of the Israeli mindset. This is illustrated by the number of start-ups that are being created every year in the country, and it is a quality one can find in a large number of Israeli people, many of whom forged vital contacts while serving in the Israeli army. Another source of this entrepreneurial spirit might be the vital need to manage in a country with very few resources, which necessitated creating intellectual value to survive against worldwide competition. The country does not have a choice: a lack of raw materials and a limited domestic market are factors pushing companies to export sophisticated products. This entrepreneurship might also be due to the constant political turmoil that has characterized Israel all through its history. In particular, many Israelis have the capacity to react very fast and to adapt their lifestyle according to the evolution of the environment. If we take the example of tourism, which at the beginning of 2001 almost disappeared owing to the political tension between Israelis and Palestinians, it is amazing to see how people who depended upon this sector managed to change their professional and business orientation. Many of these people are now adopting a proactive attitude and are creating new businesses and opportunities. Moreover, Israelis are known to be risk takers compared to other cultures, that is, they are not afraid to go to the unknown and take a chance. If Israelis see an opportunity or an idea that can bring to a success, they will go for it.

Reprinted from the Israel High-Tech & Investment Report June 2008

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