How is innovation diffused in Israel ?
Created by the United Nations in 1947, the seventy-year-old country with only 8.7 million of inhabitants stands today for a dynamic hub of innovation. In 2016, it was stated the second most innovative place of the world, right after the US Silicon Valley, having its most prolific year for capital raising, realizing a total investment of 4.8$ billion. How does this region of the world, which is smaller than Languedoc-Roussillon, manage to be so innovative over the years?
” In Israel, a land lacking in natural resources, we learned to appreciate our greatest national advantage: our minds. Through creativity and innovation, we transformed barren deserts into flourishing fields and pioneered new frontiers in science and technology” Shimon Peres
As the above quote of Shimon Peres, an Israeli politician who served as Prime Minister in 1997, the innovation process comes from the wish to solve problems. Therefore, it is barely surprising that a country, which has kept facing environmental and demographic issues, so successfully overcame its lack of natural endowments thanks to innovation.
David Riccardo in “On the Principles of Political Economy and Taxation” argued that a country should concentrate its efforts and trades on industries where they have a competitive advantage. If we take the Israeli example, it is obvious the lack of natural endowments and the small number of citizens prevent them to develop their primary industry (agriculture) and secondary industry (industry). As a matter of fact, the genius of Israel has been to acknowledge their weaknesses to turn them into strengths. Their competitive advantage naturally gravitates toward the third industry, which is driven by productivity, therefore innovation. By hardly focusing on water innovation, Israel fixed their irrigation problem spreading freshwater all over the country (even in the driest areas) being able to export dates and olives. Secondly, as mentioned above Israel could not strive in the industrial industry because of its population of 8.7 million. The domestic market is not sufficient to back companies’ supply, the reason why Israeli firms took the demographic factor into account, and decided to focus on high-tech industries such as internet. Indeed, it is a smart way to bypass the geographic isolation because of the scalability of their offer. Founded in Tel Aviv in 2006, the Wix company is a website allowing their customers with no previous coding knowledge to easily create their website. It is a good case in point as it does not need to physically export to other countries as companies do in the secondary industry. It only relies on servers to address foreign markets, and need few employee to handle the technical job.
Back to the essence of innovation, it is when someone faces a problem than a solution generally comes up. Israel with a poor natural endowment and low demography found ways to stand out of the crowd by constantly innovating. However, other factors may explain why Israel is such renown to be an innovative place. The state has fed, and intensified the diffusion of innovation to create a virtuous circle for economic growth.
The diplomatic situation of Israel mainly explains why it has now one of the most advanced military unit of the world. Here again, the army has been alimented by high skilled Israeli people, which in turn have been exposed to the best technologic environment. Since the military service is mandatory almost all Israeli students spend 2 to 3 years, just after high school, taking part of a military unit. This kind of life-experience incubator is a social springboard as it is the occasion to get to know more each other. A privileged place where the communication is intense, and information well spread. Most of these students will meet again in college or simply launch their own business after the army. Above all, the military service is the moment for students to be familiar with technologies as they get confronted to the most innovative military-based technology ever. The Israeli government knows it, technology accounts for 30% of the military expenditures each year. Students are encouraged to draw their professional career within their time in the army. Most of them, will be graduated from an engineering school and will go to do research, found a startup, or take part of one of the numerous multinationals settled down in Israel but a considerable part will directly work within the army as engineer or soldier. Consequently, the military service has turned to be the best way to recruit, and sensitize citizens to high-technologies.
As things stand at present, the strongest innovation leverage is education. Not only Israel government is aware of it but spends 7.3% of its GDP enhancing educational institutions to provide the youth population with the best learning support. In my opinion, two factors strengthen the Israeli education at College. First, for the same education level students are 3 years more than any other students of the world (because of the army). They are naturally more mature, and their solving problem abilities are higher in average because of the training they received. Second, they enjoy a park of universities highly ranked in the world with a class program oriented to applied research as the Ben Gurion University in Beersheba. One example that illustrates it, is the Hackathon competition organized each year. The purpose is to mix international students with the Ben Gurion’s, and let them create startup prototypes in only 24 hours. As the Hackathon, many initiatives are undertaken to be as practical as the outside world, reinforcing the students’ market knowledge when they graduate. Government has also fostered the startup creation through incubators in many strategic places of the country. Below is an overview of the industry distribution for Israeli startups coming out of incubators in 2016:
Investment, Payment & Loans are part of the fintech industry, which has soared for 4 years. We clearly notice the important part of cyber security in the repartition because it is a priority for Israel government to secure not only the army but multinationals settled in the country.
Another way to diffuse innovation through Israel has been to host MNCs. Intel, Dell, Microsoft all listed companies that have chosen to relocate a technology center in Israel to benefit from the high-skilled population, and the R&D dynamic. It creates jobs in the country but also promotes the diffusion of innovation. It is so true that Microsoft decided to launch its proper incubator without getting into startup’s capital. The idea is to be as close as possible to new trends that come up so that the $500 billion company will not miss any new business opportunities. It points out the dynamism of Israel regarding innovation as well as the fact that innovation is mostly about technology exposure, information, and communication.
The truth is, what could be the greatest quality of Israel is its capacity to turn disadvantages into assets. Some will say in a certain way it is the definition of the innovation process: it tends to solve existing problems. The culture of the country may explain the success of its ecosystem. They bypass all their geographic, demographic, and diplomatic issues by innovating while knowing how to diffuse innovation by directly acting in favor of it. Indeed, the Israeli government has set investment priorities for the nation, which can be translated to a mandatory military service, a strong education, and incubators facilitation to help entrepreneurs to develop their business at the international level.
Sebastien Gonzalez Clémence Martin