Abstract

Antecedents and Consequences of High-Tech Offshoring in

Israel:

Business and Ethical Perspectives

Avi Kay

1

Department of ManagementLev Academic Center, Jerusalem Israel

A Working Paper

2

Abstract

Offshoring is a ubiquitous feature of the global economy. Over

the last twenty years Israel has emerged as a major player in

the offshoring of high-tech business activities, particularly

with regard to R&D activities and other advanced processes. In

addition, it has become the nation with the highest level of

venture capital investment per capita. Historical and

demographic explanations for this phenomenon are suggested.

Also a description of some of the economic and social

consequences of the high-tech offshoring phenomenon in Israel

are presented, with a look at possible future directions of

offshoring in Israel.

Avi Kay is a Senior Lecturer in the Department of

Technological Management and Marketing at the Jerusalem

College of Technology and a Research Fellow at the Jerusalem

Center for Business Ethics. His research interests include the

evolution of the Israeli economy toward a market economy and

3

its social consequences the development of business ethics in

Israel.

4

Antecedents and Consequences of High-Tech Offshoring in

Israel

No one accepted, all-encompassing definition of

"offshoring" exists. With that, existing definitions (e.g.

Blunden, 2004) typically point to the transfer of a myriad of

activities associated with international trade and foreign

investment from one nation to another in order to gain some

type of business related advantage (reduction of labor costs,

geographic proximity to markets, access to unique knowledge

resources, increased return on investment etc.). A number of

authors (i.e. Breznitz, 2005; Giarratana, Pagano and Torrisi

2005) suggested that it was inevitable that offshoring would

expand from more simple, manufacturing and service activities

with which it has been traditionally associated to more

sophisticated and knowledge-intensive activities associated

with high-tech. As will be seen, it was equally inevitable

that, if such a transition would occur, that Israel would play

a significant role with regard to that phenomenon in light of

the manner in which the economy and high-tech sector, in

particular, evolved.

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The purpose of this work is to examine the phenomenon of

high-tech offshoring in Israel. First, the relationship

between globalization and offshoring will be investigated in

order to better understand the unique aspects of the former

which may impact on the latter. Following that, the salient

aspects of the Israeli reality which might make Israel a

natural destination for certain offshoring activities will be

presented. The knowledge generated here may help explain not

only how and why Israel emerged as a center for high-tech

offshoring activity, but also help predict future

developments in the area.

Globalization and Offshoring: The Logic of the Global Economy

There exist numerous definitions of globalization. In the

context of this work globalization will be taken to be "a

multidimensional set of social processes that create,

multiply, stretch, and intensify worldwide social

interdependencies and exchanges while at the same time

fostering in people a growing awareness of deepening

connections between the local and the distant” (Steger, 2003:

13). The economic, political, cultural and social consequences

of globalization have been the focus of tremendous discourse

6

and debate over the last twenty years (e.g. Jameson and

Miyoshi, 1999; Mazlish and Iriya, 2005; Lechner and Boli,

2011). De Vylder (2008) pointed out the contentiousness of not

only the possible ramifications of globalization but also the

very way in which the phenomenon is viewed in different

disciplines and in various parts of the world (he focuses

particularly on the differences among those in what is often

referred to as "the West" and those not from "the West"). A

study undertaken by The World Bank suggests that from an

economic perspective globalization may take a number of forms:

international trade, foreign direct investment (FDI) and

capital market flows. In the case of Israel, all three of the

above served to expedite the development of offshoring; which

is but one of the "logical" economic outcomes associated with

the process of globalization.

Mazlish and Iriye (2005) suggest that "(N)owhere is

globalization more dramatically demonstrated than in its

technological innovations that have continued to narrow

distances among various parts of the world (p.31).

Interestingly, IT offshoring was both a consequence and

catalyst of that technological change. Due to advancements in

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IT technology (such as ICQ and the Pentium chip – both of

which are Israeli-born), information can travel unchanged over

infinite spaces at breakneck speeds (Levy, 2005).

These innovations have resulted in a compression of time

and space to such a degree that for work organization and its

products; elements of geography and time-zones have lost much

of their meaning. In many ways, the distance among

international centers of business activity is the distance

between one's hand and the nearest computer keyboard. As a

result, today the competitive advantage of nations is directly

linked to the intellectual and creative capabilities of those

individuals who have their hands on the keyboard.

Why Israel?

It is those human capital capabilities that have thrust

Israel to the forefront vis-à-vis offshoring in the high-tech

sector. Israel has come to play a central role in the

international development of the high-tech sector (Hillner,

2000; Senor and Singer, 2011). While this matter will be more

fully demonstrated further on in this piece, for now it will

suffice to note that Israel has consistently been rated as one

of the most important - if not the most important - high-tech

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location outside of Silicon Valley. Indeed, as early as 1996

Israel was recognized as a leading international center for

high-tech developments.1 Nearly twenty years on, Milian (2012)

reported that international entrepreneurs surveyed named

Israel as the second most important place for high-tech

development, after Silicon Valley.

Thus, while Israel may be "smallest sister" of what is

often termed the 3Is of offshoring (India, Ireland and

Israel), due to unique features of Israeli society and its

recent economic transformation the Israeli offshoring

experience (and potential) is quite different than that of

other nations. Israel's story provides an interesting - and

perhaps unique - prism through which the possibilities and

problems of high-tech offshoring can be viewed.

The Historical and Societal Context of the Israeli High-Tech

Sector

In the following sections the characteristics of Israeli

society and economy that impact on the way the Israeli high-

tech sector developed will be presented; with an eye toward 1 Hillner, J. 2000. Venture Capitals. Wired Magazine. July 2000. Electronicdocument at www.wired.com. Newsweek noted in its April 8, 1996 issue that "Silicon Valley really has only one rival outside the United States -Israel." According to the Israeli Venture Capital group Apax partners, Israel currently accounts for 2.5% of total global technology (as quoted in www.mfa.gov.il). Electronic document Accessed February 23, 2004.

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what might make Israel a logical choice for high-tech

offshoring.

From "Workers' Commonwealth" to American-style Market Economy

Israel can be best viewed as an "ideological start-up."

In 1897 a young ideological entrepreneur, named Theodore

Herzl, put forward a blueprint which brought together the

trend toward nationalism in Europe with traditional Jewish

thought regarding the reestablishment of Jewish sovereignty in

Turkish-controlled Palestine (Elon, 1971). As is often the

case with business start-ups, Herzl and his successors in the

Zionist movement subsequently were faced with the task of

locating the backing needed in order to transform their idea

into a product. Having gained the necessary backing in the

form of the United Nations decision to partition then British

controlled-Palestine into two separate Jewish and Arab states,

the product of the Zionist movement; the state of Israel - was

established in 1948.

