For many, Israel is known simply as ‘the start-up nation’ or ‘Silicon Wadi,’ the Middle Eastern version of California’s Silicon Valley. Companies such as Intel, Microsoft, Cisco, IBM and Apple selected Israel as the location for their first development centers outside of the US. Other tech powerhouses, such as Oracle, Google, IBM, Facebook, Hewlett-Packard and many others, have also established research and development facilities in Israel.
Israel’s investment in research and development as a percentage of its gross domestic product (GDP) is higher than any country in the world, with 2,000 start-ups founded in the past decade, another 3,000 small and medium-sized start-ups and high-tech companies, 30 growth companies, 50 large technology companies, and 300 multinational corporation’s R&D centers.
In the second decade of the 21st century, this seems commonplace and widely accepted. Yet, these achievements are mind-boggling for a country that is not yet 100 years old. The pioneering Zionists that arrived in the Holy Land during the 19th century had difficulty eking out a living from the land that had lain desolate for hundreds of years. In the state’s early years, from 1949-1959, as hundreds of thousands of immigrants arrived, doubling its population, Israel imposed rationing and other austerity measures. From the 1970s until the 1990s, the country endured economic stagnation, declining immigration and runaway inflation. The Arab-Israeli conflict has not provided an unending period of peace for the country. With all of these factors considered, how and why has Israel become known as the Silicon Valley of the Middle East?
Many reasons have been advanced for Israel’s success in hi-tech. One of the most thorough summaries on the subject can be found in “Start-Up Nation – The Story of Israel’s Economic Miracle,” written by Dan Senor and Saul Singer. The bestselling book, first published in 2009, proposes several theories.
The first idea posits that Israel has thrived and succeeded in hi-tech because it has been threatened by adversity. “Adversity, like necessity, breeds inventiveness,” write the authors. Senor and Singer reject that proposal, because other small countries that have been threatened, such as South Korea, Singapore and Taiwan, though they too have experienced impressive growth, do not have an entrepreneurial culture that compares with Israel’s.
Others attribute Israel’s hi-tech success to the idea of ‘Jewish genius.’ “The notion that Jews are “smart” has become deeply embedded within the western psyche,” write Senor and Singer. The authors express skepticism as to this being the reason for Israel’s prowess in hi-tech, reasoning that Israel’s population is comprised of seventy different nationalities, and the idea that such a disparate group could form a hi-tech power seems unlikely.
A third reason that has been suggested by some for Israel’s hi-tech success is the country’s military and defense industry, which has spun off into different companies. If that is the case, contend the authors, why have other countries with military conscription not experienced the same successes?
Beyond the ideas mentioned in the book, other reasons have been posited. Some date the beginnings of Israel’s hi-tech industry to the period immediately before the Six-Day War in June 1967, when French President Charles de Gaulle imposed an arms embargo on Israel, stating that France would not support the first country that would start the conflict. Until that time, France had supplied the IDF with state-of-the-art weaponry, including the Mirage fighter aircraft.
The French arms embargo not only pushed Israel towards a greater alignment with the United States, but as Yaakov Katz, Jerusalem Post editor-in-chief wrote (June 2, 2017), “De Gaulle’s embargo did something even more significant: It pushed Israel’s leadership to understand that the state could not rely on anyone but itself. If it wanted to continue to survive, it would need to develop independent research, development and production capabilities – not just for arms, but for everything.”
Ultimately, he writes, this need for self-reliance led to the birth of Israel’s hi-tech revolution. De Gaulle’s decision pushed Israel to develop its first drone in 1969, accelerated the development of Israel’s Merkava tank, and spurred the development of the Lavi, Israel’s homegrown jet fighter. Though the development of the Lavi was canceled in 1987, its development, writes Katz, “laid the foundations for Israel’s drones, satellites, avionics and missile systems.”
Additionally, Katz notes, the Technion invested in new fields of study, including computer science and electronic engineering, the Israeli government appointed chief scientists in its various ministries, and began investing in technological incubators.
Still others have suggested that Israeli chutzpah is what has propelled the country in its hi-tech success. This characteristic is well-established in the IDF, where military recruits are taught to “challenge the chief” and IDF ground forces innovate and create new tactics as situations develop. According to this school of thought, the innate Israeli self-confidence and audacity is the cause of its success in hi-tech.
