Ancient Land Looks to a Cutting-Edge Future
TEL AVIV — Gil Shwed spent the summer of 1993 in a sweltering apartment in this coastal city hammering away at a computer for 10 hours a day. At the end of each fevered shift, partner Shlomo Kramer took Shwed’s place at the keyboard and kept pounding.
Shwed and Kramer, both in their 20s at the time, had served together in the Israeli army, setting up and linking computer systems with different levels of security clearance, and they saw a golden opportunity in the growth of the Internet. They were out to create a prototype for a computer network security system better and faster than anything on the market.
Now, Check Point Software Technologies Ltd., the company they launched with a third partner that summer, commands about 40% of the global market for network firewall systems aimed at protecting corporate computer networks from intruders. Sales for Check Point, which has a Silicon Valley-based U.S. subsidiary, totaled $83 million in 1997, up 160% from the previous year.
Innovative, young and driven, Check Point’s founders are at the forefront of a booming high-tech industry that Prime Minister Benjamin Netanyahu and other Israeli leaders hope will help propel the nation into an economic power.
The rise of high technology in Israel has been fueled, in large part, by the skills of army-trained computer engineers such as Shwed and Kramer, by technologies developed in the defense industry and converted to lucrative commercial products, and by an American-style entrepreneurial zeal.
It has also been boosted by the arrival in the last decade of thousands of highly educated immigrants from the former Soviet Union. Largely on the strength of that influx, Israel now boasts the world’s highest percentage of engineers and scientists, with 135 for every 10,000 citizens, compared with 85 in the United States.
“High tech is our future,” said Industry and Trade Minister Natan Sharansky, the former Soviet dissident who is a strong advocate of a free-market, technology-based Israeli economy. “We are doing everything we can to accelerate its growth.”
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For now, the dream of becoming a regional and global power is hampered by the stalled Middle East peace process and a slowdown in overall economic growth. But as it celebrates its 50th anniversary, Israel is being swept up in a technological revolution that is redefining its industry and, to some extent, the state itself. This ancient land is suddenly cutting-edge.
Consider the evidence:
* Israel, a country slightly smaller than New Jersey, boasts more than 2,000 established high-technology companies, about 1,000 start-ups and 200 more projects under development in government-funded “incubators.” Israel is second only to the U.S. in the number of technology start-ups.
* More than 100 Israeli companies, virtually all of them in the high-tech sector, are traded on the stock exchanges in New York. Only the U.S. and Canada have more.
* High tech accounted for nearly a third of all Israeli exports in 1997--$6.2 billion of $20.7 billion overall. Last year, for the first time, overseas sales of electronics surpassed the figure for polished diamonds, the largest of Israel’s traditional exports. And software exports, while still relatively low, are rising quickly--from $198 million in 1994 to $500 million last year--and are particularly strong in network security, data communications and Internet products.
* Venture capital is flooding in, attracted by the growing reputation of companies here for innovations in telecommunications, software, electronics and biotechnology. In 1991, Israel had one venture capital firm, with $35 million to invest in young companies that have good ideas. Now, nearly 70 venture capital firms operate here, with a combined pot last year of $700 million.
“What we see today is a clear recognition, in Israel and worldwide, that high tech is our instrument for growth, and it’s changing our image in the world,” said Uzia Galil, 72, the chairman and CEO of Haifa-based Elron Electronic Industries Ltd. and a pioneer in the field.
Jacob Goldman, a former head of research and development at Xerox Corp. and now a Connecticut-based venture capitalist and consultant, agreed.
“Israel has one of the most vibrant high-tech communities in the world these days,” said Goldman, who has studied Israeli high tech through frequent consulting trips and personal visits here. “It’s a great deal like Silicon Valley 15 years ago. Israel, per capita, is producing an awfully large number of good technical people, and just about every major banking and venture capital concern has a branch there.”
That was not the case in 1962, however, when Galil, the former chief of the Israeli navy’s electronics division, launched his first company. Many people were skeptical of Galil’s vision of turning advanced military technologies into commercial products.
“People said we weren’t serious,” said Galil, whose multinational technology empire, including Elron and 20 spinoffs, topped $1.2 billion in sales last year. “We heard again and again that there would never be a future in high tech and certainly not in Israel.”
The naysayers were wrong.
