Begorra, It's the Hora

Former finance minister Benjamin Netanyahu often pointed to Ireland as a model for economic success. "Ironically, countries that are smaller than ours have run up the hill, climbing like panthers to reach the top," Netanyahu said in April. "One of these is Ireland, which has the third highest per-capita income in the world."

After years of poverty and the resulting hemorrhaging of citizens to brighter shores, the Irish government began taking steps to reduce inflation and taxes in the past decade, while improving the quality of the labor force and attracting foreign investment at the same time. Unemployment dropped from 18 percent in the late 1980s to 4.5 percent in 2004, and per-capita GDP exceeded $30,000, almost double that of Israel.

The Irish economic miracle may have a number of components that no Israeli government would rush to implement, such as a multi-year social pact with the labor unions, relinquishment of an independent currency, and early adoption of the euro, but no end is in sight for the chorus of hallelujahs voiced by Israeli politicians for Ireland.

Surprisingly, the Irish seem to think they could take a page from the Israeli playbook.

"An Irish software company invited me six months ago to give a lecture at an annual conference about the reasons for Israeli high-tech success," relates Sol Gradman, chairman of the High-Tech CEO Forum, who has a different, less enthusiastic take on Ireland's success.

"I was surprised," he continues. "Bibi [Netanyahu] always brings up Ireland as a model, and here they want me to tell them about Israel's success."

Attracted by Ireland's membership in the European Union, low wages, an English-speaking workforce, government grants, and low corporate taxes, international companies such as Dell, Intel and Microsoft have established offices and plants there.

Gradman describes the surprising discoveries he made while researching the Irish market in preparation for his visit.

"Ireland annually exports $14 billion in software," Gradman says. "Israel's annual software exports amount to less than $4 billion. But what did I find? The overwhelming majority [of the Irish exports] come from American companies that develop software in the United States. The products are distributed from Ireland, which serves as a bridge to the rest of Europe, and that's why they're considered Irish exports. All the Dell computers sold in Europe are marketed via Ireland, which in effect is a logistics center with no added value or technological innovation," he says.

Gradman brings up another surprising fact. "In all of Ireland, only five local software companies sell more than $20 million. The numbers are surprising. The Irish want to know how we in Israel managed to create a local industry based on development and innovation. Their success is based on a low corporate tax rate, of 12.5 percent, and cheap labor, but that could change, since Eastern Europe now is becoming attractive," Gradman warns.

"For that reason, it's not necessarily correct to look at Ireland and say `let's do the same thing.' At the end of the day, Ireland isn't necessarily the right model. They have attracted investment and the country is thriving, and I'll tip my hat to them for that. But it's not based on local entrepreneurship, and the advantages can melt away fairly easily," Gradman says, adding that Israeli high-tech is based on elements that are hard to take away from us. "There's a greater readiness to take risks, an entrepreneurial character, the army is a fertile ground for invention, and the proportion of engineers in the population is among the highest in the world," he says.

Gradman has more than 20 years' experience in high-tech, including at Optrotech (which later merged with Orbot into Orbotech), Netexpress and Monterey Design Systems Israel.

The forum's board includes the CEOs of international firms such as HP, Intel and Microsoft, as well as of local high-tech companies, venture capital managers and other industry insiders. Gradman notes that every event held by the group draws between 70 and 150 participants, with more than 100 companies registered with the forum. Monthly meetings deal with issues such as whether companies are better off being bought out or going public, or how to complete a merger successfully.

At one meeting, participants discussed how to compete against cheap labor in the East. "The CEO of Matrix, Mordechai Gutman, spoke about hiring ultra-Orthodox women as a cheap, local labor force. A representative of a Matrix competitor, Ness, described the advantages and disadvantages of his company's activities in India," Gradman says.

Gradman believes that Israeli companies still have a lot to learn about marketing and management, pointing to Comverse, Amdocs and Teva as success stories, but noting that local firms have been much more successful at selling themselves to foreign companies than at raising money on the stock market.