Israel offers a well-educated population eager to compete in global markets.Employers search for locations that meet specific criteria when starting a business or expanding an established one. They look for locations with a strong and proven source of local talent. Companies want to be sure that, as the business expands; potential employees will be available locally to minimize new hiring costs. Why build a business in a remote environment where it will be difficult to recruit and maintain employees and where the company will have to absorb high relocation costs?
Business owners must also be certain that venture capitalists feel confident that a location has the financial, political and social stability to be deemed a worthy economic investment. They look for governments that are business-friendly with a basket of incentives that make it worth while to undertake the initial costs. Finally, a new location should already have a good infrastructure; intra-national transportation for moving goods and easy access to international airports, attractive and affordable housing and good schools to attract a bright and dedicated staff.
Israel meets all of the criteria listed above while offering some bonuses that more-established markets cannot.
As an industrialized nation, this country offers a well-educated society with a strong primary and secondary school system. It’s equidistance between Europe, Africa and the Far East allows it to serve as a business hub for three continents, and its relative economic and political stability insure that investments made now will only multiply in the decades ahead.
Academic achievement is encouraged with a particular emphasis on applied research in medicine, electronics, robotics, computer science and agriculture. Within a short distance, seven academically-rigorous universities offer a steady stream of bright, well-educated and competitive individuals to maintain a top-tier talent pool.
Dr. Aaron J. Ciechanover and Dr. Avram Hershko of the country’s Technion Institute were two of the recipients of 2004 Nobel Prize in Chemistry. The Weizmann Institute of Science is a top-ranking research institution noted for advancements in technology and science, and is home to 2,500 scientists, technicians and research students devoted to advanced research projects. Ben-Gurion University located in the Negev desert has made great advances in water conservation and other agriculture-related projects. Additionally, the Hebrew University in Jerusalem, Bar Ilan University, Tel Aviv University and the University of Haifa all offer advanced degrees in the hard, as well as social, sciences.
Approximately half of Israel’s 220,000 students of higher education are enrolled in medicine, science or engineering programs. Israel has 135 engineers and scientists per 10,000 people while the United States can only claim only 81 such educated people per 10,000 people. With such a strong emphasis and commitment to higher education, there is a constant supply of talent to support ongoing business ventures.
Programs such as Magnet – organized by the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor – enhance ongoing communication between academia and industry to insure opportunity for applications of projects developed in university classrooms and laboratories.
On the venture capital front, several recent announcements promise a bright future for those either already in or those about to begin business adventures in Israel.
Laurus Funds, a company that makes direct investments in publicly traded small and micro-cap companies, with almost $1 billion under management, opened up an office in Israel this month. The new office will be responsible for researching and making new investments within Israel.
Walden Israel, established in 1993 as an independent affiliate The Walden Group of International Venture Capital Funds, is an Israeli venture capital firm dedicated to investing in early-stage start up companies.
Sequoia Capital, one of the first venture capital firms in Silicon Valley has only one office outside the United States, and it’s in Israel.
Approximately 428 Israel hi-tech companies received $1.46 billion from local and foreign venture capitalists in 2004. This figure represents a 45% increase from the $1.01 billion the previous year. Forecasters expect the pace to continue at the same pace for 2005.
Investors appear confident that Israel’s political and financial futures are stable as evidenced by the surge in venture capital flowing into the country. Regarding security concerns, Arjun Gupta of Telesoft Partners said, “I think there’s a higher chance that you’ll have a wreck on a U.S. freeway than really get into a problem here.”
Additionally, the Israeli government itself has created incentives that encourage overseas businesses to open offices in this region. The government of the state of Israel provides a basket of services to defray some of the costs of doing business.
Israelis, and the country itself, offer business advantages not found in most countries.
US investors find that many Israelis have an entrepreneurial spirit and fine technological skills. These traits, plus the sense of discipline and frugality that is instilled during mandatory army service, allows Israelis to execute business plans with less money than would be necessary for a similar project in the United States.
Additionally, Israelis do not suffer from the same fear of failure that afflicts some of their Asian and European counterparts. Harry Kellogg, vice chairman of Silicon Valley Bank commented that “they (Israelis) don’t need as much money to get things off the ground here in Israel as they do in the U.S. Fear of failure is not an issue here?’
An article in The Economist also addresses the topic of why Israel is such a hospitable environment for business. It addresses the fact that in a close-knit society, people network ceaselessly. Everyone seems to know everyone and the person you have coffee with usually can refer you to a potential business prospect.
People are always looking for new customers or ways of expanding services. The ‘chutzpah’ factor, the belief that everything/everyone is within reach and that anything is possible encourages innovative thinking, and the comfort level with taking risks supports creative thinking because people aren’t afraid to fail. Israelis are more likely to rebound from an unsuccessful task. Rather than focusing on the failure, they are like to dissect the project, extract out the parts that worked, and resume exploration of new ventures.
Also, in a country where military service is mandatory, there are extensive opportunities for conscripts to receive high tech training that increases the quality of training for perspective employees. Joint projects between the military and Israeli industry serve as a natural bridge to for these highly-trained individuals who want to work in Israel’s hi-tech sector.
Finally, the small size of Israel itself is also conducive to running a cost-affective business. The majority of hi-tech companies are found in Tel Aviv, it’ suburbs and the adjacent Sharon area. Even those located closer to Jerusalem or in the North are close enough that meeting with potential domestic vendors and customers does not require the time and expense associated with a geographically-dispersed market. The country’s centrally-located Ben-Gurion International Airport is within a one hour commute for anyone traveling from Jerusalem, Tel Aviv or their respective suburbs, making international travel easy and accessible.
As global competition and the need to control costs without sacrificing talent increases, employers must constantly look for new markets that meet these stringent, and often competing, criteria. Israel – strategically located between Europe, Africa, and the Far East – offers a well-educated population, which, as many venture capitalists have already seen, is eager to compete in global markets. These features, plus the discipline of mandatory military conscription combined with the pro-risk culture, make Israel a natural choice when looking for new business venues.