Central to the ideology which led to the establishment of

the state were the socialistic ideas of its founders.2 Indeed,

for most of those involved in the maturing and management of

2 A. Elon 1971. Israel: Fathers and Sons. New York, Holt, Rinehart and Winston.

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the Jewish community it was neigh impossible to imagine the

Jewish political entity as anything but socialistic in

character. The economic and political institutions of the

state in the making (from 1920-1948) and in the nascent state,

itself, were clearly socialistic in nature and part of an

overall policy of creating a "workers' commonwealth." Not

surprisingly, a central feature of economic policy was the

protection of worker rights and maintenance of equality among

them. Thus, along with having the highest rate of economic

growth in the world in the 1948-1970 period, the Israeli

economy also exhibited the lowest rate of economic disparity

in the West (Ben Bassat, 2003).

However, increased contact with - and desire for - a more

consuming oriented society along with the economic fallout

associated with the 1973 Yom Kippur War and the subsequent

energy crisis of that era necessitated a fundamental change in

Israeli economic policy. Faced with the prospect of economic

disaster in 1984 due to both having and annual inflation rate

of 400% and the largest per capita government debt in the

world, the Israeli government undertook a process of economic

11

reform which would change both the goals and ground-rules of

the economy and society Ben Bassat, 2003; Young, XX)

The "liberalization" process begun in 1985 led Israel

from an economy characterized by almost ubiquitous government

intervention to one in which market forces became increasingly

more central. The "socialist ethos" which had characterized

(at least official) public sentiment was replaced by an

increasing interest in allowing market forces and individual

entrepreneurs recreate Israel into a more economically viable

and "open" society.

Reflecting the above, Israel's rank on the CATO

institute's scale of economic freedom moved from "102" in 1980

to "97" in 1990, and to "48" in 2012 (CATO, 2012).3 Indeed,

the policies gradually put into place significantly reduced

the costs of doing business in Israel and contributed to a

business environment which became increasingly similar to that

of the United States.4 This transformation was key to the

3 For comparison sake, two of Israel's offshoring "rivals", India and Ireland, ranked "9" and "123", respectively on the CATO institutes scale of economic freedom. See www.cato.org for details regarding the scale, itscomposition, its implications and individual country ratings. 4 An indication of this change can be found in a United States government website dedicated to assisting American businessmen interested in doing business overseas. Analyzing the Israeli economy that site (www.buyusa.gov) notes that: “The business environment and style will seemfamiliar to American businesses.”

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entrance of Israel as a central player in the international

high-tech community. This, in turn, has changed both the

economy and society of Israel in a fundamental fashion.

The Defense Industry: From Bullets to Bytes

Any discussion of Israeli society necessitates an

understanding of the security situation in which the nation

has existed since its inception. Similarly, one cannot

understand the evolution of the Israeli economy, in general,

and that of the high-tech sector, specifically, without

examining how security concerns influenced their development.

One consequence of Israel's geopolitical reality was the

establishment of both military units engaged in applied

scientific-technological research and the development of a

local defense industry. Both of the above shared a mandate of

contributing to the safety and independence of the state via

the creation of locally produced weapon systems, with

particular focus on the significant demographic disadvantage

faced by Israel with regards to its neighbors.

Thus, it is not surprising that much of the focus in

industry in general - and in the defense industry in

particular - has been on the use of technology to achieve

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security.5 Indeed, the research and development undertaken by

the defense industry was the cradle of the Israeli high-tech

sector from which a great many high-tech companies and

entrepreneurs emerged. Perman6 credits the military with

creating a "technological elite" who would subsequently be

responsible for the creation of the overwhelming majority of

Israeli high-tech ventures. de Fonteney and Carmel7 (2001)

note that the military service also expedited technological

advancement via the creation of interpersonal networks among

individuals who either served together or shared similar

military experiences. Finally, Israeli entrepreneurs have had

the luxury of making use of the rigorous selection process of

- and actual experience in - the military as a source of

information concerning the native skills, motivation and

perseverance of potential employees in highly-pressured and

demanding conditions.8

The Technological and Human Infrastructure of High-Tech

Certainly one of the central elements in any decision

regarding offshoring is the technological infrastructure of

the destination country.9 Israel has a sound infrastructure

which makes it a reliable platform for business activities.

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Its energy, transportation, health, education and

telecommunication systems are at par with OECD countries.10 In

a recent analysis of 24 "emerging markets", Israel was ranked

"6" in the quality of its infrastructure, between Poland and

Slovakia. In fact, Israel was the only non-European country

besides Singapore (which was ranked "1") in the top ten

countries regarding this matter.11

PLACE TABLE 1 ABOUT HERE

As noted, Israel has few natural resources. This reality,

along with a traditional stress on education led to the

creation of an academic-research infrastructure of breadth and

depth that is far greater than might be expected in light of

demographic and economic considerations. Beyond concern with

security related knowledge, Israel has traditionally invested

5 See M. Teubal (1993). "The Innovation System of Israel: Description, Performance, and Outstanding Issues." In National Innovation Systems: A Comparative Analysis. R. Nelson, ed. Oxford: Oxford University Press;476-502..6 S. Perman, 2000. Startup Nation. Electronic document, www.ecompany.com. 7 See C. de Fonteney and E. Carmel. 2001. Israel’s Silicon Wadi: The ForcesBehind Cluster Formation. Stanford: Stanford Institute for Economic Research for a thorough discussion of some of the economi and organizational antecedents of the formation of high-tech clusters in Israel. .8 The military also is seen typically as contributing to the strong sense of communal (in this case "organizational") responsibility that Israeli high-tech employees have been reputed to possess. In private communicationone American-born Israeli venture capitalist noted that the intensity of those ties often had not totally desirable effects on the ethical behaviorof many of these young entrepreneurs.

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in both pure and applied research, viewing it as central to

the viability of the economy of the state. Indeed, until the

end of the 1980s the proportion of R&D funded by the

government was second to none.12 Currently Israel spends 4.7%

of its GDP on R&D, trailing only Japan and Sweden in this

area.13

PLACE TABLE 2 ABOUT HERE

But, perhaps it has been the human capital infrastructure

which has been the most unique and, ultimately significant,

aspect of the development of the high-tech sector in Israel.

