Davidi Gilo The chosen people for intellectual capital in Israel Most of the people innovating new products and ideas in technology came from two or three units in the Israeli army. So, what is unique about Israel is that they identify and utilize their very, very talented engineers. By the time they graduate from the army, the top ones go into a special program called Talpiot. The government scans the high schools and picks the top 1% of students in math and related subjects. Instead of serving in the regular army at age 18 like anybody else, these students go through an intensive undergraduate engineering program, and then they serve in the army in some kind of engineering capacity. In return, these select few must commit to sign on for a few extra years. By the time they finish five or six years of working in the army in very advanced technology projects, mainly in the area of communications, they are highly accomplished engineers. Israel is very strong in communications, networking, and software because of this program. Product testing needs a big market Israel, unlike Japan or the United States, is a very small, local market. So you can't really develop a product for the local Israeli economy or test acceptance of the product for worldwide distribution, based on how it is accepted in Israel. In fact, I was an investor in a company that made a simple, interactive keyboard for kids . The product was very successful in Israel, but a complete failure when we tried to sell it in the U.S. I learned that because of the distance from the market, especially 15 years ago before the Internet, you had to use "legwork" to analyze the market. To do all that from Israel is very hard. So for me it was very clear that in order to be successful I had to run a company from here (Santa Clara, California) if I wanted to have a market-driven company rather than a technology-driven one. DSPC took advantage of tax incentives put in place by the Israeli government to lure high-tech companies into Israel. The tax breaks as well as grants available from the Bird Foundation [4] and the Israeli Chief Scientists are very positive actions the government has taken to encourage high tech in Israel. Many companies, such as Intel, Motorola, and Microsoft, established research centers in Israel that were benefiting from both the talent in Israel and the government incentives. Working globally with Israel is not all milk and honey There are a lot of very appealing things in Israel. People are very talented, very resourceful, and come up with very creative ideas to solve problems. They are very dedicated because they are results-oriented and pride themselves on being able to overcome obstacles. That is part of the culture. They are also, overall, very loyal. People will stay and work at a place for many years. Israeli companies have a turnover rate of about 2% a year, which is unheard of at U.S. companies. Even a successful company like Intel has a turnover of at least 10% to 15% every year. That's a very big asset because we have people that stay in the company. They learn the product and the technology. One downside to the DSPC business model has been navigating through the Israeli bureaucracy. When it comes to corporate governance and stock options and trying to merge an Israeli company with another company or change the bylaws of an Israeli company, all of this is very arcane and anti-business. There has been an attempt over the years to change this, and some laws have been in front of the Israeli Knesset, but because political coalitions seek other benefits, it never gets done. This makes Israel not the easiest place to do business. If you want to merge two American companies, it's no problem. If you want to merge two Israeli companies or an American company with an Israeli company, you have so many tax, accounting, and corporate governance issues that you need to go through because of arcane Israeli corporate laws, that it makes it very challenging. Another challenge is the work stoppages due to religious holidays, the one month of reserve duty required of men until age 45 in Israel, and normal vacation schedules. Engineers work long hours ” six days a week in Israel. But the long periods of absence make it more difficult to coordinate with other regions. There are also cultural differences between U.S. managers, the Israeli engineers, and the Japanese manufacturers. " First convince me, then I ' ll see if I want to do it " There are different management assumptions between American managers and Israeli engineers. It starts with basic things like communication styles. Israelis are very direct and say what they think. They are usually very good at improvisation. Usually, American managers have been trained in large company systems. If you worked for years at Intel, Cisco, Nortel, or Lucent, you were taught to think in a certain way. You do not see many Israeli companies that have achieved a size to develop those systems. So, you have a completely different approach to how you look at business, how you make decisions, and very different personal dynamics. Most American managers cannot manage Israelis. In Israel there is a camaraderie or bonding that you build fighting in the same unit of the army; this sets them apart. They look down on people that try to manage with a tie and suit. Trusting other people is something that Israelis are not good at in general. So when an American manager walks into an Israeli company that is doing the product engineering, and that manager has to get product specifications from the engineers, there has to be some trust; it's very hard to build this trust. In the past, the engineering group was usually very strong and the headquarters group was usually very weak because they were always dependent on the Israelis. And the engineers were always in Israel. In the early days of DSPC it was a challenge to convince the Israelis to listen. PhoneMate was our customer. We worked with them to develop a model of one of the first digital answering machines, and they specified the features. And when we took this to Israel, the engineers started arguing with the features specified by the customer. And I said, "Who cares what you, Mr. Engineer in Tel Aviv, think about what features they need in Los Angeles. They pay us and we have to do what they want." And we had to argue with them, because unless they understood why they needed the features, which was a marketing issue, they couldn't quite do it. All these notions of strategic thinking, planning ahead, and corporate market analysis . . . they are very naive in their approach to these. |
