the development of large companies, defined as employing over 450 workers and generating annual sales of more than $100 million. Just 1% of high-tech businesses in Israel belong to this category, and since 1995, only four companies have been created that have remained independent and now satisfy the second criterion. This is significant, because the advantages of large companies to the economy are manifold. One of the most important advantages is that because they often locate some of their manufacturing in different regions in Israel and employ workers withall types of backgrounds, they spread the benefits of the high-tech sector socially and geographically. In addition, job creation at big corporations is higher than at small firms, with OCS figures demonstrating that a company experiences a substantial growth in the number of its employees—from dozens to hundreds—after it crosses the threshold of $100 million in sales a year. Large firms are also more likely to be profitable, contribute to the tax base, less likely to close, and have greater resources for development.

A major reason why there are so few big high-tech companies in Israel is that many are sold, often to foreign acquirers, before they become large. This is partly a consequence of VC financing being such a prominent source of capital in Israel, and is the disadvantage of a model that has otherwise brought the country huge benefits. Furthermore, the size of most Israeli VC funds means that late-stage financing is mostly beyond their scope, because much larger sums of money are needed than at earlier junctures. There is also an almost total lack of post-VC funding, and in particular, private-equity mezzanine capital. The result is that growth companies find it difficult to raise the cash required to build the operational infrastructure—such as in finance, management, manufacturing, sales, and marketing—that enable them to expand. The government should fill in this gap by providing the necessary resources and reducing the risks involved, especially in regard to the building of large plants and other advanced projects, while simplifying the prohibitive bureaucracy associated with these processes.

This fostering of links between the private and tertiary sectors should also be widened as part of an overall strategy aimed at reversing a decline in the education system that threatens the quality of Israel’s future work force and hence the long-term status of its high-tech industry. Major problems include a relative decline in the number of R&D university personnel at a time that this is rising in Europe and Asia, an aging faculty that is not being adequately replaced, high staff-student ratios, a “brain drain” to the U.S., and a fall in the proportion of undergraduates in science and engineering— subjects that are vital for entry into high-tech positions.

Immediate action that Israel should take to offset these trends, in addition to that noted above, includes expanding the higher-education budget in order to recruit new faculty members and attract researchers back to Israel from abroad; increasing grants for doctorates and post-doctorate studies; promoting a return to academic study among high-tech workers who have recently lost their jobs; and widening the scope of scientific research funds. As with other areas of government policy, a strengthening of the education system would help spread the benefits of the high-tech sector by facilitating the drawing in of more of those from Israel’s lower socioeconomic echelons.

As has been demonstrated, Israel’s high-tech sector constitutes a major part of its economy, so despite a surfeit of problems the government faces, it should give high priority to helping solve the difficulties the industry is experiencing. The government should not wait for this growth engine of the economy to splutter to a halt, especially with international competition for investment increasing as countries such as China, India, Finland, and South Korea execute strategies to promote their own high-tech sectors.

 

Orna Berry ( [e-mail]) is a venture partner at Gemini israel Funds, the former chair of the israel Venture Association, and the former chief scientist of the israeli government.

Yigal Grayeff ( [e-mail]) is a communications manager for Gemini israel Funds and was formerly a journalist, working for the Jerusalem Post in israel and Dow Jones Newswires in the U.K.

Copyright held by author.

Calendar
of Events

December 2009

December 16–18
international Conference
on Frontiers of information
technology,
Abbottabad, Pakistan,
Contact: Muhammad, Sarfraz,
email: prof.m.sarfrax@
gmail.com

December 16–19
international Conference on
high Performance Computing,
Kochi, india,
Contact: Manish Parashar,
Phone: [phone],
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December 16–19 SiGGrAPh Asia 2009, yokohama, Japan, Sponsored: SiGGrAPh, Contact: Masahiko inakage, Phone: [phone], email: inakage@ media-studio.co.jp

January 2010

January 3–7
23rd international Conference
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January 9–14
ACM SiGPlAn Principles and
Practice of Parallel Computing,
Bangalore, india,
Sponsored: SiGPlAn,
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Phone: [phone],
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January 18–22
the twelfth Australasian
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Conference,
Brisbane, Australia,
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Phone: [phone],
email: [e-mail]

January 20–23
international Conference
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Systems
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Valencia, Spain,
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