Israel has consistently been ranked among the nations with the

highest percent of college graduates, the highest percent of

individuals with advanced degrees and the highest percent of

individuals with academic training in technology and the

sciences. Indeed, making up for an initial lag with regard to

the training of scientists and engineers during the first two

decades of its existence, the percent increase in the above

9 Blunden 2004 10 Information regarding these matters can be found via the websites of the Ministry of Foreign Affairs (http://www.mfa.gov.il), the Central Bureau of Statistics (www.cbs.gov.il) and that of the OECD (www.oecd.org).. 11 The website www.globalproduction.com provides an in-depth analysis of these emerging markets on a variety of measures including : R&D capacity, labor costs, skill base of population and other salient matters. See tableat the end of this work for a comparison of Israel and India on some of these indicators. Ireland was not among those nations examined.

16

between 1967-1990 was over 200% - twice that of Japan during

the same period and more than ten times that of the United

States.14 Finally, another indication of the academic

infrastructure is the fact that Israeli academics are second

only to the Swiss with regard to per capita publication of

articles in professional journals.15

However, the "natural growth" of individuals with

scientific or technological training has always been

supplemented by immigration of individuals from overseas. It

was the immigration of two particular groups during the 1990s,

from the former Soviet Union and from the West, that help

create the conditions that enabled both the tremendous growth

12 M. Teubal 1993. One indication of the centrality that research held in the eyes of its founders is the fact that Israel's first prime minister, David Ben-Gurion, himself headed the "research council" which was established immediately after the conclusion of Israel's War of Independence. In an amusing anecdote, former Israeli President Ephraim Katzir, who himself is a research biologist, recalled how when initially approached to provide research funding, Ben-Gurion became so excited that at the end of the meeting he took fifteen Israeli lira out of his own pocket and gave it to the speaker (quoted in I. Asher and M. Zadok (2004) Promoting Science, Education and Society: The Academic-Government Challenge. Jerusalem: The Israeli Society of Sciences and Humanities.). With that, the government system of support tended to overstress the "discovery" aspect of R&D at the expense of the "application" aspect. 13 See the website of the Ministry of Foreign Affairs for (http://www.mfa.gov.il/mfa/home.asp) for further information concerning the Israeli high-tech sector. For comparison sake, the OECD website indicates that this figure is more than double that of Ireland. It is worthwhile to note that much of the early research was done in university settings, which were pioneers in the establishment of frameworks for academic and industry cooperation.

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of the high-tech sector - in general - and the attractiveness

of Israel as a destination of offshoring, in particular.

During the 1989-2000 period one-million immigrants

arrived from the former Soviet Union (becoming roughly 18% of

the total population of Israel )bringing with them training

and skills they had gained in their native land. Among these

immigrants were over four hundred thousands university or

technical college graduates; with nearly a quarter of them

holding advanced academic degrees. The most common area were

those which were well-suited for a high-tech sector in the

making: mathematics, natural science and engineering. Due to a

great extent to these immigrants - the concentration of

scientists and engineers in Israel is the highest in the world

(135 per 1000) ; far surpassing the United States (80 per

1000) and Japan(75 per 1000) - its closest competitors in this

area.

Another important - albeit smaller - source of

immigration with regard to the development of high-tech in

Israel and subsequent offshoring activities were those

immigrants who came from the West during this period. During

14 See Teubal 1993 for a discussion of this matter.15 http://www.mfa.gov.il/home/asp

18

the 1990s over 30,000 native English speakers (among them

20,000 Americans and Canadians) and 20,000 native French

speakers immigrated to Israel.16 The importance of this

immigration is threefold. First, these individuals brought

with them native language and cultural skills which are of

great value with regard to high-tech and offshoring related

activities. In addition, the great majority of the English

speakers arrived to Israel with academic training, of which

the area of high-tech and the allied business fields

predominated. Finally, these immigrants, along with Israelis

who returned from either academic studies and/or work in the

United States, served as a conduit of both American business

culture and contacts.17 Thus, in light of both the background

of native Israelis and immigrants it not surprising that

Israel was recently ranked third among emerging economies with

16 Figures from the website of the Israeli Central Bureau of Statistics (www.cbs.gov.il). 17 Both A. Levav 1998. Shevavim Shel Tikva (The Birth of Israeli High-Tech). Tel Aviv: Zimora-Bitan and de Fontenay and Carmel 2001 note the impact that returning Israelis have had on the development of the Israeli high-tech sector and its contacts with American firms in particular. Those Israelis who did not return to Israel were often key factors behind the decisions of American firms to invest in and establish cooperative ventures with Israeli-based start-ups. They note that all of the 3Is have benefited greatly from having a diaspora community. Though, it is important to note that only Israel seems to be drawing non-native members of its diaspora with a variety of government and private organizations in place to encourage and ease the immigration of individuals with high-tech backgrounds to Israel (see the websites www.mfa.gov.il, www.hitech.co.il or www.nbn.co.il for examples of the above).

19

regard to the quality of its skill base, after South Korea and

Russia.18

The Evolution of the Israeli High-Tech Sector

Humble Beginnings

As noted, the high-tech sector had its beginnings in the

security requirements of the state. The military - and later

the rapidly expanding economy - served as natural engines

driving the development of a nascent high-tech sector in the

1960s. In a far-reaching and exhaustive study of the

international software industry Arora notes that, as opposed

to the other 2Is (Ireland and India), Israel's high-tech

sector was a natural outcome of domestic demand. By the 1960s

Israel was at the forefront of both the use of mainframe

computers and the development of newer and more efficient uses

of those systems. In addition, much progress was made in in

terms of the development of sophisticated electronic and

electro-optic military equipment. These hardware enterprises

served as the basis of a software industry in which Israel was

to excel. With that said, it was only in the late 1970s that

18 Taken from www.globalproduction.com. While Israel scored a possible .758 out of 1 on this measure, India was placed next to last witha score of .125.

20

the quality and diversity of the products and services that

developed in Israel began to focus the attention of

organizations and individuals overseas.19

The Lavi: An Auspicious Failure

Both national pride and security concerns motivated Israel

to undertake the building of its own "home-grown" jet fighter:

the Lavi. Ironically, the failure of that project to take off

may be seen as marking the beginning of the high-tech

revolution which would subsequently change both the Israeli

business sector and Israel itself. For, the collapse of the

project led to wide-spread layoffs and the subsequent

transition of hundreds of scientists and engineers from the

military and other government operated framework to the

private sector. The knowledge that these individuals took with

them, along with the generous severance packages that they

received were parlayed into dozens of new civilian start-ups.20

19 While both IBM and Motorola had a presence in Israel by the 1960s, those operations were intially dedicated to sales and service only. In fact, Intel was the first high-tech firm to identify in the late 1970s thepotential of Israel for the development and manufacturing of high-tech products.20 See D. Breznits 2005. Software tooling: The Evolution of The Israeli Software Industry, In The Rise and Growth of the Software Industry in Some Emerging Economies. A. Arora and A. Gamardella, eds. Oxford: Oxford University Press. Interestingly, de Fonteney and Carmel (2001) note that the new enterprises established by the engineers who had been made redundant benefited from the fact that the Israeli military was much less stringent regarding the subsequent use of intellectual property gained under its auspices than for-profit business organizations would be.

