Tiny Israel, a country embroiled in conflicts for decades, has managed to transform itself from a stretch of farmland into a high-tech wonder. Israel currently has almost 4,000 active technology start-ups – more than any other country outside the United States, according to Israel Venture Capital Research Centre. In 2010 alone the flow of venture capital amounted to $884m (£558m).
How is it that Israel—a country of 7.1 million people, only sixty years old, surrounded by enemies, in a constant state of war since its founding, with no natural resources—produces more start-up companies than large, peaceful, and stable nations like Japan, China, India, Korea, Canada, and the United Kingdom? A 2009 book by Dan Senor and Saul Singer (Start-up Nation: The Story of Israel’s Economic Miracle) is about the economy of Israel. It examines how Israel, a 60-year old nation with a population of 7.1 million, was able to reach such economic growth that “at the start of 2009, some 63 Israeli companies were listed on the NASDAQ, more than those of any other foreign country.”
Key factors leading to Israel’s high-tech success:
- Israeli culture – the lack of hierarchy, a constant drive for individualism, regular risk taking. Engineers in Israel seem unfazed by the high-pressure environment of today’s technology industries, it is because many have been trained under life-and-death circumstances.
- The government played a key role in the rapid rise of this start-up nation. “The government jump-started the industry. One way they did this was through the creation of the Yozma programme in 1993, a so-called fund of funds set up to invest in local venture capital funds that would channel money into new technology firms. Soon numerous start-ups dotted Israel’s industry landscape, and venture capital funds mushroomed all over the country – a blooming industry that quickly attracted foreign investors.
- Israel’s defence forces are also boosting entrepreneurship. Military service is compulsory, but besides regular military units, the army also has designated hi-tech units, where computer-savvy conscripts are constantly prompted to come up with innovative ideas in disciplines such as computer security, cryptography, communications and electronic warfare. The military enables young people in certain units to get technological skills, to run large technological projects at a very young age, where they need to improvise in order to get fast solutions. Once back in the real world, many military alumni use the newly acquired experience to launch their own technology start-ups.
- And then, of course, there is Jewish immigration – a key driver of the country’s economy since its foundation. The biggest and the most important wave of immigration came from Russia. Many were very smart people with technological background. Maybe they were not so much entrepreneurs, but when those guys met Israeli-born guys, many interesting things happened.
Developing countries can learn valuable lessons from this success story. Further they can also learn from other successful implementations of technology in developed countries and fellow developing countries. Governments in developing countries need to assess the conditions of their countries and identify the ideal context in which they can apply technology in order to improve the daily lives of their citizens.
How Israel turned itself into a high-tech hub, 22 November 2011, http://www.bbc.co.uk/news/business-15797257
Technology of Business: How Israel became a hi-tech hub, 22 November 2011, http://www.bbc.co.uk/news/business-15822293
How The Israeli Startup Scene Imploded, May 2011, http://www.businessinsider.com/israel-what-happened-to-the-biggest-startup-nation-in-the-world-2011-5#your-book-is-subtitled-how-the-top-1-percent-of-entrepreneurs-profit-from-global-chaos-how-does-israel-fit-into-that-idea-1