Israel ranks very high in terms of research productivity and quality. Israel’s greatest natural resource is its brain power. But how will Israel be able to compete on the basis of brain power when the Chinese and Indian powerhouses produce far more engineers and scientists than Israel?

How will Israel continue to attract foreign companies seeking to conduct research and development when salary levels in India and China are a fraction of the salaries that Israeli engineers and scientists are accustomed to earning?

Yes, China and India each graduate roughly 350,000 scientists and engineers each year versus the 14,000 that Israel graduates annually. And Indian engineers earn about half -and Chinese engineers earn about one-sixth – of the $100,000 that the comparative Israeli engineer earns. Israel will simply not be able to compete against India and China in terms of scale or cost.

So how will Israel be able to maintain its coveted place as a champion of cutting edge technology? First, Israelis have been much more successful in developing breakthrough technologies than either the Chinese or the Indians.

In the case of China, OECD figures indicate that Chinese nationals filed a mere 200 patent applications in 1995 and 299 in 1997. In 2001, only 5.43% of the patents filed in China by Chinese inventors were for invention. This was remarkably fewer than the 72.8% of innovation patents, as a percentage of total patents, filed by foreign firms in China.

India is much more successful in providing technology services such as manning call centers and writing functional computer code than in developing novel inventions. India’s rigidity of management in terms of stature and formality impedes improvisation, creativity, and dedication to achieving goals. While development centers of international companies in India filed for over 750 patents by mid-2003, Indian IT service companies filed for less than 90.

Israel, on the other hand, has the third highest number of patent filings per capita and, according to IMD’s World Report, ranks third in the world in terms of the quality of basic research. Moreover, Israel ranks very high in terms of research ‘productivity’ (scientific publications per capita) and ‘quality’ (the frequency with which other scholars cite publications in their own articles).

In computer science, Israel ranks second in the world in productivity and third in the world in quality. In chemistry, Israel ranks 4th and 5th, respectively; in molecular biology, 3rd and 4th; in biology and biochemistry, 5th and 10th; and in physics, 2nd and 9th.

Further, when taking into account how often Israeli patent applications form the basis for subsequent patent requests abroad, and using actual (rather than per capita) figures, Israel comes out in 13th place even though it has a much smaller population than the 12 leaders. In addition, Israel ranks first in research productivity in economics and business, mathematics, psychology, and psychiatry.

Second, discovering truly superior scientific revelations is contingent on the brilliance of small numbers of researchers. Using the incidence of Nobel Laureates as a proxy for genius, Israel’s population stands head and shoulders above the rest of the world. While China and India may have hordes of good but less than phenomenal scientists and engineers, their numbers alone will not mute Israel’s advantage in producing transformative breakthroughs.

Third, Israel’s real competitive advantage is the ability to understand where major problems exist and then to visualize commercially-viable solutions to alleviate the pressure points.

(Wanetick will deliver a kick-off presentation entitled ‘The Merits of Investing in Israel’ at The Wall Street Transcript’s June 1 Investing in Israel Conference in New York City. This article is excerpted from a 250-page research report entitled ‘The Merits of Investing in Israel and a Preview of 100 Emerging Israeli Companies’ which will be released at the conference. For further information, click here.)