Running head: RESEARCH PROJECT: ISRAEL 1

Research Project: Israel

Charter Project 1

Nicole Bednar, Kevin Clark

Jasmine James, and Kathryn Stacy

Florida State College at Jacksonville

MAN 3600: International Business Management

Professor DeShondra Brown

February 16, 2020

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Introduction

Software development is an integral part of business as we know it today—it is nearly

impossible for a company to survive and/or thrive without some form of information technology

system in place. Countries well-known for software development are Egypt, India, Ireland,

Israel, Malaysia, Hungary, and the Philippines. Israel is recognized around the world as a leading

country in science and in the hi-tech industry [ CITATION Gar18 \l 1033 ]. Israel is a notable

example of its excellence in this realm simply for the fact that it is a relatively “new” country

(proclaimed the State of Israel on May 14, 1948) [ CITATION htt7 \l 1033 ]. In less than twenty

years since its inception, Israel “laid the groundwork that eventually would enable its advanced

institutions and hi-tech companies to flourish, creating a global center for innovation” [ CITATION

Gar18 \l 1033 ].

Technological innovations originating in Israel include both computer hardware and

software technologies such as cell phone chips and instant messaging apps [ CITATION Gar18 \l

1033 ]. The rising success of Israel has led to the area between Tel Aviv and Haifa being referred

to as, “Silicon Wadi,” a moniker derived from the United States’ version of Silicon Valley

[ CITATION Gar18 \l 1033 ]. Today Israel continues to expand its horizons with regard to

technology in areas such as the automotive industry, artificial intelligence, and cyber security

[ CITATION Tel18 \l 1033 ]. No doubt Israel flourishes in the technology industry; figures show

approximately 307,000 tech workers make up 8.7% of the national workforce [ CITATION NoC19 \l

1033 ]. The following graph is an excellent illustration of the steady rise in the number of hi-tech

employees from 2017 to 2019 [ CITATION NoC19 \l 1033 ].

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[ CITATION NoC19 \l 1033 ]

Israel is considered a key player in a global economy characterized by technological

innovation [ CITATION NoC19 \l 1033 ]. A few of Israel’s top technological inventions are: Iron

Dome; Waze; Netafim; USB Stick; a Micro Robotic System (used in surgeries); Water-Gen

LTD.; “Shoresh” Sandals; Check Point Software Technologies Ltd.; and Ofek satellite [ CITATION

Ros18 \l 1033 ]. Each of these companies have proven to be successful. Israel continues to expand;

the Israel Innovation Authority (IIA) estimated $500 million is to be invested in life sciences—

another technological sector in which Israel has proven to excel in [ CITATION NoC19 \l 1033 ].

Undoubtedly, Israel has been and continues to be a supplier to the computer software industry.

Explanation

When the world began shifting from innovating hardware to focusing more on the

innovation of software was when Israel began experiencing a boom in their computer software

industry. According to Shteinbuk, Israel has almost 140 scientists and technicians per 10,000

employees, which is one of the highest ratios in the world. To compare, in the United States there
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are around 85 techs per 10,000 and in Japan there are closer to 83 per 10,000 (2011). Not only

that, but in 2019 the Bloomberg Innovation index listed Israel as the fifth most innovative

country in the world (These are the world’s most innovative countries, 2019). Even with the

most intelligent minds per square inch, Israel’s government encourages innovation by promoting

low rate loans. Israel is so prominent in their influence on innovation that many companies have

created a base in Israel’s tech zone. Examples being Intel, Google, Apple Inc., Motorola, and

Amazon. Essentially all major sellers of today’s technology, in some way, operate a portion of

their business out of Israel. It is said that close to 59 foreign research and development centers

are engaged in a various range of activities including biotechnology, chemicals, industrial

machinery, communication equipment, scientific instruments, medical devices, flash memory

storage equipment, computer hardware components, software, semiconductors and internet.

As mentioned above, Israel has their own version of the United States’ Silicon Valley

called, “Silicon Wadi.” From this area came the RAD group, founded by two brothers, Yehuda

Zisapel and Zohar Zisapel in 1981. Due mainly to the efforts of this group, Silicon Wadi “…has

been coined the most fertile ground for creating Israeli entrepreneurs… having produced 56

"serial entrepreneurs" who established more than one start-up each…RAD Group graduates were

responsible for the establishment of a total of 111 significant high-tech initiatives” (The Marker,

2012). Just how important this area is to the computer software industry was recognized in the

Wired magazine in 2000. This is another reason Israel has become one of the leading suppliers of

the computer software industry.

