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Israel is well known as the “startup nation”, and 2018 has shown again that this nickname is well deserved. The high-tech ecosystem in Israel is one of the most vibrant, innovative and creative in the world. Although Israel is relatively very small in area (147th in the world) and in population (100th in the world), it’s GDP is ranked 31st in the world and its GDP per capita ranked even higher (21st in the world). Israel owes its success, in a large part, to its extensive high-tech sector. Israel is ranked number one in the world in amount of startups per capita, and is now home to over 6,000 active companies. Israel has more companies listed on the NASDAQ stock exchange than any other country outside the US, besides China. All this adds up to a worldwide leadership in innovation.
The Israeli high-tech industry is home to both well established companies and a huge startup ecosystem. Companies such as Checkpoint (inventors of the firewall), Amdocs (enterprise software and services) and Stratasys (3D printing) have become industry leaders in their domain. Israel is also home to some of the world’s most innovative startups, such as Mobileye – developer of ADAS and autonomous driver systems (bought by Intel for $15.2B), Waze – developer of the popular navigation app (bought by Google for $1.2 B), Magic-leap – developer of AR glasses (valued at $ 5 B) and eToro – a social trading company (valued $1.1B) and many more.
Israeli innovation is so dominant that in the last decade it has become a major hub for large multi-national corporations to open their R&D center in Israel. The list below shows the world’s largest companies and whether they have an R&D center in Israel:
Why Israel?
Israel is small in area, large part of it consists of barren desert, and the country’s natural resources are scarce. Still, Israel has managed to reach a unique standing as a worldwide innovation hub – “startup nation” – how did this come to be? As the saying goes, “necessity is the mother of invention”. It all started from a strong necessity but there are several very dominant helping factors as well.
From the day it was founded Israel has had to struggle for survival in very harsh geophysical and political conditions. In order to supply food for the rapidly growing population of millions of Jews finding refuge in Israel from around the world, Israel had to invest huge efforts in developing innovative agricultural methods and technologies. Israel is the birth place of inventions like the cherry tomatoes (and other crops that can flourish in desert conditions) as well as world changing technologies like the drip irrigation system. By employing advanced technologies (from genetics and medicine to IOT), Israeli milk cows have become world-wide leaders in milk production. These inventions allowed Israel not only to supply food for its own population, but also to become a significant global supplier of certain types of produce, and to export these technologies to farmers around the world.
Being a young, small country surrounded by hostile nations, Israel has had to develop advanced military defense technologies in order to survive. Governmental investment in this area has been significant, with resources going directly to the military research groups, as well as to private defense companies. Focus has also been put on technology education. In some domains, like cybersecurity, Israel has become a global superpower thanks to this multilayered approach – Israeli teens start their cyber education in high schools, get real-life experience in the cyber warfare elite military-units, and later continue their education through governmentally-supported academic research centers.
Having a strong necessity is one side of the equation. The other side is a combination of several critical factors that enabled Israel to become uniquely innovative. The three major factors are the human capital, the unique culture, and the support structure available for the Israeli startups.
Human Capital
The Israeli people have always been very focused on education and indeed Israel boasts the highest number of engineers and scientists per capita. A unique aspect of the human capital in Israel is that a significant part of the leadership in the startup ecosystem is made of veterans of the unique military R&D units such as the “8200” intelligence unit (which is the single biggest unit in the Israeli military) and the “Talpiot” honors R&D program (a 3.5 years long training program for the technological leadership of the military’s R&D). Both environments are supplying the Israeli startup ecosystem with a stream of the highest qualified entrepreneurs and engineers with real life experience.
Culture
Part of the Israeli culture is a mindset of always being limited in resources. This means that Israelis are educated from a very young age to always improvise and think outside the box. Formal processes are always second to first quickly finding a working solution. Another aspect of the culture is the cultural acceptance of failure as being part of any attempt to solve a worthwhile challenge. Israelis acknowledge that only by trial and error can you truly innovate. All this boils down to seeing startups and entrepreneurship as an ideal to aspire to – it is the “Israeli dream” to launch a startup and risk taking is an integral part of this dream.
Support
The third major factor is support. Israeli government has recognized very early on that innovation is the only way that a country like Israel can breakthrough. Therefore, in order to nourish and encourage innovation it has founded and supports multiple programs that help budding startups such as the Israel Innovation Authority (IIA), Israel Export Institute (IEI), governmental supported incubators (alongside private ones), accelerator programs and research centers and labs. Overall, Israel is the country with the highest R&D investment as percentage of the GDP (together with South Korea).
Variety of Domains
Not rich in natural resources, the Israeli industry leans strongly towards software-based companies. Israeli innovation has also gravitated towards the fields it is needed in most. For example, Israel has become a global leader in homeland security technologies, and due to its limited water sources, has also become a trailblazer for agricultural technology. The following highlights some of Israel’s areas of excellence:
In our next report we will focus on how Israeli automotive and mobility technologies are set to change the world.
- For further insights about how Israeli turned to be a worldwide innovation leader read:
“Start-up Nation: The Story of Israel’s Economic Miracle” by Dan Senor and Saul Singer - “Israel’s automotive and smart mobility industry – Electrified, autonomous and Intelligent” – A report by global strategy consulting firm Roland Berger
