Israeli tech firms are coming back home

Many an Israeli technology company found its road to profit passing through the East in the last decade. They hired where labor was cheap, mainly India, but also Eastern Europe and China. Now the tide has turned. Many are bringing their business back home.

In the last year, several Israeli companies brought jobs back home. Others, such as Comverse, DSP Group and BigBand, focused their firing on foreign workers, leaving Israeli staffers on salary. The three firms fired people in Ukraine, Romania, India and China but kept their Israeli staff intact and sometimes hired Israelis to replace those who were laid off overseas.

For one thing, "low-cost labor" has become less so. "The relative edge of Eastern Europe and India is disappearing," says Baruch Gindin, manager of the consultancy Gartner Israel.

The cost of doing jobs in Romania or Poland has become just as expensive as in Israel, he says. Costs of labor in Ukraine and Bulgaria remain relatively low, but the gap is narrowing, Gindin says.

As the local industries improve, they become costlier to employ, agrees Gideon Lopez of research company IDC Israel. "It no longer pays to employ workers in India to do relatively simple tasks."

Some Israeli managements are concerned about political instability, others fret over currency fluctuations. The combination of factors can be reason enough to repatriate, says Sachi Gerlitz of software giant Ness Technologies, which operates around the world.

Israeli high-tech companies either set up their own "offshore" R&D centers or operated through manpower brokers. Both models reduced costs, which was crucial to Israel's fast-growing technology industry, says Gerlitz. Also, some of the companies like Amdocs and Ness already had operations in the other countries. But the global economic crisis, coupled with rising manpower costs abroad, has reversed the trend.