With the Jewish state having quietly prospered as a global haven of innovation, key players are now asking whether the Asian giants might steal their high-tech thunder.
The laundry list of Israeli achievements is surprising for a country of just 7.6 million. The country helped give the world instant messaging, voice mail and Internet telephony. Its nanotechnology has enabled great advances in medicine.
It boasts more companies on the technology-focused Nasdaq exchange than any place outside North America, and houses research and development centers for multinational giants including Microsoft and Intel.
All this has fueled economic growth and given the Jewish state, for all its troubles with the Arab world around it, a first-world standard of living.
But there is increasing concern that just as Asia was able to seize a dominant slice of manufacturing — as well as outsourcing basic programming and call centers — with cheap labor, so it might do with higher-level technology.
With the populations of India and China each topping 1 billion, it’s easy to see how a shift could come quickly, by dint of sheer numbers alone.
Chinese technology companies employed 9.6 million people in 2009 — 2 million more than Israel’s entire population. And India graduated more than 350,000 engineers that year — more than three times the number of all of Israel’s registered engineers.
“At some point, quantity becomes quality,” says Zeev Holtzman, chairman of Giza Venture Capital in Tel Aviv.
As they weigh their options, there is a distinct sense among key players in the industry that to maintain its position in the long term, Israel must do something differently.
Generally speaking, “many of the [Israeli] funds and many of the startups and many of the entrepreneurs need to reinvent themselves,” said Erel Margalit, managing partner of Jerusalem Venture Partners and an early champion of melding tech and other disciplines. “What you did five or 10 years ago is not novel anymore.”
One emerging idea is to target the consumer: Rather than focus on hardcore technology that only other engineers could possibly understand, many think Israel should go the Nokia route and innovate for the end user.
For the moment, India and China are focusing on converting existing technology into products for their huge domestic markets and not on trailblazing ideas, which is Israel’s specialty.
Slowing things down further is the fact that many engineering graduates in India are deemed by employers not ready for the workplace, leading software services giants like Infosys to launch intensive training programs for new hires. An emphasis on rote learning and general fear of failure, some executives say, also dampen the creative spirit needed for groundbreaking innovation.
But Chinese companies are now also developing technology and expanding into services and systems — areas where Israeli companies excel. And the huge domestic market gives companies cash flow to finance research and economies of scale.
For now, Israelis continue to be a magnet for the venture capital that has helped the tech industry grow. Israeli venture funds aren’t attracting the kind of money they did a decade ago following an industry trend, but they do hope to raise $500 million this year — more than double the figure in 2009.
Meanwhile, many Israeli tech companies are outsourcing programming to India. Giza maintains an Asia office in Singapore. Ness Technologies, an Israeli computer services outfit, has offices across India.
“Those are big markets that we need to start targeting and already are,” said Michael Eisenberg, a partner in the Israel office of U.S.-based Benchmark Capital. “India and China have to be a focus. There are 2.5 billion people there.”