Israeli High-tech Is Maturing, Study Finds

Trend is reflected in larger firms with more funding, creating jobs; but observers warn of impending shortage of skilled personnel.

An employee works at a laptop computer at the Jerusalem Venture Partners JVP Media Labs in Jerusalem.
Rina Castelnuovo/Bloomberg

One of the main trends in the Israeli high-tech sector is that local companies are attracting more financing and in the process are growing in size, a study conducted by the business information firm Dun & Bradstreet obtained by TheMarker has found. In the process, they are creating more value and are stepping up the scope of their operations.

The particularly good news for Israel is that they are also creating jobs at a substantial pace. Home-grown Israeli firms are also less tempted to sell themselves to much larger companies, generally from overseas, at an early stage, as had been a notable trend in the past.

Last year there were 386 “large” high-tech companies – those with 100 or more employees – operating in the country, a 6% increase over 2015. The growth in the number of large firms has been consistent, at about 4%, since 2010.

All told, D&B reported that there are about 6,650 high-tech firms in Israel, 4,750 of which are startups in various stages of development. More than three-quarters of all of the high-tech firms raised capital from an outside source – from venture capital funds, angel investors or the government, for example – at least once since their founding.

The D&B survey included Israeli-based firms as well as multinationals, but not the research and development centers belonging to global firms such as Apple or eBay.

In another sign of the maturing state of Israeli high-tech, the study found that a growing number of experienced business entrepreneurs are involved in the sector. In 2010, just 16% of high-tech entrepreneurs in the country had established and managed startups on at least two occasions. Last year the figure rose to 27%.

“The contribution of entrepreneurs’ experience to the development of high-tech sectors in Israel is decisive,” Tzah Berki, VP Data and Research and Chief Economist at D&B, wrote in the report. “Experienced entrepreneurs build companies for the longer term. They increase the prospect of [the companies’] survival, of financing of larger scope,” he noted. “There are now more experienced entrepreneurs with independent sources [of funding] who are capable of building more maturing companies.”

An essential component in spurring the growth of the Israel’s high-tech sector is the presence of universities, investors and available manpower to provide the companies access to staff, suppliers and professional information. The undisputed capital of Israeli high-tech is Tel Aviv, the survey found, with 28% of the companies (as measured by the company’s head office). The ranking was not based on the number of employees but the number of companies, it should be noted.

Next in ranking, but a considerable distance behind, is the Tel Aviv suburb Herzliya, at 7%, followed by Jerusalem at 5%, and Haifa and the Tel Aviv suburbs of Ramat Gan and Petah Tikva with 4% each. The Tel Aviv-area suburbs of Ra’anana and Netanya had 3% each, followed by other suburbs, Kfar Sava and Rehovot at 2% each. Be’er Sheva, Nazareth and other locales each had fewer than 1% of the total.

Of the large high-tech firms around the country – those with 100 or more employees – 21% are engaged in software and information technology, the largest of which is the multinational firm NCR. Another 16% are in businesses related to the internet, the largest of which are Playtika, Matomy and Taboola. A similar percentage focuses on communications and life sciences. The latter firms include Teva Pharmaceutical Industries, the world’s largest generic drug company, but also Taro, Frutarom, Perrigo and Dexcel.

The study contained a warning over the shortage of skilled personnel in the high-tech sector, particularly in the internet and software fields, due to a sharp drop in the number of Israeli graduates in computer sciences, math and statistics over the past decade.

Nevertheless, the Central Bureau of Statistics reported that as of October 2016, fully 8.5% of all salaried employees in Israel – about 292,000 people – worked in the high-tech sector. And on an annual basis the sector is generating an average of about 9,000 new jobs. The figure could even be higher if more skilled personnel were available.