21

These new enterprises also benefited from the strategic

decision taken by Israeli governments to put in place policies

that would encourage entrepreneurship and growth of the

business sector in general - and the high tech sector in

particular.

The commitment of the government to this course of action was

further strengthened by the arrival of hundreds of thousands

of immigrants with scientific and technical skills. This

support came both in the form of expansive loan programs and

the creation of a large number of technological incubators

which provided technical, administrative and business support

for entrepreneurs.

The 1990s : From Oranges to Apple@

In 1992 the level of Israeli citrus and high-tech exports

were identical: 150 million dollars. A promising peace

process, hundreds of thousands of skilled technical employees

and the global high-tech boom provided the opportunity for

which the Israeli high-tech sector had been posed. By the end

of the decade, high-tech exports would rise by 670% and reach

an annual rate of roughly 10 billion dollars a year (or nearly

60% of total manufacturing exports). By the end of the decade

22

foreign direct investment via American venture capital funds

would increase 600% and reach a total of over sixteen billion

dollars in total, with six billion dollars being invested in

the year 2000 alone. By the end of the decade, over 100

Israeli companies would be traded on Wall Street, placing

Israel behind only the United States and Canada with regard to

matter. By the end of the decade Israel would have reinvented

itself as the Silicon Valley of Mideast.

The new cultural heroes were not those who had dried the

swamps and undergone the trials of the battlefield; but

rather, those who had whet the appetites of foreign financiers

and excelled in the boardroom. In his rather caustic account

of the evolution of the Israeli economy, Moshe Pearl, the

business editor of the leading daily, Ma'ariv, would note that

the high-tech revolution led the Israeli business community

(if not the public at large) to believe that they "had broken

the code" and that their collective futures were guaranteed.

They had taken their rightful place in the world economy and

had become "global players."21 Diagram 2 presents the total

worth of the offshoring associated with various locations.

21 M. Pearl (2003). B’Enayim P’kuchot (While We Were Watching). Tel Aviv: Maariv Books..

23

PLACE DIAGRAM 1 ABOUT HERE

The Israeli High-Tech Sector and Offshoring

By happy coincidence, the liberalization of the Israeli

economy and the efforts of the government to encourage

entrepreneurship and the evolution of a high-tech sector

bolstered by a massive wave of skilled immigrants coincided

with the global high-tech boom. The myriad of start-ups and

otherwise "young" firms which arose evolved into a high-tech

"cluster" in which a wide-variety of R&D and manufacturing

relationships emerged.22 The international high-tech community

"discovered" Israel and Israel became a focus (and later

initiator) of high-tech offshoring. Diagram 2, Israel presents

the organizational options regarding offshoring activities

with regard to the necessary skills needed to undertake the

various options in a professional and economic manner. As will

be seen, Israel is squarely to the right side of the diagram

that describes those activities necessitating more highly

skilled labor.

PLACE DIAGRAM 2 ABOUT HERE

22 See de Fontenay and Carmel 2001 for a discussion of the antecedents andfuture of the Israeli ICT cluster.

24

In the following section, the four expressions of high-

tech offshoring within the Israeli context will be presented:

(1) R&D, (2) Manufacturing (3) Foreign Direct Investment and

(4) customer relations.

R&D Offshoring and Israel: The Leveraging of Knowledge

Arora, suggested, somewhat blithely, that the high-tech

community came to India for inexpensive skilled labor, to

Ireland to take advantage of it tax incentives and proximity

to Europe and to Israel to do R&D.23 While offshoring has taken

different forms in Israel, clearly perhaps the most attractive

aspect to most potential "offshorers" is the possibility of

leveraging the creativity and research potential available in

Israel. This sentiment is echoed in a recent interview

regarding the offshoring activities of Symantec, its IT

Director, Dean Lane, mentioned that they had considered

offshoring to Israel. When queried regarding the motivation

for that he noted:

There are a number of firms offshoring to Israel. Israel

offers highly technical and extremely intellectual

23 Arora 2004. de Forteney and Carmel 2001 estimate that foreign entities account for roughly 10% of high-tech R&D in Israel.

25

engineers. So, if you have tough mathematical problems

that require real brain power, Israel fits the bill. If

that was the kind of operation we were looking to

offshore, I probably would have sent our venture to

Israel. [Laurie, 2004]24

Israel has long been at the forefront of the offshoring of

high-tech R&D operations; particularly in the area of IT.

Leading the pack by a wide margin, 86% of Israeli R&D is in

the area of IT (the OECD average is 34% for this type of

investment). Accordingly, there is little activity related to

neither contract programming nor packaged software products,

as is common with India and Ireland, respectively. Rather, the

focus is on software product development and testing; data and

internet security and the integration of systems. Another

important factor which contributes to the attractiveness of

Israel as an R&D location is the high rating it receives with

regard to intellectual property.25

Appropriately, it was in Israel that such firms as IBM,

Motorola, Vishay, Intel, Microsoft and Cisco chose to

24 Quoted in the web-magazine www.searchICO.com, February 10, 2004. 25 Israel has been rated as having a considerably higher respect for intellectual property (a score of 7.5 out of 10) by the CATO Institute forEconomic Freedom than either Ireland (6.2) or India (3.3); www.cato.org.

26

establish their first R&D presence outside the United States.

In light of the 400% increase in the overseas R&D expenditures

of American high-tech corporations,26 it is not surprising to

find a steady rise in the number and intensity of American

firms doing their R&D in Israel. In fact, a recent study found

that no less than 60 international firms have R&D centers in

Israel including those from the United States (i.e. GE,

Hewlett-Packard, 3M), Europe (i.e. Siemens, Volkswagen) and

Asia (i.e. Huawei Technology, Samsung ). The R&D efforts of

the above firms in Israel have produced a variety of revenue-

driving innovations such as: the cellular phone (Motorola),

the Pentium II chip (Intel), instant message technology - ICQ

(AOL) and most of the Windows NT and XP operating systems

(Microsoft).27

It is further interesting to note that the nature of the

R&D operations of these entities in Israel is different than

those in Ireland or India. First, there is a higher level of

cooperation between the international firms and local, Israeli

firms. Significantly, this cooperative effort influences not 26 V. Bonvillian 2004. Buttressing the Federal role in Innovations. GeorgeWashington University Center for International Science and Technology Policy. Technology and Innovation Center. March 10, 2004. 27 Information taken from presentation of the Israeli Ministry of Industryand Trade, "The Israel Advantage: Produce, Research & Develop". www.tamas.gov.il.

