On Top of High Tech

Vishay Intertechnology in Malvern (left) has a plant in Beersheva.

That's because, over the last two decades, a confluence of factors have contributed to the birth of a "technology ecosystem" in Israel, transforming the tiny, often-embattled Jewish state into a global leader in high-tech innovation.

This is the same Israel that, for decades, relied on economic aid from the American government and the world Jewish community. (In fact, over the last 10 years, the United States has phased out economic aid to Israel and now offers only military assistance.) The notion of Jews living in the land of Israel as being dependent upon Diaspora communities is distinctly a thing of the past.

That doesn't mean that poverty has been eliminated there -- far from it -- but, in one sense, Israel's paradigm has shifted from a nation requiring tzedakah to one thriving on investment.

Israel has carved out a niche for itself in the global economic supply chain and made it a magnet for venture-capital investment -- the lifeblood of innovation. And, with that, the business ties that have existed between the Philadelphia region and the State of Israel since its founding have only grown and diversified.

"I believe that Israel, for where we are investing -- [from] seed to early-stage companies -- is the best place in the world," proclaimed David Anthony, managing partner of 21 Ventures, a New York and Tel-Aviv-based venture-capital fund that focuses primarily on Israeli startups. Anthony, also an adjunct professor at the New York Academy of Sciences, spoke about the Israeli economy at a recent Center City program organized by the Central Atlantic Region of the America-Israel Chamber of Commerce.

Tasra, an Israeli firm that developed multilayered capsules through electronic microscopes, has local ties.

While there is much to celebrate, he insisted that there's also some cause for concern. He noted that, like any ecosystem, the stasis that maintains Israel's prominence in sectors such as telecommunications, biotechnology and the semiconductor industry is, by definition, a fragile one.

"Regardless of how the borders are drawn in Israel -- and regardless of which political party is in power -- for the next 60 years, for Israel to thrive, [it] is dependent upon the 'technology ecosystem,' " argued the speaker.

The 2007-08 World Economic Forum Report offered some perspective. It ranked Israel -- which not all that long ago relied on agriculture and light industry to drive a state-managed economy -- second in the world for information-technology skills, and first for total expenditure on research and development for new products.

In addition, Israel places just behind the United States and Canada in terms of the number of publicly traded companies on the NASDAQ Stock Exchange.

David Anthony

Leaving the Soil Behind
But perhaps a sampling of innovations that originated in Israel conveys the story more powerfully. Beginning with modern drip irrigation -- an agricultural technique that has been replicated around the globe -- Israeli innovators soon left soil behind and moved directly into cyberspace. They created the Pentium III and Centrino microprocessors; the computer program that became AOL Instant Messenger; the first mass-market firewall that protects a system from viruses; and an ingestible camera that allows doctors to peer inside a patient's insides without making an incision.

On the downside, some economists are concerned that the pattern of Israeli companies selling to larger, multinational corporations at relatively early stages in the development of the technology is preventing a wider slice of Israeli citizens from reaping the economic benefits that the creation of a more full-fledged "Fortune 500" company would produce.

The single biggest factor behind Israel's culture of innovation remains the number of Ph.Ds and electrical engineers that call Israel home. While Israel has always had a well-educated populace, the influx of more than 1 million immigrants from the former Soviet Union during the 1990s resulted in an unprecedented number of scientists both living in Israel and anxious to compete in a free market.

Beth Cohen

Another major part of the "ecosystem" was the restructuring of the Israeli economy that began in the 1980s and continued through the 1990s, and moved the country from a state-run economy to a market-driven system, one that encouraged private investment from abroad.

In addition, starting in the 1990s, both Israel's government and universities decided to invest valuable monetary and human resources into technology development -- from the Office of Chief Scientist, which provides millions in grants to foster growth in small startups, to the growing importance of business incubators at major research institutions, like the Technion in Haifa and the Weizmann Institute of Science in Rehovot.

"You have a culture of technology and business people. It's very clear to them that they want to go into startups. You have an enormous amount of risk capital that's going into Israel, and you have the government that really is helping in many ways," said Erran Carmel, a processor of information technology at American University in Washington, D.C.

Carmel served as a co-chair for "Israel Biz at 60: Lessons and Directions in Israel's Economy," an academic conference held in March at the American campus.

"There are hundreds of new technologies and startups every year," he added.

Yet there's also a growing concern, among the major players, that this "technology ecosystem" might not survive a shifting local and global landscape.

One potentially ominous development is the so-called "brain-drain" problem, in which a growing number of Israeli research scientists have been accepting tenure-track positions -- along with higher salaries, lighter teaching loads and better research facilities -- at American and European universities.

According to Anthony, another problem troubling investors looking at the long-term picture is the troubled state of Israel's various public-school systems. He said that Israeli schools have experienced cuts in funding and declining student performance, which, five or 10 years down the road, could hamper the nation's competitiveness in a global economy; by that time, innovation might as likely be coming from China or India as it is from the developed world.

"Israel doesn't have any natural resources other than brain power," Anthony said in his speech.

Challenges notwithstanding, Israel's technology sector and the Philadelphia region are intertwined, far more so than back in 1987, when local philanthropists and entrepreneurs formed the America- Israel Chamber of Commerce.

According to Debbie Buchwald, who has served as the chamber's director since 2004, it's impossible to pinpoint a dollar figure measuring the trade between this region and Israel. Anecdotally, she said, it appears to be growing year by year. First off, there are a number of multinational corporations that maintain headquarters or hubs in the area, along with research-and-development facilities in Israel. Some examples include Vishay and Kulicke & Soffa, which both specialize in semi-conductors and other technologies with a wide range of applications, including computers and cellular phones.

But perhaps the bigger part of the story involves trade and investment.

"There has been a tremendous increase in the number of companies in Pennsylvania that are exporting products to Israel. We know because we give export documentation, and we are getting more calls," reported Buchwald.

Business occurs at all levels. For instance, Buchwald noted that Comcast Interactive Capital -- the investment arm for the Comcast Corporation, one of the region's largest companies -- has invested heavily in an Israeli firm called Exent Technologies, a software developer. According to CIC's Web site (www. civentures.com) Exent powers Comcast's "Games on Demand."

Investing, buying and selling also take place between far smaller American and Israeli businesses.

In addition, both the Fox School of Business at Temple University and the University of Pennsylvania's Wharton School of Business have strong ties with the Israeli high-tech sector.

The law firm of Wolf Block -- founded by two Jewish lawyers more than 100 years ago -- is among the area companies that enjoy the deepest ties with Israel, according to Beth Cohen, director of the firm's emerging growth-services program. Cohen has met with hundreds of Israeli firms. She provides advice on how to gain access to the lucrative American market, which is particularly important for Israeli firms since the domestic market there is relatively meager.

Cohen also offers guidance to Israeli companies on how to tap into U.S. venture capital and, for the past four years, she's organized Wolf Block's Israeli venture conference. Held in the fall, the gathering gives several dozen emerging Israeli companies the opportunity to meet with potential investors and business partners in Philadelphia.

"They are looking for 'smart money,' not just capital," explained Cohen, "capital that can open doors in the United States, that can help in business development."

Cohen, who's married to an Israeli and has visited the country dozens of times, notes that there is a personal element to her and the firm's commitment to the Jewish state.

"We wouldn't be doing this if it didn't make good business sense," stated Cohen. "But there's also a huge dose of commitment and love of Israel."