Page last updated at 23:02 GMT, Monday, 6 October 2008 00:02 UK

Israel's booming hi-tech industry

By Julie Ball
Producer, Global Business, BBC World Service

There is more to Israel than the "Guns 'n Moses" message on tourist T-shirts for sale in Jerusalem's old city bazaar. Not far from the Western Wall - and the security barrier that separates Israel from the occupied territory of the West Bank - is the largest hi-tech industry outside of Silicon Valley, California.

Yossi Vardi
Yossi Vardi believes political isolation has paradoxically brought benefits.
Israel's hi-tech industry contributes around 7% to the country's GDP, but its success is no accident. Like much in the state of Israel, it was born out of adversity.

Yossi Vardi, known as the Godfather of Israeli hi-tech, highlights the significance of events after the 1967 war, when the French placed an arms embargo on the Middle East.

"The two real fathers of Israeli hi-tech are the Arab boycott and Charles de Gaulle, because they forced on us the need to go and develop an industry," he said.

Another key factor is the military service which all Israelis - with the exception of ultra-Orthodox Jews and Arab-Israeli muslims - are expected to do. Women serve two years, men three.

Rear Admiral Ophir Shoham, head of the information technology (IT) division in the Israeli Defence Force, is not surprised that many of them subsequently gravitate towards a career in IT.

"We're used to giving comprehensive and very big responsibility on young guys because we are counting on them and therefore they are afraid of nothing when they get out of here," he said.

Golden eggs

Since the 1970s, momentum has been sustained by an innovative and high-risk programme initiated by the government which funds 24 technological incubators.

The programme provides monetary backing for two to three years to help develop bright ideas into viable business propositions. But it also offers vital managerial and marketing support to enable the start-ups to attract private investment.

Rina Pridor
Acceptance of failure is the name of the game here...in order to get to the golden eggs you have to hatch as many eggs as possible
Rina Pridor
The incubators were created partly to direct the brainpower and ideas of the large number of Russian scientists and engineers who emigrated to Israel after the collapse of the Soviet Union.

The idea was conceived by Rina Pridor.

Formerly a corporate lawyer, she is now the government minister in charge of the initiative. In her office in Tel Aviv, she points to the logo which adorns all the programme's materials for an explanation of its philosophy.

"Acceptance of failure is the name of the game here, because if you look at these three golden eggs, you see that we want to get to the golden eggs.

"But in order to get to the golden eggs you have to hatch as many eggs as possible; there's no other way."

She believes the government support - and cash - is essential.

"Israel cannot afford that such good ideas will just disappear because they are not given enough chance to prove themselves.

"We take the risk for two to three years, and enable them to prove themselves and help them to get to their first significant private money."

Seventeen years later, she can point to an impressive success rate. Almost half (45%) of the companies which have benefited from the programme are still flourishing, rising to 60% of those helped in the last five years.

Geographical bias

Most of the hi-tech industry has developed around Tel Aviv and Jerusalem, meaning that towns in the south of the country and, crucially the north - where many Arabs live - have struggled to share in the success.

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Global Business, BBC World Service on Tuesday, 7 October .

New Generation Technology (NGT), based in Nazareth, is the only Arab-Israeli incubator and aims to change that.

Its entrepreneurs tend to excel in life sciences, medicine and pharmaceutical studies, areas which attract large numbers of Arab Israeli students.

NGT chief executive Yosi Turkaspa argues Arab entrepreneurs are just as innovative as their Jewish counterparts, but acknowledges they sometimes lack managerial experience.

One solution is to bring together Arab entrepreneurs and Jewish businessmen "to manage the company", a solution which he insists creates "no problem" for those in such partnerships.

Collaboration

You can find further evidence of fruitful collaboration on the outskirts of Jerusalem, home to a joint Israeli-Palestinian company, G.ho.st.

The brainchild of serial entrepreneur, Zvi Schreiber, G.ho.st stands for Global Hosted Operating System, a free web-based virtual computer which, as the company puts it, offer users a personal desktop, files and applications "available from any browser, anywhere".

A Palestinian man walks next to a section of Israel"s separation barrier between Jerusalem and the West Bank town of Bethlehem
Israel began building its controversial 670km West Bank barrier in 2002.
Uniquely the company operates across the physical and psychological barriers that divide the country, with 40 employees based in Ramallah, and six in Jerusalem. This is not about outsourcing - the employees on both sides are shareholders in the company and are paid competitive salaries.

Despite the logistical challenges - the only full company meeting so far took place in a petrol station restaurant on the Dead Sea - Ori Weinroth from G.ho.st's Jerusalem office believes the business model "seems to be working smashingly".

And some believe this is exactly the kind of creative innovation that could make a contribution towards helping to resolve the conflict between Israelis and Palestinians.

With economists identifying key challenges including the soaring cost of occupation and a growing "brain drain", companies like G.h.ost that can bring the two communities together are being watched closely by leaders the world over.

A hi-tech boom that was itself born out of adversity may have an even more important role to play in the months and years ahead.

Global Business is on the BBC World Service on Tuesday, 7 October. You can listen via the BBC iPlayer or subscribe to the podcast.




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