27

only the formal nature of the relationship, but also the

manner in which patents developed by the parties are

registered. In contrast to Ireland and India, patents

developed by the international firm in tangent with a local

Israeli firm tend to be registered as belonging to both

companies.28

Manufacturing: Israeli Workers as Profit Centers

While the distinguishing aspect of high-tech offshoring

vis-à-vis Israel is its R&D potential and products, there are

a number of firms who have significant and long-standing

manufacturing operations in Israel. The "downside" of

undertaking such operations in Israel is fairly clear to the

eye: Israeli IT labor is not cheap by global standards. For,

while international figures suggest that Israeli IT workers

(like their Irish counterpart may make "only" 25%-60% of that

of an American IT worker); local data seems to indicate that

those figures may be too low and not reflect the actual

costs.29 Either way, labor costs in Israel are considerably

higher than those typical of India, China and Russia.30

28 M. Giarratana, S. Torrisi and A. Pagano (2005). The Role of MNCs in the Evolution of the Software Industry in India, Ireland and Israel. In The Rise and Growth of the Software Industry in Some Emerging Economies. A. Arora and A. Gambardella, eds. Oxford: Oxford University Press.

28

With that, as was noted previously, the skill base of the

average Israeli worker far exceeds that of those in India,

China and Russia. Also, Israeli workers tend to have lower

levels of turnover, something which may contribute to the

ability of an organization to plan and execute projects in an

optimal fashion.31 But, without a doubt the most significant

benefit of Israeli workers is simply the fact that they seem

to contribute considerably more added value than their

counterparts. More specifically, sales per employee for Israel

are 1.6 times that of Irish workers and 5 times that of Indian

workers.32

Thus, it is not completely surprising that a number of

leading IT actors, such as Vishay, Intel and Motorola have

chosen to maintain manufacturing facilities in Israel. While

these firms are among the largest employers in the high-tech

sector, due to the large number of local firms they account

for only 11% of the roughly 150,000 Israelis employed in the

29 Blunden 2004 presents such a comparison . However, it may be possible that the figures reflected the strong slow-down experienced by the Israelihigh-tech sector from 2001-2003. 30 Taken from Blunden 200431 Arora 2004. The relatively low salaries in general along with the massive growth of the IT sector in India and the general instability of the Russian economy may make workers there more likely to act in a proactive fashion to advance their economic position. 32 Arora 2004.

29

area. Similarly, though their facilities also tend to be on

the large size by Israeli standards, they are responsible for

only roughly 10% of sector sales.33 This situation is quite

different than that which exists both in (particularly)

Ireland and India, where foreign firms dominate both with

regard to sheer number of employees and sector sales.34

Intel is a telling example of the nature of offshore

high-tech manufacturing in Israel. While not the largest

foreign employer in the sector, Intel has a multi-faceted and

high-profile presence in Israel. It operates a number of

design and development centers and two fabrication plants;

including the state-of-the-art Fab 18 plant which was recently

constructed in southern Israel for 1.6 billion dollars. Intel

is typical of these foreign firms in that production is almost

exclusively directed to export (with the exception of Motorola

in which roughly half is export oriented).35 33 Figures taken from de Fonteney and Carmel 2001 and Dun and Bradstreets-Israel "Dun's 100: Israel's Largest Enterprises" on the company website: www.dunbd.co.il. The largest foreign employers in this sector are Vishay (13,000 employees), Intel (5,300 employees) and Motorola (3,500 employees). 34 See Arora 2004. As was the situation with regard to R&D, also in the area of manufacturing there exists a much higher level of cooperative ventures between foreign and local firms in Israel than in either Ireland or India. This point is echoed by a report of the Canadian Software Human Resource Council, "Trends in Offshoring of IT Jobs" that can be viewed on the organization's website: www.shrc.ca. 35 See the Dun and Bradstreet Israel website (www.dundb.co.il) for furtherinformation.

30

Recent years have seen the Israeli high-tech offshoring

process take a few interesting turns. First, not surprisingly,

many Israeli companies have begun to offshore themselves;

primarily to India and Russia. Typically, responding to the

cost-cutting pressures, an executive of Israel's largest

outsourcing firm, Ness, was recently quoted as saying: "We

cannot control the wind. We can only adjust the sails."

[Federman 2005]36 While India is the most logical - and to now

used - venue for Israeli offshoring, Russia has also been the

target of Israeli offshoring in light of the large population

of Russian speakers employed in the high-tech sector. Yet

another, relatively recent, phenomenon regarding this matter

is the purchase of manufacturing (and to a far less extent)

R&D facilities abroad. Significantly, while there seems to be

an understanding of the necessity for an overseas

manufacturing presence, either due to logistic or public

relations considerations there seems to yet to have been a

precedent of an Israeli firm moving its R&D abroad37

Foreign Direct Investment - The Millionaire Machine

36 India's Threat to Israeli High-Tech Industry. The Financial Express, March 22, 2005.37 de Fonteney and Carmel 2001 note the almost complete absence of overseas R&D facilities in Israeli foreign ventures. The ideas presented were culled from both the literature and personal correspondence.

31

Foreign direct investment (FDI) is the financial

involvement of an individual or entity from one nation in

business operations of another nation. This involvement can be

expressed either through direct investment in a business

venture and/or in financial markets in which shares of that

venture are traded. As was previously noted, FDI was a

negligible variable in the Israeli economy until the early

1990s. However, by the end of the decade, FDI had become one

of the most clear expressions and indicators of high-tech

offshoring within the Israeli reality and Israel had become,

perhaps, the most clear example of what FDI can do for a local

economy.