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Today, the boom is evident from Haifa in the north to the Sharon Valley just outside this city--an area often called Silicon Wadi, or valley, for the red-roofed stucco homes and palm trees that remind many of California and the original high-tech hotbed.
Orna Berry, the chief scientist for the Industry and Trade Ministry, heads the government’s effort to support and strengthen the high-tech sector. “Because Israel has only human resources, there is no real hope of an economic breakthrough in any area other than high tech,” she said. “But this is a sector that is very well-suited to us and that we are working very hard to develop.”
She and others regard high tech as a godsend for Israel’s economy, which slowed considerably in 1997--from an average annual growth rate of 5% throughout the previous decade to just 2% last year. Many industries, including textiles, metals and food processing, have been hurt by the continuing deadlock in the peace process, reduced foreign investment and what some analysts call an overly tight monetary policy. But high tech, with its market mainly in the United States, has appeared almost immune to those challenges, and grew more rapidly last year than before.
Starting in 1991, the government set up the high-tech incubators--research facilities to fund and assist scientists and engineers in the early stages of technological projects. So far, more than $125 million has been funneled into the incubator program. It has yielded about 300 projects, with more than half going on to become full-fledged companies.
Shwed, Check Point’s 31-year-old president and CEO, said he believes that some of Israel’s high-tech aspirations have been aided by a tendency toward nonconformity.
“Israelis are often very creative entrepreneurs, goal-oriented, with a lot of innovations,” he said. “There’s also a tendency to improvise and find solutions. And since we don’t have enough of a local market for high tech in Israel, we have to take a global approach from the very beginning.”
His own story is a case in point.
Shwed was 10 when he started playing around with computers. By the time he was 18 and headed into the Israeli army for his mandatory three-year stint, he was already a gifted programmer, and he used his time in the service to learn new skills.
He left the military in 1991 with the idea for his company already formed, but the Internet was still too limited. Two years later, however, with the rise of multimedia and video transmissions on the World Wide Web, he knew that the time was right. The new possibilities meant more chances for hackers to break into corporate computer networks--and a growing need for businesses to protect themselves.
“We raised money, wrote a small-business plan and then focused on developing a product,” Shwed said. “Since we were so far from the market, we knew we wanted to be in the products business, not service. It worked.”
The product they developed that summer is still the backbone of their company, which has its U.S. operations in Redwood City.
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Overall, high tech has produced strong bonds between Israel and the United States, with executives such as Shwed commuting frequently between their research and development facilities in the Tel Aviv suburbs and their sales and marketing offices in California.
At the same time, many top U.S. technology corporations, including Microsoft, IBM and Motorola, have opened plants and offices in Israel, attracted both by the high-tech talent and by a variety of tax breaks and other incentives. Intel, which already has a research and development site in Haifa, is building a $1.6-billion semiconductor plant in Kiryat Gat.
The already high-profile presence of the Israeli companies on Wall Street is likely to be further boosted. The software company Amdox is expected to raise up to $400 million--a record for an Israeli firm--when it offers its stock for the first time this month.
In many ways, high tech--with its small start-ups and jeans-and-T-shirt culture--seems almost uniquely suited to the casual, shirt-sleeves society of Israel. In addition, high tech’s global market also works well for Israel, which is still isolated from many of its Middle Eastern neighbors.
But the growth of high tech is also changing Israel, shifting its economic power center from the textile, food-processing and banking moguls of recent years to the young upstarts of high tech.
Unlike their predecessors, the newcomers tend to have few ties to the government and little interest in politics. And they--with their sudden wealth--have contributed to a growing culture of upward mobility and an appreciation for the good life that was once foreign in socialist Israel.
Haim Bittner, 50, now a top software engineer in the Tel Aviv office of a U.S.-based high-tech company, has been part of that evolution.
Bittner grew up on a collective farm in northern Israel, but he left to pursue an engineering degree and a career that took him to the U.S. and back. He is now a project manager for EMC, a Hopkinton, Mass.-based firm that specializes in disk drive arrays for large computer data systems.
He acknowledged the philosophical distance between his old job--managing the kibbutz’s date farm--and his current position, but he said there is no inherent contradiction. Not only does he know many former kibbutz members who are now working in the high-tech sector, but several of the collective farms have also gotten in on the act, shifting from agriculture to running technological companies.
“I know many that have made such a transition,” he said. “Now it doesn’t seem unusual at all.”
