Friends and colleagues from India often ask me about the hi-tech industry in Israel. Specifically, how does such a small country with a population of just over 7 million generate so many start-ups? What is the impact on the local economy and society? What is the extent of cooperation with India? India and Israel are technological leaders, each one in its own right, so the interest is appropriate. One could easily write a book on these topics, nevertheless let me try and briefly put things in perspective.

 

Israel's start-up culture has its roots in the defense establishment and the setup of a civilian army in the early years of the state. Over the years the nation's technological ingenuity has become a fait accompli world over in the realm of military and homeland security. The ability to improvise and deliver 'quickly and effectively' has made Israel one of the leading countries in the field of defense systems and weapons technology. This incredible ability to 'improvise' paved the way to success not only in technology but also in other fields like agriculture and medicine. For a tiny nation established in a difficult and hostile environment in 1948, its founding leaders invested heavily in science and technology. Rising initially from pure national security concerns, ability to 'improvise' has been a guiding principle for Israel's hi-tech industry over the years, which is evident in the numerous start-ups sprouting at a dizzying rate - second only to that of Silicon Valley.

 

But the start-up nation (as described by Dan Senor and Saul Singer in their 2009 bestselling book by the same name) is not without its social concerns. The advent of the dotcom boom in the mid-90s saw the emergence of an 'exit culture'. Technology companies founded by young 20 or 30 somethings, most of them having served in elite military technological units would raise money, develop the product and few years down the road get acquired by an American giant. The foremost instance was that of Mirabilis, founders of the popular Instant Messaging software ICQ, which was sold to America Online (AOL) for over 400 million dollars in 1998. Numerous Israeli start-ups have been acquired in the same manner ever since, and continue to get acquired every year by international giants mainly from the US for ten to hundreds of millions of dollars. Having been part of the start-up environment, we debated among friends and colleagues that the exit culture would at some point prove detrimental to the economy if exits became the primary objective. While there was nothing fundamentally wrong with individuals pursuing their ambitions and dreams of becoming millionaires overnight, the problem was that the country would most certainly not benefit from it in the long run. In the majority of acquisitions, the acquiring company would in all probability shut down the acquired company with most of the workers being laid off. Those to benefit would essentially be a small group consisting of the venture funders and founders of the company resulting in an unequal distribution of wealth in an otherwise egalitarian and equal society.

 

This issue is hotly debated in Israel today. With a limited industrial base and no natural resources, the hi-tech industry is seen as driving the economy. But there seem to be just a handful of established companies who are in the game for the long term, and with an overwhelming majority falling in the start-up category looking for a quick exit. Others argue that Israel's start-up culture prowess is technology focused, and not in managing the operations of a big organization. Nevertheless, there is increasing debate to build homegrown companies, generate more employment and contribute to the economy.

 

Maybe for that reason almost every prestigious MBA program in Israel has a study module dedicated to India. Many see common similarities between the Indian and Israeli business culture, friendliness and informality being the cornerstone. So each year, management students from the leading universities come to India to visit the likes of Infosys, Tata and Wipro to get a feel of the software industry in India and learn how these companies hire and manage thousands of employees across India. A few Israeli companies, the well-established ones like billing giant Amdocs for instance have already setup base in India and employ thousands of people in both countries for some time now. While Israel can learn how to build, manage and sustain large organizations from an emerging economy such as India in addition to tapping the huge local market, India can also learn from the entrepreneurial approach of Israelis and inspire the vast talent in India. It would be interesting to note that countries such as South Korea and Singapore are completely fascinated with the start-up culture in Israel and send teams to research the subject more closely.

 

To sum up, the hi-tech industry in Israel is a dynamic success but not without its social and economic implications. The debate will continue as Israel strives to maintain economic growth and most importantly equality. The relatively young relationship between India and Israel is defined by collaboration as well as competition. But competition is always good, even among friends. There is close cooperation between the two countries, and at the same time there is still a lot to learn on both sides in order to create the right synergy and realize the true potential of the partnership. There is most certainly a lot more to come.