The rise in FDI in Israel was actually the result of two

seemingly unrelated processes. The first process was associated

with the liberalization process of the Israeli economy from

1985 onward. Due to deregulation of the capital and foreign

currency markets, for the first time in its history the

transfer and investment of capital was both more possible

(from a legal perspective) and easier (from a practical

perspective). However, the above was a necessary - but not

sufficient - factor in the striking change in the role of FDI

32

in the Israel high-tech sector. It was only when the Israeli

high-tech sector matured that it had became not only possible

- but prudent - to invest in what had begun to be viewed as

the "Silicon Wadi".38

The Israeli high-tech sector focused both the attention of

local financiers (who made use of both local and foreign

funds) and foreign investors. The local VC community, which

was practically non-existent in the beginning of the 1990s

numbered no less than 50 firms by the year 2000. These local

forces are joined - if not dwarfed by - no less than 350

foreign investors investing in Israel including over 200

foreign VC funds, 30 corporate VC funds and 70 investment

companies that have been responsible for annual investment

rates of over one billion dollars a year since over the past

few years.39 Nearly half of all foreign investment in Israel

38 "Wadi" is an Arabic term commonly used in Hebrew for "gulley" or "valley". Once having been "crowned" the local answer to Silicon Valley, Israel began to attract the attention of both journalists and investors alike. In a rather glib assessment of the situation Newsweek magazine (April 8, 1996) stated that "the land of milk and honey has turned into the land of high-tech and money." A spate of similar articles regularly appeared in both the business press as well as the "general" popular pressover the following years.. 39 The Israel Advantage. An OECD working paper entitled: VC Policy Review:Israel, January 28, 2003 noted that from 1998-2001 Israel had the highest proportion of VC capital raised per GDP (1.3%). For comparison sake, the United Kingdom had .68%, Sweden .61% and the United States, .58%. In addition, over 300 local Israeli high-tech firms have raised ten-times theamount of capital than their Irish counterparts over the past two years serving as an indication of the strength of local high-tech forces. .

33

comes from the United States, with an additional quarter

coming from Europe.40 Prominent actors among foreign investors

include the Walden, Stanley Morgan, ATT Pension Fund, the MIT

Endowment Fund, Chase and Sequoia.

But, VC monies account for only roughly 33% of the total

amount of FDI in Israel from 2000-2003.41 Another important

expressions of FDI can be found in direct investment in the

stock market, which has focused both on the high-tech sector

and the privitization of government entities and holdings

(including in the banks).

Another aspect of foreign influence on the Israeli economy

can be found in the very active mergers and acquisitions which

have field which has developed over the last decade, primarily

with regard to high-tech companies.42 Among the most well-

publicized mergers and acquisitions in the high-tech sector

were:

o the purchase of Chromatis by Luscent for 5 billion dollars

o the purchase of Marvell by Galileo for 2.7 billion dollars

40 The Israel Advantage41 The Israel High-Tech & Venture Capital Industry a presentation by the Israel Export & International Cooperation Institute 2005.42 The Israel High-Tech & Venture Capital Industry.

34

o the purchase of New Dimension by BMC for 675 million

dollars and

o the purchase of Mirabalis by AOL for 400 million dollars.

In recent years there has also been a "reverse" flow of

investments from Israel

abroad. First, as noted, an increasing number of Israeli

companies, primarily in the high-tech sector, have purchased

overseas entities. The most significant of these purchases

thus far has been Amdoc's purchase of the Canadian company

Architel for 358 million dollars. Other companies have

engaged in joint ventures in which they utilize their

knowledge and skills in markets heretofore not accessible to

them.

Finally, as previously noted, there are currently more than

100 Israeli companies traded on Wall Street - again -

primarily from the high-tech sector. With 90% of new start-

ups incorporating overseas in order to evade taxes, there

have been questions regarding the true added value that these

firms provide to Israel.43 Joel Bainerman, 44 a veteran

43 Israel High-Tech & Investment Report, September 2000 (www.ishitech.co.il). 44 Joel Bainerman 2002. From the website of Israel Technology, www.israeltechnology.co.il.

35

observer of the Israeli high-tech scene, suggested that the

"discovery" of the Israeli high-tech on the part of VC funds

and Wall Street bankers changed the nature of Israeli high-

tech in a fundamental - and negative - fashion.

Instead of toiling toward the creation of a business

venture based on real needs of the local and international

market (as had been traditionally done), many of the start-

ups were rushed to do an IPO. As such, they began to be

viewed not as a "means" towards an end (creation of real

value to investors and the economy on the whole), but rather

"ends" in themselves. The short-term concerns of financiers

has led to a situation in which fewer start-ups come to

fruition and fewer established enterprises reach the levels

of success that were common in the more veteran Israeli high-

tech firms. Significantly, most of the profits accrued by

foreign entities were not funneled back into the Israeli

economy neither via local purchases nor increased employment,

but rather were increasingly taken elsewhere.

Similarly, while the high-tech companies may have

produced more wealth in Israel during the last seven years

than in all the previous fifty years of its existence, the

36

process may be little more than a "millionaire machine"

providing little benefit to the country at large. Indeed,

Pearl suggested that a considerable part of the much touted

growth in national GNP was an illusion and could be

attributed directly to the extraordinary figures at which

some high-tech firms were purchased.45 As such, the wealth

created new millionaires while leaving most (and predictable)

sectors of the public behind. Indeed, one direct result of

the above was the strengthening of the trend toward a

disparity in income between the poor and rich which is

currently the largest in the West.46

Customer Relations: A New Niche for Offshoring in Israel?

Israel is not typically viewed as a location for the

offshoring of customer service. Indeed, there is only one

English language call-center in Israel and it was established

by the New Jersey-based telecommunications firm IDT, not as a

profit center, but as an act of "Zedaka" (Hebrew for "charity")

aimed at giving employment opportunities to unemployed people

in Jerusalem. The center utilizing the pre-existing 45 Pearl 2003 suggested that the wide-spread fascination and self-satisfaction with the tremendous success of Israel in the high-tech arena led to a situation in which there was no real discussion of the meaning ofthe success neither on a practical economic not ideological level. 46 Annual Report of The Central Bureau of Statistics: 2004 (www.cbs.gov.il).

37

telecommunications infrastructure that the company markets and

employs 600 individuals who have immigrated to Israel from a

variety of different countries. Since its inception two years

ago it has provided services in the following languages:

English (both American and British), French, Spanish, Russian,

Dutch and German.

Center management believes that they must and can move up

the value chain and provide more sophisticated (and expensive)

services than are typically available from call centers in

countries such as India or even Ireland such as telemarketing,

help desk service etc. and other types of scripted

conversations. Indeed, many of the center all center staff

have familiarity with and personal experience in the

offshoring countries, a work-ethic that makes their work more

predictable and even citizenship from countries they serve. In

addition, a majority have academic training.

