Israels preion for innovation-based economy
By Do Je-hae
A New York Times bestseller on Israel's economic prowess has gripped the attention of Korean business and IT community, policymakers and politicians in search of ideas and inspiration for future growth engines.
"Start-Up Nation: The Story of Israel's Economic Miracle" was recently selected as a must-read for employees at the Presidential Office and Korean corporate giants like Samsung and LG.
The book showcases Israel ― a 60-year-old country of 7.1 million ― as a leader in business innovation through a start-up surge. While in a constant state of war, Israel has nonetheless attracted investment from global business leaders like Warren Buffet, the chairman of Berkshire Hathaway and Microsoft Chairman Bill Gates, who has called Israel "the country that has done the most to contribute to the technology revolution."
"If you are looking for brains, for energy, for integrity, Israel is the only stop you need to make in the Middle East," Buffet said.
Berkshire Hathaway acquired 80 percent of the Israel-based IMC Group, one of the world's largest multinational conglomerates that produce metalworking products, for $5 billion in May 2006. Buffet sealed the deal in the midst of the Lebanon war, marking largest corporate deal ever in Israel's history. IMC has a manufacturing plant in Daegu, called the TaeguTec, one of the largest companies of the IMC Group.
Israel has managed to produce more start-up ventures than countries like Korea, Japan, India, Canada and the UK. So how is all this possible?
Based on interviews with main architects of Israel's technology revolution and case studies, "Start-Up Nation" provides answers to this question through a cogent analysis of cultural, historical and policy factors at play.
The Korea Times recently interviewed one the two co-authors on the timely book to seek lessons from Israel's experience for Korea, where entrepreneurial spirit and start-ups have been losing pace in the face of an economic downturn.
Saul Singer, a former editor at the Jerusalem Post, wrote the book with Dan Senor, adjunct senior fellow for Middle East studies at the US Council on Foreign Relations.
The authors provide insights into Israel's development as an entrepreneurial hub against an adverse climate of being attacked and boycotted by her neighbors.
"We are very gratified by the strong interest in so many countries in our book because it demonstrates one of our main points: that the world is hungry for innovation,” Singer said in a recent Korea Times interview. "Israel ― which has the most widespread and concentrated start-up culture in the world ― is the place to look for innovation of all kinds, particularly in high technology."
Israel currently has more companies on the tech-oriented NASDAQ stock exchange than any country outside the US ― more than all of Europe, India, and China combined. Israeli innovation has been most visible in computers, security and communications, as well as in cleantech and biotech.
Their book explains that Israel's dynamic entrepreneurship is based on a number of factors, including the leadership and social network training from the country’s mandatory military service; a culture of critique and risk-embracing climate; an open immigration policy for talented and motivated Jews from around the world; and a massive investment in civilian R&D and an effective management of R&D policy.
Parallels and differences
Korea and Israel are similar in that both countries have built an economic miracle from scratch in the latter half of the 20th century.
Israeli leaders have been eager to introduce Israel's economic success to Koreans through "Start-Up Nation."
"Despite a common history of adversity and a paucity of natural resources, Israel and Korea have achieved great success and have much to learn from each other," former Israeli Prime Minister Ehud Olmert (in office thorough April 2006-March 2009) wrote in a preface for the Korean translation of "Start-Up Nation," published in August.
Israeli President Shimon Peres has also recommended the book to Korean readers.
The country has looked upon Korea as an important business partner. "Since Israel has almost no local market and has been shut out of the regional market as well, Israeli companies have to be globally oriented from day one. This means that many Israeli companies look immediately to Asia and see Korea as a great place to do business," Singer said.
"Israelis admire the high growth rates of the Korean economy, and are comfortable with Korean brands --such as KIA, which claims to enjoy the fastest growing car sales in Israel. That said, there are many more Korean companies that should be doing joint research and development in Israel, in addition to those that are already here, like Samsung."
Another important similarity is that along with Singapore, Israel and Korea some of the few developed economies that conduct a mandatory military service.
Korean men are subject to mandatory military service, but the experience is often shunned by many and blamed for fostering an authoritarian mindset and inflexibility, traits often found in Korean men, particularly in the older generation.
But in Israel, military service is credited for nurturing creative and responsible leaders who apply the qualities they acquired while in uniform to their businesses.
"In Israel the military has played a very important role, both through special units that train many young people in high-tech, but giving many Israelis skills such as leadership, teamwork, improvisation, sacrifice, and mission-orientation -- all of which are very relevant to building innovative start-up companies," Singer explained. Many of Israel's top business leaders were once trained in the country's elite military units.
Korea saw a surge in start-up ventures in the late 1990s, but they have since failed to flourish as they have in Israel.
"Koreans are innovative, driven, and entrepreneurial people, as can be seen by the success of the Korean economy at home and of Koreans abroad. But there are many countries, including Korea, where there are many great entrepreneurs and, at the same time, a culture is unforgiving to failure, and where the more accepted path is to work for large companies, rather than start-ups," Singer said. "Acceptance of failure is very important for developing a start-up friendly environment, since most start-ups do fail, including in Israel.
"There is more global venture capital going into Israel on per capita basis than the U.S. ― two and a half times more than the U.S., 30 times more than Europe, even in 2008 when the global economy was melting down," co-author Senor said in a TV interview.
Experts like the MIT Nobel laureate Robert Solow have underlined the importance of research and technological innovation in improving economic productivity.
The global economic downturn calls for investment in innovation and venture capital more than ever before, as they are the main engines for creating individual and national wealth.
According the "Start-Up Nation," most of the increase in employment in the U.S. between 1980 through 2000 came from companies that were under 5 years old.
Another key factor in Israel's economic success is the country's massive investment in R&D.
A UNDP report shows that Israel is the biggest spender of its GDP ― 4.5% ― on civilian R&D in the world, ahead of Japan, the U.S., Korea, Germany, Singapore, France and Canada.
Israel has transformed into a research and development hub, with local industry complementing the approximately 220 R&D centers of multinational corporations like Alcatel, Deutsche Telecom, Cisco, Google, HP, Merck, Microsoft, IBM, Intel, among others.
To effectively manage industrial R&D policies, the Israeli government established the Office of the Chief Scientist (OCS) at the Ministry of Industry, Trade and Labor in the 1970s to implement variety of funding initiatives.
Key components of start-up growth
(1) Leadership and social network training from mandatory military service
(2) Culture of critique and risk-embracing climate
(3) Open immigration policy for talented and motivated Jews from around the world
(4) Massive investment in civilian R&D and an effective management of R&D policy
Israel's competitiveness rankings
*1st for availability of qualified engineers
*1st for total expenditure on R&D
*1st for business expenditure on R&D
*2nd for venture capital availability
*2nd for information technology skills
*3rd for quality of scientific research organizations
*3rd for registered patents per capita
(WEF Global Competitiveness Report 2008-2009)
Israel’s Nobel laureates
*Prof. Ada E. Yonath, Chemistry, 2009
*Prof. Robert Aumann, Economics, 2005
*Prof. Aaron Ciechanover, Chemistry, 2004
*Prof. Avram Hershko, Chemistry, 2004
*Prof. Daniel Kahneman, Economics, 2002