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NOVEMBER 24, 2009 Where Tech Keeps Booming By JAMES K. GLASSMAN WSJ 'There are more new innovative ideas . . . coming out of Israel than there are out in Valley right now. And it doesn't slow during economic downturns." The authors of "Start-Up Nation," Dan Senor and Saul Singer, are quoting an executive at British Telecom, but they could just as easily be quoting an executive at Intel, which last year opened a $3.5 billion factory in Kiryat Gat, an hour south of Tel Aviv, to make sophisticated 45-nanometer chips; or Warren Buffett, who in 2006 paid $4 billion for four-fifths of an Israeli firm that makes high-tech cutting tools for cars and planes; or John Chambers, Cisco's chief executive, who has bought nine Israeli start-ups; or Steve Ballmer, who calls Microsoft "as much an Israeli company as an American company" because of the importance of its Israeli technologists. "Google, Cisco, Microsoft, Intel, eBay . . . ," says one of eBay's executives. "The best-kept secret is that we all live and die by the work of our Israeli teams."
Israel is the world's techno-nation. Civilian research-and-development expenditures run 4.5% of the gross domestic product—half-again the level of the U.S., Germany or South Korea—and venture-capital investment per capita is 2½ times that of the U.S. and six times that of the United Kingdom. Even in absolute terms, Israel has only the U.S.—with more than 40 times the population—as a challenger.
As Messrs. Senor and Singer write: "Israel — a country of just 7.1 million people—attracted close to $2 billion in venture capital , as much as flowed to the U.K.'s 61 million citizens or the 145 million people living in Germany and France combined." At the start of 2009, some 63 Israeli companies were listed on the Nasdaq, more than those of any other foreign country. Among the Israeli firms: Teva Pharmaceuticals, the world's largest generic drug maker, with a market cap of $48 billion; and Check Point Software Technologies, with a market cap of $7 billion. Such economic dynamism has occurred in the face of war, internal strife and rising animosity from other nations. During the six years following the bursting of the tech bubble in 2000, Israel suffered one of its worst periods of terrorist attacks and fought a second Lebanese war; and yet, as the authors note, its "share of the global venture capital market did not drop—it doubled, from 15 percent to 31 percent."
One important question that "Start-Up Nation" raises is: Why Israel and not elsewhere? Messrs. Senor and Singer point to a "classic cluster of the type Harvard professor Michael Porter has championed Silicon Valley embodies": the tight proximity of research universities, large firms and start-ups, a talent pool drawn from around the world, and an ecosystem of venture capital and military and other government R&D funding. In addition, they contend, Israel has a unique entrepreneurial culture that combines individualism, egalitarianism (a penchant for organizational flatness) and nurturing. Where does this culture come from? Mainly, the Israeli military. "You have minimal guidance from the top," Messrs. Senor and Singer write, "and are expected to improvise, even if this means breaking some rules. If you're a junior officer, you call your higher-ups by their first names, and if you see them doing something wrong, you say so." High-school stand-outs are recruited into elite military units and trained intensively, with an emphasis on technology. When they're done, everything required to launch a start-up "will be a phone call away. . . . Almost everyone can find some connection to whomever he or she needs to contact to get started." Israel is a country, it seems, where everyone knows everyone.
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The greatest strength of "Start-Up Nation" is not analysis but anecdote. The authors tell vivid stories of entrepreneurial success, such as that of Shai Agassi, the son of an Iraqi immigrant to Israel, with his electric-automobile technology, now in the process of creating "Car 2.0"; or Gavirel Iddan, who got his start as a rocket scientist, with his pill cameras that explore the inside of the human body, founding Given Imaging in 2001, "the first company to go public on Wall Street after the 9/11 attacks." In the end, it is not easy to discover why Israel, a tiny nation of immigrants torn by war, has managed to become the first technology nation. It may be enough, as this fine book does, to shine a spotlight on its success.
—Mr. Glassman is executive director of the George W. Bush Institute, a think tank that is part of the Bush Center in Dallas, which will include a library and museum.
Printed in The Wall Street Journal, page A21
http://online.wsj.com/article/SB20001424052748704779704574553884271802474.html (subscription)
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