Chapter 15. Israel s Military Technology: The Transfer to Civilian Applications and Universities as Incubators

Chapter 15. Israel's Military Technology: The Transfer to Civilian Applications and Universities as Incubators

Israel's image today is that of a country in constant political turmoil, with an economy that is isolated from its direct geographical environment and with a focus on technology, industry, and defense superceding agriculture. Very few specialists know the characteristics of Israeli high-tech companies and their respective strategies, which are often established in conflicting circumstances.

What is the reality of Israel's high-tech economy? What is the country's real advantage in technology? Which are the most interesting examples that should be mentioned? Are the most creative sectors linked to the country's socioeconomic state or to other geopolitical factors? These are the questions that need answers to understand the phenomenon of tech creation in Israel.

To get a complete understanding of Israel's high-tech development, we have to look at the different weaknesses of the "Israeli High-Tech Island," such as the relatively small size of start-ups, a marked lack in marketing management, the high salaries of Israeli engineers (about 10% to 15% higher than in California), and the financial burden of Nasdaq introduction. ^[1]

The most problematic feature of the Israeli high-tech model appears to be the "American temptation ," or more precisely, the acquisition of successful Israeli start-ups by leading American high-tech firms. For instance, Cisco acquired the Israeli start-up Class Data System for $50 million, and Sun Gard made a purchase of Oshap Group (a financial software developer) for $210 million. Similarly, AOL bought Mirabilis for $287 million.

This American acquisition wave may be explained by a lack of Israeli development strategy and ambition . It has been suggested that the government should pay much more attention to supporting successful companies, to keep them in Israel. This country has all the technological know-how but needs marketing expertise to develop real multinational muscle, instead of just developing talent and technology for others. ^[2]

Table 15-1. Facts at a Glance ” Israel

GDP	$99.5 billion in 2000
Per-capita GDP	$16,950, places it 21st among 200 countries in the world
R&D contribution to GDP	2.2%, from over 1,000 R&D-based companies, 80% are less than 10 years old
R&D industry	9 of every 1,000 workers, ranked 1st worldwide for R&D investment
Land area	290 miles in length and 85 miles in width at its widest point
Population	6 million
Geography	Located in the Middle East, along the eastern coastline of the Mediterranean Sea, bordered by Lebanon, Syria, Jordan, and Egypt, at the junction of three continents: Europe, Asia and Africa
Religion	80% Jewish
Education	More than 60% of the working population has an educational level equal or superior to high school, out of which more than 25% are graduates and more than 12% hold post-graduate degrees. Ranked 6th worldwide in science and education (1999)
High-tech industry	100,000 employees , in 2,000 high-tech firms and 2,000 start-ups
Number of scientists and engineers	145 per 10,000 employees, ranked 4th in terms of availability of skills and 4th in terms of basic research
Growth rate of electronics industry	10% per year
Entrepreneurship	Israel was ranked 6th (1999), ranked 5th worldwide with regards to its creation of firms
PC penetration	One-third of Israeli homes have computers, ranked 5th in terms of Internet usage
Sources: "Tableau de bord de l' conomie Isra lienne," in Revue Fran §aise de Coop ration Economique avec Isra «l , June, July, August 2000, No. 173, pp. 26 “27; Stephane Garelli, The World Competitiveness Yearbook 1999 , IMD, 1999.

In this chapter, we present and analyze the key characteristics of the Israeli model, focusing our approach on the lessons that can be learned from Israeli high-tech companies and from their business experience.