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Israel at 60 - Silicon Wadi - The Australian Jewish News, Friday, May 9, 2008

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Israel has developed into a technology powerhouse; with an innovative research-and-development culture to match that of California’s acclaimed Silicon Valley. Israel’s high-tech products have made an impact globally, reports SHARON BERGER.

While Israel is always in the headlines for the ongoing and well publicised conflict with the Palestinians and its Arab neighbours, many of the more newsworthy aspects of the country remain under-reported. These include the huge economic gains made by one of the world’s leading technology innovators.

Most recently, Yahoo announced it would be joining the ranks of other multinationals, such as IBM, Intel, Microsoft, Hewlett-Packard and Motorola.

Despite the ongoing violence and lack of political solutions, the companies have established research and development centres in Israel.

There are a number of reasons for Israel’s economic growth over the past 20 years. The huge influx of more than one million Russian immigrants in the 1990s assisted in propelling the country firmly into the 21st century.

The multinationals are attracted to Israel because of its well-educated, relatively affordable work force – many who have advanced experience in cutting-edge military research. These factors, along with the Israeli “can-do” attitude, are a winning combination in the Middle East’s Silicon Wadi.

Israelis are early adaptors of new technologies. There are now more mobile phones than landlines in the country, and wi-fi and broadband have penetrated the landscape more than in Australia.

Perhaps most indicative of Israel’s advances from a fledgling state, only 60 years ago, to the modern country of today, is Ben-Gurion Airport.

The airport was completely revamped a few years ago and now it barely resembles the smoky, dow-nat-heel version that preceded it, and it could be in any major city in the world. Filled with tourists, travellers and businesspeople, it is particularly important for those employed in high-tech industries, who need to keep in touch with their marketplaces.

There are almost 70 Israeli companies now listed on the Nasdaq exchange, with a combined market capitalisation of more than $US60 billion.

While Australia only has 11 companies listed on the US exchange, Israel and Canada are the leading foreign listers. Considering Israel is a country of only 7.2 million people with next to no natural resources, it is quite an extraordinary feat.

Confidence in the Israeli economy has been bolstered by efforts to reform some of its more cumbersome economic policies in an effort to join the Organisation for Economic Cooperation and Development.

Under the leadership of Stanley Fischer, the Bank of Israel has remained vigilant in maintaining control of monetary policy, and this has traditionally been closely linked to the vagaries of the American dollar.

Equally significant, the Israeli government has long worked with Israeli and American venture capital funds to encourage commercialisation of nascent ideas.

In 2007, Israeli high-tech companies raised $US1.76 billion from local and foreign-venture investors, an 8.5 per cent increase from 2006.

A snapshot of some of the wackier technology ideas emanating from Israel includes Star Trek-like electronic eyewear and interactive 3D advertising.

Spokespeople from Kfar Saba based company Modu, which was only established last year, believe it can earn $US1 billion by selling its recently launched mobile phone “jackets”.

The casings enable consumers to transform mobile phones into gadgets, such as a messaging device, a music player or a gaming device. By 2010, the company plans to introduce “modu mates” for digital photograph frames, cameras, clocks and navigations systems.

Former M-Systems founder and CEO Dov Moran developed Modu. He is one of a class of seasoned entrepreneurs who are looking for fresh challenges.

These industry veterans use their experiences and connections from their previous start-ups or publicly traded companies to help launch new ideas, rather than staying in the same role indefinitely.

Their enthusiasm and quest for new challenges contrasts sharply with more conservative economic landscapes, including Australia, where businesses are renowned for their riskaverse strategies.

The merging of the two vastly different business approaches can cause friction and frustration on all sides. Melbourne-based Michael Herman, managing director for Rosh Ha’ayinbased BallTech in Australia, said Australia was “a very conservative market” where nobody wants to take a risk.

In Israel there is a sense of urgency and dynamism that permeates the business culture. Conversely, in Australia people are more relaxed.

“Everything here goes slowly; nobody is in a rush, as there is always another day,” said Herman.

Learning to navigate cultural differences goes with the territory for Israeli companies, who often venture where bigger multinationals or major American corporations do not.

In Australia, they are assisted by the Australia-Israel Chamber of Commerce(AICC).The organisation helps the Israeli operations to network and navigate the Australian nuances.

The AICC also assists in introducing Australian businesses and governments to some of Israel’s niche industries, such as telecommunications, water conservation and desalination.

Last year, the AICC led a tour of 50 senior executives and officials to view Israel’s water expertise. This trip has helped generate business between the two countries, which currently chalk up $US750 million in annual bilateral trade.

Gilat Satellite Networks general manager Oded Sheshinski describes Gilat’s successes in Australia, which include a major contract with Optus to provide rural internet over satellite services, as a “combination of business culture”. Gilat’s presence in Australia and the fact that it is “not considered a big enough market place for big American companies” opens up opportunities for Israelis.

Sometimes the Israeli companies use their Australian operations as a springboard for the larger Asian market, and often as a base for New Zealand and the Pacific Islands. Having an Australian presence can be an added advantage for Israeli companies, which work with multinationals, such as BP.

In Retalix’s case, the company’s initial rollout in Australia is being followed by an international implementation across 27,000 stores in 18 countries. But it hasn’t been smooth sailing for Retalix. The Ra’anana-based retail software company struggled to persuade Woolworths to take on its technology, due to a previous bad experience with another Israeli company that failed to deliver.

Retalix managed to overcome the obstacle and lengthy tender process and now its in-store solutions are implemented in more than 766 Woolworths stores, as well as Big-W, Campbell’s Cash & Carry, Priceline, BP and IGA.

Retalix’s business development officer, Merle Bogatie, believes that a local presence makes it easier for businesses to expand their operations.

Today, Retalix has a Sydney office with more than 25 employees and is near to closing a strategic alliance with local integration management company IMI. The company is run by Sydney-based Israeli Doron Rom.

In the world of technology, being an Israeli company is generally a positive thing. Sheshinski says, “Israeli technology was appreciated throughout the world”, and “for over two decades now, Israel was never an, issue, if anything it was a positive factor”.

Herman agrees. “When people hear I come from Israel, they listen. Israeli technology has a good reputation and is really admired.”

If Israel’s technology is to remain at the forefront of world innovation, the country will need to devote creative energy to stop its ongoing brain drain to the West.

Various studies have been published, which show that Israeli academics are opting to remain in the US and Europe after completing postgraduate degrees. Sometimes it is the lure of larger salaries, but often it is the shortage of places at Israel’s seven universities or colleges.

The loss of these highly educated professionals is a huge drain on academic institutions and it has major ramifications on the continued success of the larger economy.