As such, the center is beginning to capitalize on growing

dissatisfaction with offshoring to cultures and individuals

who need to be shown old episodes of the television sitcom

"Friends" so that they learn about American culture and slang.

The center has begun to market their services as a type of

38

near-shoring which offers the comforts of the home country

without the total cost. Indeed, in a recent conversation with

the CEO of the center he described how he recently told

representatives of an American mortgage bank that "his staff

does not have to learn about the customer population, for had

they not immigrated to Israel they would be the customer

population."47

High-Tech Offshoring and Business Ethics

Quite unintentionally perhaps, one of the things being

offshored to the 3Is and other host countries are expectations

and behaviors related to desired business behavior of the

offshoring countries. This unintentional by-product of

offshoring may be a contribution to both the development of

professional business behavior in the host countries as well

as the development of more predictable, satisfying and

profitable business relations among individuals from different

cultural and social backgrounds. Indeed, in the Israeli case,

the high-tech revolution has led to the establishment of on-

going, intense and complex relations between business-people

in Israel and abroad - particularly in the United States. In

47 Private conversation with Joseph Shmidman, April 4, 2005.

39

this section the impact of American business ethics on the

Israeli business reality will be briefly outlined.

In principle there are two modes through which American

business ethics may impact Israel. First, the on-going type of

relations described may likely lead to a reexamination of the

"boundaries" of the Israeli business-person as they are faced

with the necessity to explain (at a minimum to themselves) why

and how they conduct themselves in the marketplace. However,

more importantly, the high-tech revolution in general and

offshoring in particular has dictated the establishment of

official forums and processes through which the limits of

business ethics will be examined.

An example of the above is the Sarbanes-Oxley act which

calls for an overhaul of accountability systems in publicly

held corporations. More specifically, these corporations are

required to put into place a code of ethics and report

violations of that code to the proper authorities. Israeli

companies traded on Wall Street will be required to abide by

these new directives. Similarly, Israeli companies must take

into account the demands and details of the Federal Sentencing

Guidelines regarding improper business behavior if they are to

40

operate in the United States. Finally, even "local" Israeli

companies must meet the expectation (whether formal of

informal) of both the American corporate world and the

American government, itself, if they are to enter into

business agreement and cooperation with them.48 Another

direct effect of offshoring is the requirement of American

companies that all of their Israeli employees abide by the

company’s code of ethics. To that end, these companies require

their "local" Israeli employees to receive training with

regard to the ethical expectations of the company. In fact,

most of these companies require these employees to pass a test

regarding the ethical code and to sign an acknowledgement that

they accept the code as a binding document with regard to

their business behavior.

Finally, companies such as Motorola and Intel have launched

high profile projects through which they contribute to the

surrounding community. This concept and expression of

48 There is a growing consciousness in the Israeli business community withregard to business ethics. The author is currently editing an Israeli edition of a guidebook for the writing of ethical codes based on that of the Washington-based Ethics Resource Center (www.erc.org). A concrete example of the influence of American business expectations on Israel is the new regulation of the Israeli Security Authority which is modeled on Sarbanes-Oxley and will require all Israeli companies traded on the Tel Aviv Stock Exchange to adopt a code of ethics also. Similarly, the IsraeliVenture Capital Association is drafting a code of ethics which will be modeled on that of their American counterpart.

41

"corporate responsibility" is rather foreign to most Israelis

and is still more an exception than the rule of local business

behavior. With that, the changes that are taking place in

Israel with regard to the proper relationship between the

business community and the surrounding community seem to

emulate the "American" approach to corporate citizenship.

42

Hi-Tech Offshoring in Israel: Problems and Possibilities

As has been seen, Israel plays a unique role in the world

of high-tech offshoring. Its success as a location for R&D and

venture capital and mergers and acquisitions is unparalleled.

It has been able to both act as a host for multinational

corporations while maintaining a vibrant local high-tech

industry which has achieved mutually beneficial alliances with

those corporations. However, as policy-makers (hopefully)

examine the changing panorama of high-tech offshoring and look

to the future in order to best maintain Israel's position,

some troubling questions emerge.

First, to what degree can Israel's success be viewed as a

product of planning and to what degree was it a matter of

serendipity? Local macro-economic policy changes, an

unexpected and almost unparalleled wave of immigration and the

birth of the internet may have provided Israel with a unique

"window of opportunity" which may not remain open. Indeed,

Professor Shimon Schocken, dean of one of the leading computer

department in

Israel noted that due to the problems that the military had

43

vis-à-vis computer security, Israel "by sheer luck" had the

answer so so many of the problems posed by the Internet.49 What

is being done today to analyze the potential needs of the

high-tech sector?

49 Perman 2000

References

Churella, Albert. From Steam to Diesel: Managerial Customs and Organizational Capabilities in the Twentieth-Century American Locomotive Industry, Princeton, N.J.: Princeton University Press, 1998, 231

44

As the Israeli military constricts due to budgetary

constraints and the international market for military goods

recedes, how can Israel maintain the R&D advantage afforded by

military R&D?

Arora, Ashish, Gambardella, Alfonso, Torrisi, Salvatore, “In the Footsteps of the Silicon Valley? Indian and Irish software and theInternational Division of Labor,” in Building high-Tech clusters: Silicon Valley and Beyond, eds. T. Bresnahan and Alfonso Gambardella, Cambridge UK: Cambridge University Press, 2004, 78-120.

Asher, I. and Zadok, M.Promoting Science, Education and Society: The Academic-Government

Challenge, Jerusalem. Israel: The Israeli Society of Science and Humanities, 2004.

Bainerman, J.2002. What Happenned to Israeli Hi-Tech? Electronic

document, www.israeltechnology.co.il, accessed February 15, 2005.

Ben-Bassat, AviThe Israeli Economy 1985-1998: From Government Intervention to Market

Economics, Cambridge: MIT Press, 2001.

Blunden, Bill Offshoring IT: The Good, The Bad, and The Ugly. New York: Apress,

2004.

Bonvillian, William B.Buttressing the Federal Role in Innovation, Washington DC: GeorgeWashington Center for International Science and Technology

Policy, 2004.

Breznits, Dan.

45

What should or can Israel do in order to keep its own

high-tech industry from transferring jobs overseas in order to

save money? How can Israel compete for jobs in a world where

its average salary is much closer to that of the United States

than India or Russia?

Software Tooling: the Evolution of the Israeli Software Industry. in From Underdogs to Tigers: The Rise and Growth of the Software Industry in Brazil, China,. India, Ireland, and Israel. eds.,Ashish Arora and Alfonso Gambardella, eds. Oxford UK: Oxford University Press, 2005, 72-98.