Ultimately, Israel’s remarkable accomplishments in hi-tech may be attributed to a combination of all, or some of the above factors.
The first Israeli hi-tech firms were created in the 1960s. ECI Telecom, which initially specialized in telephone transmission products that manipulated the signals carried on telephone lines, was founded in 1961. Tadiran was next in 1962, followed by Elron Electronic Industries.
The first multinational company that came to Israel was Motorola, which set up a research and development unit in Israel in 1964. Intel Israel was formed in 1974, and these and other multinational companies gradually brought the American corporate culture to Israeli hi-tech.
As the emphasis in the hi-tech market shifted from hardware to software, Israeli companies began to compete in global software markets. Between 1984 and 1991, pure software exports from Israel increased from $5 million to $110 million.
During the 1980s and 1990s, a number of Israeli companies began to enjoy worldwide success, including companies such as Amdocs, Aladdin Knowledge Systems, NICE Systems, and Check Point Software Technologies, among others.
International developments in the 1990s, including increased aliyah from the Former Soviet Union, which increased the numbers of qualified hi-tech workers, as well as the Oslo Peace Accords, which boosted investment in Israel, also played a significant role at that time.
The dot.com boom of the 1990s was felt in Israel as well, as thousands of start-ups were established between 1998 and 2001. One of the first major financial successes of that period was America Online’s $407 million purchase of Mirabilis, an Israeli start-up that had developed the ICQ messaging program.
As Erel Margalit, Founder and Executive Chairman of JVP, mentions elsewhere in this magazine, the arrival of significant amounts of venture capital helped ignite the hi-tech boom in this country, as Israelis built new companies and created revolutions in communications and enterprise software. Between 1991 and 2000, Israel’s venture capital expenditures rose from $58 million to $3.3 billion. In 2021 alone, venture capital investment in Israel was $25.6 billion, which was a 136% increase over the previous year.
Over the past twenty years, Israeli technological developments have changed the lives of millions of people, both in Israel and around the world in their everyday lives. Some examples are:
Agriculture and Environment
Drip Irrigation – Developed by Israeli company Netafim in 1967, drip irrigation uses specially designed pipes to drip water on crops. This technology has improved crop yields by 70% in the Arava while reducing water usage by 5%. It is used in 110 countries around the world.
Watergen – Based in Petah Tikva, Watergen produces clean drinking water by extracting humidity from the air. Watergen devices are used in disaster areas around the world where water supplies are scarce.
PillCam – Developed by Medtronic (mentioned elsewhere in this magazine), the PillCam is a plastic, vitamin-sized capsule outfitted with a tiny camera and light that takes photos of the entire gastrointestinal tract. The camera visualizes the small bowel and colon, allowing physicians to diagnose diseases such as Crohn’s Disease, a type of inflammatory bowel disease, and detect bleeding in the GI tract.
ReWalk – The ReWalk exoskeleton system, developed by ReWalk Robotics, is a wearable robotic exoskeleton that provides powered hip and knee motion to enable individuals with spinal cord injury to stand, walk, turn and climb and descend stairs.
Disk on Key – The ubiquitous USB drive was developed by Israel-based M-Systems.
Firewalls – Frist developed by Check Point Software Technologies in 1993, a firewall is a network security system that controls incoming and outgoing network traffic, establishing a barrier between a trusted network and the Internet.
Waze – Developed in Israel initially as a free digital database of the map of Israel in Hebrew, Waze was purchased by Google in 2013 and is used around the world for satellite navigation by drivers around the world. It has been translated into 50 languages.
Mobileye – Founded by Hebrew University professor Amnon Shashua, Mobileye develops autonomous driving technologies and driver-assistance systems. In 2017, Intel Corporation acquired the company for $15.3 billion, the largest-ever acquisition of an Israeli hi-tech company.
Iron Dome – Developed by Rafael Systems, Israel’s air defense system is the world’s most deployed missile defense system and provides a success rate of more than 90%. The system detects incoming rockets, determines the threat level of the missiles, and destroys the incoming missile before it strikes.
These are just a few of Israel’s many achievements in hi-tech. New advancements and innovations from Israel in health, science, finance, agriculture and medicine will help create a better world for all humanity.
This article is taken from The Jerusalem Post Israel Technology and Innovation Magazine 2022. To read the entire magazine, click here.
This article was written in cooperation with Alan Rosenbaum