Israel has respectably grown into a large competitor within the global software

development market. This can be accredited to their large number of technicians that are readily

available to develop and integrate software. Israel’s government has played a huge role in
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promoting low loan rates, which directly promotes business growth throughout their software

development market. Israel’s direct involvement with high-tech initiatives continues to set them

apart from other competing countries. This has all led to many global organizations that have

chosen to invest in Israel’s software development market, resulting in Israel becoming one of the

leading suppliers throughout the global computer software industry.

Given Israel’s success throughout the industry, software companies based out of the

United States have taken notice. Many companies question if the development of the software

industry in Israel is a threat to the companies in the United States. Porter and Rivkin mention that

many factors affect the profitability of operating in a certain locale: wage levels, skills

availability, utility rates, taxes, subsidies, shipping costs, reliability, local productivity,

supervision costs and many more [ CITATION Por12 \l 1033 ]. All are important to consider when

deciding which market has more of a margin for profit within the desired market. Michael Porter

and Jan Rivkin explain in a Harvard Business Review article that many benefits of locating

elsewhere, such as low wages or taxes, are visible and immediate; whereas, the drawbacks are

frequently subtle and apparent only over the long term [ CITATION Por12 \l 1033 ].

The United States has recently gained some headway for encouraging software

companies to stay within the country as the wage rates continue to grow for countries facing

economic growth. The United States also capitalizes on its competitive transportation and

logistics costs associated with conducting business transactions. Overall, the costs associated

with offshoring remain a constant competitive advantage for returning business to software

companies located within the United States. Porter and Rivkin further note that the greatest

impediments to locating and creating jobs in the U.S. are regulations, talent, taxes,

macroeconomic conditions, and politics [ CITATION Por12 \l 1033 ]. For companies having a
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difficult time deciding between the United States and Israel for software development, it may be

most beneficial to conduct a focus strategy. John and Kenneth Wild, in International business:

The challenges of globalization, explain that a focus strategy is a strategy in which a company

focuses on serving the needs of a narrowly defined market segment by being the low-cost leader,

by differentiating its product, or both (Wild, J., Wild, K., 2016). This approach will help expedite

the business decision and lead the company to a choice that will better fit their overall needs.

Conclusion

Israel's industrial growth has been stimulated by their advanced development in

technology, electronics, and software which have grown tremendously over the years. Their

software contributions are why they are considered a key player in technology and why they

have been credited for their significant contributions over time. Israel has seen an outstanding

amount of software productivity. Companies such as Motorola and IBM have made huge

financial investments having recognized Israel's potential. Several companies are outsourcing for

their software needs. Companies are willing to search globally for what they should have in the

U.S which puts Israel at an advantage.

It is safe to say that the United States may have some competition. As previously

mentioned, there are several factors that need to be considered such as lower costs, a developed

IT market, and high-quality educational infrastructure when outsourcing is being considered.

Having produced the number of software techs and innovations compared to the United States,

Israel's presence can't be ignored. The U.S will need to keep up with Israel because the

competition for software development is a global one.

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References

Creation of Israel, 1948. (n.d.). Retrieved from Office of the Historian:

https://history.state.gov/milestones/1945-1952/creation-israel

Garwood, D. (2018, February 27). 7 Decades of Innovation in Israel: Computers and Software

Technologies. Retrieved from ReformJudaism.org:

https://reformjudaism.org/blog/2018/02/27/7-decades-innovation-israel-computers-and-

software-technologies

Jamrisko, M. M. (2019, January 22). These Are the World's Most Innovative Countries.

Retrieved from Bloomberg: https://www.bloomberg.com/news/articles/2019-01-

22/germany-nearly-catches-korea-as-innovation-champ-u-s-rebounds

Porter, M. a. (2012, March). Choosing the United States. Retrieved from Harvard Business

Review: https://hbr.org/2012/03/choosing-the-united-states

Rosen, J. W. (2018 , April 15). 70 years of Israeli ingenuity: What's Israel's top invention?

Retrieved from The Jerusalem Post: https://www.jpost.com/Israels-70th-anniversary/70-

years-of-Israeli-ingenuity-Whats-Israels-top-invention-549867

Shteinbuk, E. (2011, July 22). R&D and Innovation as a Growth Engine. Retrieved from Sun:

http://sun.inc.hse.ru/sites/default/files/Shteinbuk.pdf

Team, N. (2019, August 28). Israel's High-Tech Workforce Sees Promising Growth, Says New

Report. Retrieved from NoCamels: https://nocamels.com/2019/08/israel-high-tech-

workforce-promising-growth/

Telecommunications. (2018, February 9). Retrieved from The Economist Intelligence Unit:

https://www.eiu.com/industry/article/1796420563/israels-technology-sector-continues-to-

grow/2018-02-09
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The Mother of the Start-Ups: The RAD Group Gave Birth to 110 Companies. (2012, January

18). The Marker.

Wild, J. J. (2016). International business: The challenges of globalization, 8th Edition. Pearson

Education, Inc.