Buy USAElectronic document, www.buyusa.gov, accessed October 10,

2004.

Canadian Software Research Council2004 Trends in Offshoring of IT Jobs. Electronic document,

www.shrc.ca, accessed March 10, 2005.

CATO Institute2004 Scale of Economic Freedom. CATO Institute. Electronic

document, www.cato.org, accessed September 8, 2004.

Central Bureau of Statistics (Israel).Development of Information Communication Technology in the Last Decade, Jerusalem: Central Bureau of Statistics, 2001.

Annual Statistical Report, Jerusalem: Central Bureau of Statistics, 2004.

De Fontenay, C. and Carmel, E. Israel's Silicon Wadi: The Forces Behind Cluster Formation, Stanford CA:

Stanford Institute for Economic Policy Research, June 2001.

Dun and Bradstreet Israel

46

Can Israel leverage the personal and professional skills

of its one million Russian speaking immigrants to serve – at

least as an intermediary – as Russia becomes a more popular

location for offshoring? Can it use Western immigrants to

2004 Dun's 100: Israel's Largest Enterprises. Electronic document,

www.dundb.co.il, accessed February 15, 2005.

Elon, A.Israel: Fathers and Sons, New York: Holt, Rinehart and

Winston, 1971.

Giarratana, Marco, pagano, Alessandro, Torrisi, Salvatore, “The Role of MNCs in the Evolution of the Software Industry inIndia, Ireland and Israel. From Underdogs to Tigers: The Rise and Growth of the Software Industry in Brazil, China,. India, Ireland, and Israel, eds., Ashish Arora and Alfonso Gambardella, Oxford UK: Oxford University Press, 2005, 207-235.

Global Production2004 Emerging Economies. Electronic Document,

www.globalproduction.com.accessed March 10, 2005.

Hillner, J.2000 Venture Capitals. Wired Magazine. July 2000.

Electronic document, (www.wired.com), accessed March 5, 2004.

Israel Export & International Cooperation Institute2005 The Israel High-Tech & Venture Capital Industry.

Electronic document, www.mfa.gov.il, accessed March 25, 2005.

Jameson, Frederic and Moyoshi, Masao, eds., The Cultures of Globalization. Durham and London: Duke University Press, 1999.

47

offer a different - and more quality oriented - model of

customer service which are not replicable in India?

What should or can Israel do in order to maximize the

benefit that the state and its citizens should receive from

profits achieved by foreign investors? What has been the real

Kapur, Devesh and McHale, John“Sojourns and Software: Internationally Mobile Human Capital and the

Software Industry in India, Ireland and Israel,” in From Underdogs to Tigers: The Rise and Growth of the Software Industry in Brazil, China,. India, Ireland, and Israel, eds., Ashish Arora and Alfonso Gambardella, Oxford UK: Oxford University Press, 2005, 236-274.

Levav, A. Shevavim Shel Tikva (The Birth of Israel's High Tech), Tel Aviv: Zimora-Bitan, 1998.

Levy, Pierre (2005). “Cyberculture,” in The Global History Reader, eds., B. Mazlish and A. Iriye, NY: Routledge, 52-59.

Mazlish, Bruce and Iriye, Akira eds., The Global History Reader. NY:Routledge, 2005.

McKinsey Global Institute (MGI), Offshoring: Is it a Win-Win Game?, McKinsey & Co. Inc. San Francisco

CA., 2003.

Ministry of Industry and Commerce (Israel).2004 The Israel Advantage: Production, Research &

Development. .

OECD

48

impact on the economy of the high-tech boom? Has the economic

boon associated with high-tech widened divisions in society

between “periphery” and “center”, “more educated” and “less

educated” and “rich” and ”poor”? How can Israel best mold a

society which combines some of the historical concern for

2003 VC Policy Review: Israel. Electronic document, www.oecd.org, accessed

February 15, 2005.

Pearl, M. B'Inayim P'kuchot (While We Were Watching), Tel Aviv: Maariv, 2003.

Perman, S.2000 Startup Nation. Electronic document, www.eCompany.com,accessed

March 10, 2004.

Saxenian, A.Local and Global Networks of Immigrant Professionals in Silicon Valley, San Francisco, Public Policy Institute of California, 2002.

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Senor, D. and Singer, S. (2011). Start-Up Nation: The Story ofIsrael's Economic Miracle. New York, Twelve

Steger, M. B. Globalization: A Very Short Introduction, Oxford: Oxford University Press, 2003.

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and OutstandingIssues,” in National Innovation Systems: A Comparative Analysis, ed.,R. Nelson, Oxford, UK: Oxford University Press, 1993, 476-502.

The Financial Express

49

community and mutual aid with the challenges of a market

economy in which high-tech opportunities lead the way?

Finally, how can Israel maximize the potential benefits

that offshoring may offer in the reexamination of its ethical

2005 India's Threat to Israel's High-Tech Industry. Electronic Document,

www.nasscom.org. Electronic document, accessed March 31,2005.

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Offshoring of Services. GAO Report Number GAO-04-932.

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After Silicon Valley, Tel Aviv Ranks Best for Tech Startups: StudyBy Mark Milian View ProfileEmailTwitter| Nov. 21, 2012 2:12 PM EDT | Posted in Global| 10 Comments

Lechner, F. and Boli, J. (2011). The Globalization Reader, Fourth Edition. Wiley-Blackwell, Chichester, England.

50

business climate and international expectations as it - itself

- turns into an economic power of consequence ?

Table 1

Ranking of Israel and India as Possible Location for

Offshoring Activities

Source: Website - www.globalproduction.com

IsraelIndiaItemRankScoreRankScoreLabor

Costs18$6.702$0.81/hourSkill-

base3.758*23.125*Infrastructure6.768*23.000*

* scores out of a possible 1.0.

51

Endnotes

References

Blunden, B. (2004). Offshoring IT: The Good, the Bad and the Ugly.

Apress, Berkeley, CA.

Table 2

R&D Expenditures: An International Comparison

Source: Business Week, October 11, 2004 and OECD reports

CountryR&D Spending as percent of GDPIsrael

4.7South Korea 2.9United States2.4OECD 2.2Ireland1.4India1%

52

: The IT; United States Government Accounting Office,

International Trade

Diagram 1

Map of the world with the division of

Offshoring activities

Business Week, February 3, 2003

53

54

Diagram 2

Offshore Opportunities

Taken from "Offshoring: Is It a Win-Win Game? - McKinsey

Global Institute

55

56